-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JTeCci94ts8w3bX+XApmcL2zySAYm8RhX+h19V8C6if7PivXu4qbu1/+lFclyicC SyARuJIRsKMMQZ1xkUrJ0w== 0000936772-06-000059.txt : 20060308 0000936772-06-000059.hdr.sgml : 20060308 20060307181126 ACCESSION NUMBER: 0000936772-06-000059 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060308 DATE AS OF CHANGE: 20060307 EFFECTIVENESS DATE: 20060308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND INC CENTRAL INDEX KEY: 0000825316 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05398 FILM NUMBER: 06671174 BUSINESS ADDRESS: STREET 1: 500 PLAZA DRIVE STREET 2: 1345 AVENUE OF THE AMERICAS 31ST FL CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2013194105 MAIL ADDRESS: STREET 1: ALLIANCE CAPITAL MANGEMENT LP STREET 2: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 0000825316 S000010427 AllianceBernstein Americas Government Income Portfolio C000028820 Class A C000028821 Class B 0000825316 S000010428 AllianceBernstein High Yield Portfolio C000028822 Class A C000028823 Class B 0000825316 S000010429 AllianceBernstein International Growth Portfolio C000028824 Class A C000028825 Class B 0000825316 S000010430 AllianceBernstein International Research Growth Portfolio C000028826 Class A C000028827 Class B 0000825316 S000010431 AllianceBernstein International Value Portfolio C000028828 Class A C000028829 Class B 0000825316 S000010432 AllianceBernstein Large Cap Growth Portfolio C000028830 Class A C000028831 Class B 0000825316 S000010433 AllianceBernstein Money Market Portfolio C000028832 Class A C000028833 Class B 0000825316 S000010434 AllianceBernstein Real Estate Investment Portfolio C000028834 Class A C000028835 Class B 0000825316 S000010435 AllianceBernstein Small Cap Growth Portfolio C000028836 Class A C000028837 Class B 0000825316 S000010436 AllianceBernstein Small/Mid Cap Value Portfolio C000028838 Class A C000028839 Class B 0000825316 S000010437 AllianceBernstein U.S. Government/High Grade Securities Portfolio C000028840 Class A C000028841 Class B 0000825316 S000010438 AllianceBernstein Balanced Shares Portfolio C000028842 Class A C000028843 Class B 0000825316 S000010439 AllianceBernstein U.S. Large Cap Blended Style Portfolio C000028844 Class A C000028845 Class B 0000825316 S000010440 AllianceBernstein Utility Income Portfolio C000028846 Class A C000028847 Class B 0000825316 S000010441 AllianceBernstein Value Portfolio C000028848 Class A C000028849 Class B 0000825316 S000010442 AllianceBernstein Wealth Appreciation Strategy Portfolio C000028850 Class A C000028851 Class B 0000825316 S000010443 AllianceBernstein Balanced Wealth Strategy Portfolio C000028852 Class A C000028853 Class B 0000825316 S000010444 AllianceBernstein Global Bond Portfolio C000028854 Class A C000028855 Class B 0000825316 S000010445 AllianceBernstein Global Dollar Government Portfolio C000028856 Class A C000028857 Class B 0000825316 S000010446 AllianceBernstein Global Research Growth Portfolio C000028858 Class A C000028859 Class B 0000825316 S000010447 AllianceBernstein Global Technology Portfolio C000028860 Class A C000028861 Class B 0000825316 S000010448 AllianceBernstein Growth and Income Portfolio C000028862 Class A C000028863 Class B 0000825316 S000010449 AllianceBernstein Growth Portfolio C000028864 Class A C000028865 Class B N-CSR 1 edg11630_ar.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05398 ALLIANCEBERNSTEIN 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 offices) (Zip code) Mark R. Manley Alliance Capital Management L.P. 1345 Avenue of the Americas New York, New York 10105 (Name and address of agent for service) Registrant's telephone number, including area code: (800) 221-5672 Date of fiscal year end: December 31, 2005 Date of reporting period: December 31, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ANNUAL REPORT - -------------------------------------------------------------------------------- AllianceBernstein Variable Products Series Fund, Inc. ---------------------------- Annual Report December 31, 2005 ---------------------------- > AllianceBernstein Total Return Portfolio Investment Products Offered ----------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ----------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. TOTAL RETURN PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- LETTER TO INVESTORS February 10, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Total Return Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. On February 1, 2006, the Portfolio's name was changed to Balanced Shares. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks to achieve a high return through a combination of current income and capital appreciation. As of February 1, 2006, the Portfolio's investment objective is total return consistent with reasonable risk through a combination of income and long-term growth of capital. The Portfolio primarily invests in U.S. government and agency obligations, bonds, fixed-income senior securities (including short- and long-term debt securities and preferred stocks to the extent their value is attributable to their fixed-income characteristics) and common stocks. INVESTMENT RESULTS The table on page 4 shows the performance for the Portfolio and its composite benchmark, a 60%/40% blend of the Russell 1000 Value Index and the Lehman Brothers (LB) Government/Credit Index for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio modestly underperformed its composite benchmark. An emphasis on large-cap, high quality stocks and an overweight position in consumer services stocks contributed to the Portfolio's underperformance on the equity side during the 12-month period under review. In addition, an emphasis on large-cap, high quality stocks with high return on equity (ROE) and attractive growth expectations hindered performance, as smaller capitalization and lower-quality stocks continued to be market leaders during the periods under review. On the fixed-income side of the Portfolio's investment portfolio, fixed-income investments outperformed with duration and duration structure being the largest contributors. Corporate security selection and sector allocation overall added only marginally to returns. Compromising performance was the Portfolio's underweight position in the U.S. government agency sector, which performed better-than-expected due to substantial foreign buying by non-valuation based investors. The Portfolio remained underweight duration to varying degrees throughout the 12-month period under review. Of note, as the 12-month period progressed, the Portfolio's underweight duration structure became more concentrated in the one- to five-year duration bucket. This proved very effective as the yield curve pivoted around the 10-year part of the curve, with most of the yield rise coming inside of five years. MARKET REVIEW AND INVESTMENT STRATEGY Although rising oil prices and higher interest rates are a concern to most investors, corporate profitability and cash flow continue to be better-than-expected. Despite the devastation and dislocation caused by several storms in late summer of 2005, economic growth has continued to be strong and inflation continues to be well-behaved. The rally in smaller-cap value stocks since 2000 has been so strong that larger-cap higher quality growth stocks now look extremely attractive from a relative valuation perspective. The Portfolio's equity portfolio is heavily invested in such companies in order to capture this valuation anomaly. The Portfolio's top holdings are dominant industry players that have high returns on equity and are exhibiting strong earnings growth. The debt markets were distinguished by a sharp flattening of the government yield curve as the yield spread between three-month Treasury bills and 30-year government bonds went from about 278 basis points to 76 basis points. The flattening was driven by the U.S. Federal Reserve's move (the "Fed") to remove excess liquidity by lifting the Federal funds rate 200 basis points through the end of November 2005. The flattening of the yield curve was not unexpected, but the degree of flattening and the manner by which the curve flattened was very unusual. Generally, in the early stages of a monetary policy cycle, short rates and long rates rise in tandem, with short rates rising faster. This time, rates longer than 10 years actually fell as long-term inflation expectations remained subdued, and foreign demand for U.S. debt remained surprisingly robust. The Portfolio's management team (the "Team") maintained the Portfolio's underweight duration throughout the reporting period and improved the structure of the Portfolio's duration short by concentrating in the short-end of the yield curve. The other notable feature of the debt markets was the historically low dispersion of returns inter- and intra-sector. Valuations started and ended the period at historically rich levels across all primary market sectors. Accordingly, there was limited opportunity to add value through sector rotation. In the corporate sector, avoiding negative credit events was a primary focus. As is to be expected as the credit and economic cycle matures, a small number of companies releveraged their balance sheets through leveraged buyouts, mergers & acquisi- 1 TOTAL RETURN PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- tions, or leveraged recaps. The return impact of these negative credit events was meaningful in a low return environment. The Team experienced a few of these hard-to-forecast events, but fortunately avoided most of them through credit research and risk budgeting. As the risk of releveraging (e.g., leveraged buyouts, mergers & acquisitions, leveraged recaps) increased throughout the past year, the Team moved the Portfolio from a market weight to underweight exposure in credit, maintaining diversification, and avoiding large exposures to single names in the industrial space, which is more prone to releveraging events than financials, utilities, or real estate investment trusts. 2 TOTAL RETURN PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure Neither the Russell 1000 Value Index nor the Lehman Brothers Government/Credit Index reflects fees and expenses associated with the active management of a mutual fund portfolio. The unmanaged Russell 1000 Value Index is comprised of 1000 of the largest capitalized companies that are traded in the United States. The unmanaged Lehman Brothers (LB) Government/Credit Index is a broad measure of the performance of intermediate (one- to 10-year) government and corporate fixed-rate debt issues. The composite benchmark represents a 60%/40% blend of the Russell 1000 Value Index and the LB Government/Credit Index, respectively. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Total Return Portfolio. A Word About Risk Price fluctuation in the Portfolio's securities may be caused by changes in the general level of interest rates or changes in bond credit quality ratings. Changes in interest rates have a greater effect on bonds with longer maturities than on those with shorter maturities. Investments in the Portfolio are not guaranteed because of fluctuation in the net asset value for the underlying fixed-income related investments. Similar to direct bond ownership, bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the Portfolio. Portfolio purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. While the Portfolio invests principally in bonds and other fixed-income securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as covered call options and forward commitments. Also, at the discretion of the Investment Manager, the Portfolio can invest up to 10% of its total assets in illiquid securities or make loans of portfolio securities of up to 30% of its total assets. These financial instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. - -------------------------------------------------------------------------------- (Historical Performance continued on next page) 3 TOTAL RETURN PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- --------------------------- Returns THE PORTFOLIO VS. ITS BENCHMARK --------------------------- PERIODS ENDED DECEMBER 31, 2005 1 Year 5 Years 10 Years - ------------------------------------------------------------------------------ AllianceBernstein Total Return Portfolio Class A 3.91% 4.29% 9.21% - ------------------------------------------------------------------------------ AllianceBernstein Total Return Portfolio Class B 3.61% 4.46%* - ------------------------------------------------------------------------------ Russell 1000 Value Index 7.05% 5.28% 10.94% - ------------------------------------------------------------------------------ Lehman Brothers Government/Credit Index 2.37% 6.11% 6.17% - ------------------------------------------------------------------------------ Composite: 60% Russell 1000 Value Index / 40% Lehman Brothers Government/Credit Index 5.18% 5.61% 9.03% - ------------------------------------------------------------------------------ * Since inception of the Portfolio's Class B shares on 10/26/01. ALLIANCEBERNSTEIN TOTAL RETURN PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95 - 12/31/05 Russell 1000 Value Index: $28,247 Composite: 60%/40% Russell 1000 Value Index/LB Government/Credit Index: $24,385 AllianceBernstein Total Return Portfolio Class A: $24,135 Lehman Brothers Government/Credit Index: $18,201 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.]
Composite: 60%/40% Russell 1000 AllianceBernstein Value Index/LB Total Return Government Russell 1000 Lehman Brothers Portfolio Class A Credit Index Value Index Government/Credit Index - ---------------------------------------------------------------------------------------- 12/31/1995 $10,000 $10,000 $10,000 $10,000 12/31/1996 $11,517 $11,415 $12,164 $10,290 12/31/1997 $13,948 $14,269 $16,443 $11,294 12/31/1998 $16,318 $16,148 $19,013 $12,364 12/31/1999 $17,384 $16,722 $20,411 $12,099 12/31/2000 $19,560 $18,218 $21,842 $13,532 12/31/2001 $20,004 $18,226 $20,621 $14,683 12/31/2002 $17,888 $17,334 $17,420 $16,304 12/31/2003 $21,295 $20,780 $22,652 $17,065 12/31/2004 $23,227 $23,185 $26,387 $17,780 12/31/2005 $24,135 $24,385 $28,247 $18,201
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Total Return Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's composite benchmark, a 60%/40% blend of the Russell 1000 Value Index and the Lehman Brothers (LB) Government/Credit Index, respectively, as well as the individual indices alone. The chart assumes the reinvestment of dividends and capital gains. - -------------------------------------------------------------------------------- See Historical Performance and Benchmark disclosures on previous page. 4 TOTAL RETURN PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Account Value Account Value Expenses Paid Annualized VARP Total Return Port July 1, 2005 December 31, 2005 During Period* Expense Ratio* - ------------------------------ ------------- ----------------- -------------- -------------- Class A Actual ....................... $ 1,000 $ 1,030.64 $ 3.63 0.71% Hypothetical (5% return before expenses) .................. $ 1,000 $ 1,021.63 $ 3.62 0.71% Class B Actual ....................... $ 1,000 $ 1,028.62 $ 4.91 0.96% Hypothetical (5% return before expenses) .................. $ 1,000 $ 1,020.37 $ 4.89 0.96%
- -------------------------------------------------------------------------------- * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 5 TOTAL RETURN PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------------------------- U.S. Treasury Notes $ 29,572,200 13.4% U.S. Treasury Bonds 7,360,982 3.3 Federal National Mortgage Assoc. (Bonds & Common Stock) 6,510,026 2.9 Citigroup, Inc. 6,318,606 2.9 General Electric Co. 6,309,000 2.9 American International Group, Inc. 5,594,860 2.5 Time Warner, Inc. (Bonds & Common Stock) 4,898,224 2.2 The Home Depot, Inc. 4,647,104 2.1 JPMorgan Chase & Co. 4,533,392 2.1 Microsoft Corp. 3,917,270 1.8 ------------- ---- $ 79,661,664 36.1% - -------------------------------------------------------------------------------------------------
SECTOR DIVERSIFICATION December 31, 2005 - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------- SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------------------------- Finance $ 47,156,299 21.4% U.S. Government & Government Sponsored Agency Obligations 39,406,621 17.9 Consumer Services 23,112,080 10.5 Energy 15,247,864 6.9 Technology 14,650,241 6.6 Capital Goods 13,378,370 6.1 Health Care 10,966,331 5.0 Utilities 10,888,494 4.9 Consumer Staples 10,727,233 4.9 Commercial Mortgage Backed Securities 10,704,147 4.8 Basic Industry 6,020,274 2.7 Transportation 4,326,529 2.0 Industrials 2,038,411 0.9 Consumer Manufacturing 1,999,640 0.9 Sovereign Debt Obligations 950,854 0.4 Municipal Obligation 429,560 0.2 Conglomerate/Miscellaneous 370,012 0.2 Aerospace & Defense 197,982 0.1 ------------- ----- Total Investments* 212,570,942 96.4 Cash and receivables, net of liabilities 7,926,558 3.6 ------------- ----- Net Assets $ 220,497,500 100.0% - -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 6 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - ----------------------------------------------------------------------------- COMMON STOCKS-60.1% FINANCE-15.9% BANKING-MONEY CENTER-3.5% JPMorgan Chase & Co. ....................... 114,220 $ 4,533,392 The Goldman Sachs Group, Inc. .............. 11,600 1,481,436 Wachovia Corp. ............................. 30,700 1,622,802 -------------- 7,637,630 -------------- BANKING-REGIONAL-2.0% Bank of America Corp. ...................... 82,000 3,784,300 Northern Trust Corp. ....................... 12,900 668,478 -------------- 4,452,778 -------------- BROKERAGE & MONEY MANAGEMENT-0.9% Merrill Lynch & Co., Inc. .................. 30,800 2,086,084 -------------- INSURANCE-4.8% ACE Ltd. (Cayman Islands) .................. 61,300 3,275,872 American International Group, Inc. ........ 82,000 5,594,860 Axis Capital Holdings Ltd. (Bermuda) ....... 52,700 1,648,456 -------------- 10,519,188 -------------- MORTGAGE BANKING-1.8% Fannie Mae ................................. 82,700 4,036,587 -------------- MISCELLANEOUS-2.9% Citigroup, Inc. ............................ 130,200 6,318,606 -------------- 35,050,873 -------------- CONSUMER SERVICES-9.6% BROADCASTING & CABLE-5.5% Comcast Corp. Cl. A (a) .................... 44,950 1,166,902 Comcast Corp. Special Cl. A (a) ............ 21,200 544,628 News Corp. Cl. A ........................... 171,300 2,663,715 Time Warner, Inc. .......................... 228,400 3,983,296 Viacom, Inc. Cl. B ......................... 98,000 3,194,800 Westwood One, Inc. ......................... 32,200 524,860 -------------- 12,078,201 -------------- ENTERTAINMENT & LEISURE-0.9% Carnival Corp. (Panama) .................... 25,200 1,347,444 Royal Caribbean Cruises Ltd. ............... 15,500 698,430 -------------- 2,045,874 -------------- RESTURANT & LODGING-0.8% McDonald's Corp. ........................... 52,600 1,773,672 -------------- Company Shares U.S. $ Value - ----------------------------------------------------------------------------- RETAIL-GENERAL MERCHANDISE-2.4% Lowe's Cos., Inc. .......................... 9,900 $ 659,934 The Home Depot, Inc. ....................... 114,800 4,647,104 -------------- 5,307,038 -------------- 21,204,785 -------------- ENERGY-6.2% DOMESTIC PRODUCERS-0.9% Noble Energy, Inc. ......................... 46,600 1,877,980 -------------- INTERNATIONAL-2.3% Chevron Corp. .............................. 45,500 2,583,035 Exxon Mobil Corp. .......................... 46,300 2,600,671 -------------- 5,183,706 -------------- OIL SERVICE-1.9% Baker Hughes, Inc. ......................... 37,900 2,303,562 Nabors Industries Ltd. (Bermuda) (a) ....... 25,300 1,916,475 -------------- 4,220,037 -------------- MISCELLANEOUS-1.1% ConocoPhillips ............................. 42,300 2,461,014 -------------- 13,742,737 -------------- CAPITAL GOODS-6.1% ELECTRICAL EQUIPMENT-1.0% Emerson Electric Co. ....................... 28,700 2,143,890 -------------- MACHINERY-0.3% Ingersoll-Rand Co. Cl. A (Bermuda) ......... 17,400 702,438 -------------- MISCELLANEOUS-4.8% General Electric Co. ....................... 180,000 6,309,000 Illinois Tool Works, Inc. .................. 7,900 695,121 United Technologies Corp. .................. 63,100 3,527,921 -------------- 10,532,042 -------------- 13,378,370 -------------- TECHNOLOGY-5.6% COMMUNICATION EQUIPMENT-0.2% Juniper Networks, Inc. (a) ................. 23,500 524,050 -------------- COMPUTER HARDWARE/STORAGE-1.5% EMC Corp. (a) .............................. 50,000 681,000 International Business Machines Corp. (IBM) 30,800 2,531,760 -------------- 3,212,760 -------------- COMPUTER SERVICES-0.7% Fiserv, Inc. (a) ........................... 34,300 1,484,161 -------------- 7 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - ----------------------------------------------------------------------------- SEMI-CONDUCTOR COMPONENTS-0.3% Texas Instruments, Inc. .................... 24,200 $ 776,094 -------------- SOFTWARE-2.9% McAfee, Inc. (a) ........................... 13,600 368,968 Microsoft Corp. ............................ 149,800 3,917,270 Oracle Corp. (a) ........................... 174,600 2,131,866 -------------- 6,418,104 -------------- 12,415,169 -------------- HEALTH CARE-4.7% DRUGS-1.3% Forest Laboratories, Inc. (a) .............. 9,900 402,732 Lilly Eli & Co. ............................ 29,000 1,641,110 Pfizer, Inc. ............................... 33,900 790,548 -------------- 2,834,390 -------------- MEDICAL PRODUCTS-1.1% Boston Scientific Corp. (a) ................ 61,900 1,515,931 Zimmer Holdings, Inc. (a) .................. 12,900 869,976 -------------- 2,385,907 -------------- MEDICAL SERVICES-2.3% Health Management Associates, Inc. ......... 29,000 636,840 UnitedHealth Group, Inc. ................... 11,800 733,252 WellPoint, Inc. (a) ........................ 47,600 3,798,004 -------------- 5,168,096 -------------- 10,388,393 -------------- CONSUMER STAPLES-4.2% COSMETICS-0.3% Avon Products, Inc. ........................ 25,580 730,309 -------------- HOUSEHOLD PRODUCTS-1.7% Colgate-Palmolive Co. ...................... 27,100 1,486,435 The Procter & Gamble Co. ................... 38,100 2,205,228 -------------- 3,691,663 -------------- TOBACCO-1.6% Altria Group, Inc. ......................... 35,700 2,667,504 Reynolds American, Inc. .................... 9,800 934,234 -------------- 3,601,738 -------------- MISCELLANEOUS-0.6% Fortune Brands, Inc. ....................... 15,400 1,201,508 -------------- 9,225,218 -------------- UTILITIES-3.0% ELECTRIC & GAS UTILITY-0.5% FirstEnergy Corp. .......................... 22,500 1,102,275 -------------- Shares or Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- TELEPHONE UTILITY-2.5% AT&T Inc. .................................. 104,600 $ 2,561,654 BellSouth Corp. ............................ 51,100 1,384,810 Verizon Communications, Inc. ............... 55,200 1,662,624 -------------- 5,609,088 -------------- 6,711,363 -------------- BASIC INDUSTRY-2.4% CHEMICALS-2.1% Air Products & Chemicals, Inc. ............. 57,000 3,373,830 E.I. du Pont de Nemours & Co. .............. 15,900 675,750 Rohm & Haas Corp. .......................... 11,800 571,356 -------------- 4,620,936 -------------- MINING & METALS-0.3% Alcoa, Inc. ................................ 21,000 620,970 -------------- 5,241,906 -------------- TRANSPORTATION-1.8% AIR FREIGHT-1.1% United Parcel Service, Inc. ................ 32,400 2,434,860 -------------- RAILROAD-0.7% Union Pacific Corp. ........................ 18,900 1,521,639 -------------- 3,956,499 -------------- CONSUMER MANUFACTURING-0.6% BUILDING & RELATED-0.6% American Standard Cos., Inc. ............... 25,100 1,002,745 Pulte Homes, Inc. .......................... 6,500 255,840 -------------- 1,258,585 -------------- Total Common Stocks (cost $114,916,066) .... 132,573,898 -------------- U.S. GOVERNMENT & GOVERNMENT SPONSORED AGENCY OBLIGATIONS-17.9% Federal National Mortgage Assoc. 5.00%, 4/15/15 .......................... $ 150 152,262 6.625%, 10/15/07 ........................ 2,250 2,321,177 U.S. Treasury Bonds 4.25%, 8/15/15 .......................... 100 98,707 5.375%, 2/15/31 ......................... 4,795 5,386,133 6.875%, 8/15/25 ......................... 250 321,953 8.125%, 8/15/21 ......................... 35 48,564 11.25%, 2/15/15 ......................... 1,000 1,505,625 U.S. Treasury Notes 1.625%, 1/15/15 (TIPS) .................. 516 496,759 3.00%, 11/15/07-2/15/09 ................. 2,680 2,594,834 3.125%, 4/15/09 ......................... 950 913,929 8 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- 3.625%, 5/15/13 ......................... $ 2,370 $ 2,260,480 3.875%, 5/15/10 ......................... 150 147,158 4.00%, 11/15/12 ......................... 1,180 1,154,603 4.125%, 5/15/15 ......................... 1,309 1,280,315 4.25%, 8/15/13-8/15/14 .................. 3,985 3,942,976 4.625%, 5/15/06 ......................... 5,125 5,130,208 5.00%, 2/15/11 .......................... 785 808,519 5.625%, 5/15/08 ......................... 2,165 2,224,031 5.75%, 8/15/10 .......................... 965 1,020,902 6.00%, 8/15/09 .......................... 30 31,617 6.125%, 8/15/07 ......................... 100 102,648 6.25%, 2/15/07 .......................... 4,600 4,688,408 6.875%, 5/15/06 ......................... 2,750 2,774,813 -------------- Total U.S. Government & Government Sponsored Agency Obligations (cost $39,182,368) .......... 39,406,621 -------------- CORPORATE DEBT OBLIGATIONS-12.7% AEROSPACE/DEFENSE-0.1% Raytheon Co. 4.85%, 1/15/11 .......................... 200 197,982 -------------- AUTOMOTIVE-0.6% DaimlerChrysler NA Holding Corp. 4.875%, 6/15/10 ......................... 675 659,061 Ford Motor Credit Co. 4.95%, 1/15/08 .......................... 750 671,996 7.875%, 6/15/10 ......................... 100 89,989 -------------- 1,421,046 -------------- BANKING-2.4% ABN AMRO NA Holdings 6.523%, 12/29/49 (b)(c) ................. 250 266,247 Barclays Bank Plc 8.55%, 9/29/49 (b)(c) ................... 50 57,684 Chuo Mitsui Trust & Banking Co., Ltd. (Japan) 5.506%, 12/15/49 (b)(c) ................. 300 290,704 Development Bank of Singapore 7.125%, 5/15/11 (c) ..................... 365 398,063 Dresdner Funding Trust I 8.151%, 6/30/31 (c) ..................... 295 362,698 Fuji JGB Investment pfd. Mizuho 9.87%, 12/29/49 (b)(c) .................. 500 552,971 HBOS Plc (United Kingdom) 5.375%, 11/29/49 (b)(c) ................. 250 249,521 HSBC Bank USA 5.875%, 11/01/34 ........................ 560 565,008 Northern Rock Plc (United Kingdom) 5.60%, 4/30/49 (b)(c) ................... 445 447,486 Regency Centers LP 5.25%, 8/01/15 .......................... 300 294,514 Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- Royal Bank of Scotland Group Plc (United Kingdom) 7.648%, 8/29/49 (b) ..................... $ 250 $ 301,920 Sanwa Bank Ltd. 7.40%, 6/15/11 .......................... 200 220,848 SB Treasury Company LLC 9.40%, 12/29/49 (b)(c) .................. 417 456,667 Sovereign Bancorp, Inc. 4.80%, 9/01/10 (c) ...................... 200 196,013 Sumitomo Mitsui Banking Corp. 5.625%, 7/15/49 (b)(c) .................. 135 134,495 UBS Preferred Funding Trust II 7.247%, 6/26/49 (b) ..................... 250 274,285 UFJ Finance Aruba AEC 6.75%, 7/15/13 .......................... 200 218,373 -------------- 5,287,497 -------------- BROADCASTING/MEDIA-0.7% BSKYB Finance UK Plc 5.625%, 10/15/15 (c) .................... 120 119,445 News America Holdings 8.25%, 10/17/96 ......................... 60 70,683 9.25%, 2/01/13 .......................... 100 121,453 News America, Inc. 5.30%, 12/15/14 ......................... 100 99,251 Time Warner, Inc. 6.875%, 5/01/12 ......................... 425 452,404 8.375%, 3/15/23 ......................... 400 462,524 WPP Finance UK Corp. 5.875%, 6/15/14 ......................... 250 253,727 -------------- 1,579,487 -------------- BUILDING/REAL ESTATE-0.3% CRH America, Inc. 6.95%, 3/15/12 .......................... 250 272,007 EOP Operating LP 7.875%, 7/15/31 ......................... 200 236,005 8.375%, 3/15/06 ......................... 35 35,240 iStar Financial, Inc. 5.70%, 3/01/14 .......................... 200 197,803 -------------- 741,055 -------------- CABLE-0.2% British Sky Broadcasting Plc (United Kingdom) 8.20%, 7/15/09 .......................... 100 109,295 Continental Cablevision, Inc. 9.00%, 9/01/08 .......................... 200 218,513 -------------- 327,808 -------------- CHEMICALS-0.2% Eastman Chemical 7.25%, 1/15/24 .......................... 175 193,762 Lubrizol Corp. 5.50%, 10/01/14 ......................... 275 275,731 -------------- 469,493 -------------- 9 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- COMMUNICATIONS-0.4% AT&T Corp. 9.05%, 11/15/11 ......................... $ 250 $ 276,706 GTE Northwest, Inc. Series D 5.55%, 10/15/08 ......................... 200 198,932 Sprint Capital Corp. 6.875%, 11/15/28 ........................ 450 491,710 -------------- 967,348 -------------- COMMUNICATIONS - MOBILE-0.4% AT&T Wireless Services, Inc. 8.75%, 3/01/31 .......................... 325 430,565 Nextel Communications, Inc. 5.95%, 3/15/14 .......................... 290 291,519 TELUS Corp. (Canada) 7.50%, 6/01/07 .......................... 100 103,264 8.00%, 6/01/11 .......................... 100 112,106 -------------- 937,454 -------------- CONGLOMERATE/MISCELLANEOUS-0.2% Cendant Corp. 6.25%, 1/15/08 .......................... 250 254,508 Hutchison Whampoa International Ltd. (Cayman Island) 7.45%, 11/24/33 (c) ..................... 100 115,504 -------------- 370,012 -------------- CONTAINERS-0.1% Packaging Corp. of America 4.375%, 8/01/08 ......................... 200 195,625 -------------- ENERGY-0.6% Amerada Hess Corp. 7.30%, 8/15/31 .......................... 350 405,049 Devon Financing Corp. 7.875%, 9/30/31 ......................... 300 381,210 Enterprise Products Operating LP Series D 5.60%, 10/15/14 ......................... 150 149,883 Valero Energy Corp. 4.75%, 6/15/13 .......................... 300 291,183 XTO Energy, Inc. 7.50%, 4/15/12 .......................... 100 111,857 -------------- 1,339,182 -------------- FINANCIAL-1.9% Capital One Bank 6.50%, 6/13/13 .......................... 400 424,975 Countrywide Home Loan, Inc. 4.25%, 12/19/07 ......................... 250 246,520 General Electric Capital Corp. 5.00%, 6/15/07 .......................... 500 500,948 5.875%, 2/15/12 ......................... 500 521,525 Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- Household Finance Corp. 5.75%, 1/30/07 .......................... $ 200 $ 201,649 6.50%, 1/24/06 .......................... 75 75,075 7.875%, 3/01/07 ......................... 150 154,837 iStar Financial, Inc. 6.00%, 12/15/10 ......................... 200 203,086 Lehman Brothers Holdings, Inc. 7.875%, 8/15/10 ......................... 150 167,325 Merrill Lynch & Co., Inc. 6.00%, 2/17/09 .......................... 500 515,618 Rabobank Capital Fund II 5.26%, 12/29/49 (b) (c) ................. 230 227,865 Resona Preferred Global Securities Ltd. (Cayman Islands) 7.191%, 12/30/49 (b) (c) ................ 175 185,670 The Goldman Sachs Group, Inc. 6.60%, 1/15/12 .......................... 500 537,094 6.65%, 5/15/09 .......................... 200 210,177 -------------- 4,172,364 -------------- FOOD/BEVERAGE-0.4% Imperial Tobacco (Netherlands) 7.125%, 4/01/09 ......................... 170 179,593 Kellogg Co. Cl. B 6.60%, 4/01/11 .......................... 300 321,177 Kraft Foods, Inc. 5.25%, 10/01/13 ......................... 300 300,114 -------------- 800,884 -------------- HEALTH CARE-0.3% Wyeth 6.50%, 2/01/34 .......................... 525 577,938 -------------- INDUSTRIAL-0.3% Inco Ltd. (Canada) 7.75%, 5/15/12 .......................... 200 223,207 Tyco International Group, SA (Luxembourg) 6.375%, 10/15/11 ........................ 200 207,719 Waste Management, Inc. 6.375%, 11/15/12 ........................ 175 186,439 -------------- 617,365 -------------- INSURANCE-0.7% American Reinsurance 7.45%, 12/15/26 ......................... 140 160,433 Loews Corp. 6.75%, 12/15/06 ......................... 100 101,204 Mangrove Bay Pass-Through Trust 6.102%, 7/15/33 (b) (c) ................. 400 396,952 North Front Pass Through Trust 5.81%, 12/15/24 (b) (c) ................. 500 500,463 The Hartford Financial Services, Inc. 6.375%, 11/01/08 ........................ 125 129,661 Zurich Capital Trust 8.376%, 6/01/37 (c) ..................... 200 216,452 -------------- 1,505,165 -------------- 10 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- INSURANCE CARRIERS-0.4% Liberty Mutual Group 5.75%, 3/15/14 (c) ...................... $ 350 $ 345,477 Royal Sun & Alliance Insurance (United Kingdom) 8.95%, 10/15/29 ......................... 442 564,423 -------------- 909,900 -------------- METALS/MINING-0.1% Ispat Inland ULC (Canada) 9.75%, 4/01/14 .......................... 100 113,250 -------------- MUNICIPAL OBLIGATION-0.2% Dallas-Fort Worth Texas International Airport Facility 7.07%, 11/01/24 ......................... 400 429,560 -------------- NON-AIR TRANSPORTATION-0.2% CSX Corp. 5.50%, 8/01/13 .......................... 100 102,120 6.75%, 3/15/11 .......................... 250 267,910 -------------- 370,030 -------------- PETROLEUM PRODUCTS-0.1% Petronas Capital Ltd. 7.00%, 5/22/12 (c) ...................... 150 165,945 -------------- PUBLIC UTILITIES - ELECTRIC & GAS-1.4% American Electric Power Co., Inc. Series C 5.375%, 3/15/10 ......................... 250 252,012 CenterPoint Energy Resources Corp. Series B 7.875%, 4/01/13 ......................... 450 514,616 Consumers Energy Co. Series B 5.375%, 4/15/13 ......................... 150 148,910 FirstEnergy Corp. Series C 7.375%, 11/15/31 ........................ 500 589,984 NiSource Finance Corp. 7.875%, 11/15/10 ........................ 250 276,993 Progress Energy, Inc. 5.85%, 10/30/08 ......................... 350 355,709 Texas East Transmission LP 7.30%, 12/01/10 ......................... 350 381,284 TXU Australia LP 6.15%, 11/15/13 (c) ..................... 250 266,874 Xcel Energy, Inc. 7.00%, 12/01/10 ......................... 175 188,341 Yorkshire Power Series B 6.496%, 2/25/08 ......................... 200 205,154 -------------- 3,179,877 -------------- Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- PUBLIC UTILITIES - TELEPHONE-0.2% Telecom Italia 4.00%, 11/15/08 ......................... $ 250 $ 242,448 Telefonos de Mexico SA de CV (Mexico) 4.75%, 1/27/10 .......................... 250 245,606 -------------- 488,054 -------------- SUPERMARKET/DRUG-0.3% Safeway, Inc. 4.95%, 8/16/10 .......................... 400 389,551 5.80%, 8/15/12 .......................... 310 311,580 -------------- 701,131 -------------- TECHNOLOGY-0.0% Motorola, Inc. 7.625%, 11/15/10 ........................ 64 71,145 -------------- Total Corporate Debt Obligations (cost $27,514,725) ...................... 27,936,597 -------------- COMMERCIAL MORTGAGE BACKED SECURITIES-4.9% Banc of America Commercial Mortgage,Inc. Series 2005-1 Cl. A3 4.877%, 11/10/42 ........................ 2,000 1,986,320 Bear Stearns Commercial Mortgage Security Series 2005-PWR9 Cl. A4A 4.871%, 9/11/42 ......................... 2,000 1,956,637 CS First Boston Mortgage Securities Corp. Series 2004-C5 Cl. A2 4.183%, 11/15/37 ........................ 2,000 1,938,680 Greenwich Capital Commercial Funding Corp. Series 2005-GG3 Cl. A4 4.799%, 8/10/42 (b) ..................... 900 876,880 JPMorgan Chase Commercial Mortgage Securities Corp. 4.851%, 8/15/42 ......................... 1,500 1,486,200 Morgan Stanley Capital I Series 2004-T13 Cl. A2 3.94%, 9/13/45 .......................... 1,000 958,080 Series 2005- HQ5 Cl. A4 5.168%, 1/14/42 ......................... 1,500 1,501,350 -------------- Total Commercial Mortgage Backed Securities (cost $10,837,828) ........... 10,704,147 -------------- 11 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Shares or Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- PREFERRED STOCKS-0.4% PUBLIC UTILITIES - ELECTRIC & GAS-0.2% DTE Energy Trust I ......................... 20,000 $ 509,200 -------------- COMMUNICATIONS-0.1% Centaur Funding Corp. (Cayman Islands) (c) .................... 200 259,125 -------------- BANKING-0.1% Royal Bank of Scotland Group Plc ........... 10,000 230,500 -------------- Total Preferred Stocks (cost $982,616) ..... 998,825 -------------- SOVEREIGN DEBT OBLIGATIONS-0.4% Korea Development Bank (South Korea) 5.75%, 9/10/13 .......................... $ 200 207,104 United Mexican States (Mexico) 6.375%, 1/16/13 ......................... 700 743,750 -------------- Total Sovereign Debt Obligations (cost $899,738) ......................... 950,854 -------------- Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS-3.2% TIME DEPOSIT-0.3% The Bank of New York 3.25%, 1/03/06 .......................... $ 529 $ 529,000 -------------- U.S. TREASURY SECURITY - 2.9% U.S. Treasury Bill Zero Coupon, 2/23/06 .... 6,500 6,464,900 -------------- Total Short-Term Investments (cost $6,993,856) ....................... 6,993,900 -------------- TOTAL INVESTMENTS-99.6% (cost $201,327,197) ..................... 219,564,842 Other assets less liabilities-0.4% ......... 932,658 -------------- NET ASSETS-100% ............................ $ 220,497,500 ============== - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) Variable rate coupon, rate shown as of December 31, 2005. (c) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $6,212,321 or 2.8% of net assets. Glossary: TIPS- Treasury Inflation Protected Security See Notes to Financial Statements. 12 TOTAL RETURN PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $201,327,197) ... $ 219,564,842 Cash ...................................................... 830 Dividends and interest receivable ......................... 1,129,802 Receivable for capital stock sold ......................... 72,565 -------------- Total assets .............................................. 220,768,039 -------------- LIABILITIES Advisory fee payable ...................................... 104,084 Payable for capital stock redeemed ........................ 19,387 Distribution fee payable .................................. 9,704 Transfer agent fee payable ................................ 53 Accrued expenses .......................................... 137,311 -------------- Total liabilities ......................................... 270,539 -------------- NET ASSETS ................................................... $ 220,497,500 ============== COMPOSITION OF NET ASSETS Capital stock, at par ..................................... $ 11,513 Additional paid-in capital ................................ 191,809,296 Undistributed net investment income ....................... 5,117,219 Accumulated net realized gain on investment transactions .. 5,321,827 Net unrealized appreciation of investments ................ 18,237,645 -------------- $ 220,497,500 ============== Class A Shares Net assets ................................................ $ 175,004,965 ============== Shares of capital stock outstanding ....................... 9,125,076 ============== Net asset value per share ................................. $ 19.18 ============== Class B Shares Net assets ................................................ $ 45,492,535 ============== Shares of capital stock outstanding ....................... 2,387,530 ============== Net asset value per share ................................. $ 19.05 ============== - -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 TOTAL RETURN PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest .................................................. $ 4,280,495 Dividends (net of foreign taxes withheld of $880) ......... 2,621,871 -------------- Total investment income ................................... 6,902,366 -------------- EXPENSES Advisory fee .............................................. 1,265,133 Distribution fee--Class B ................................. 114,923 Custodian ................................................. 158,558 Administrative ............................................ 75,250 Printing .................................................. 59,317 Audit ..................................................... 41,750 Legal ..................................................... 9,566 Directors' fees ........................................... 1,000 Transfer agency ........................................... 794 Miscellaneous ............................................. 30,665 -------------- Total expenses ............................................ 1,756,956 -------------- Net investment income ..................................... 5,145,410 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions .............. 20,713,391 Net change in unrealized appreciation/depreciation of investments ......................................... (17,354,902) -------------- Net gain on investment transactions ....................... 3,358,489 -------------- NET INCREASE IN NET ASSETS FROM OPERATIONS ................... $ 8,503,899 ============== - -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 TOTAL RETURN PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Year Ended Year Ended December 31, December 31, 2005 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ...................... $ 5,145,410 $ 5,805,073 Net realized gain on investment transactions ............................. 20,713,391 4,604,488 Net change in unrealized appreciation/ depreciation of investments .............. (17,354,902) 9,537,757 ------------- ------------- Net increase in net assets from operations ............................... 8,503,899 19,947,318 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A ................................. (4,723,307) (4,209,896) Class B ................................. (1,088,094) (804,109) CAPITAL STOCK TRANSACTIONS Net increase (decrease) .................... (20,841,594) 2,962,939 ------------- ------------- Total increase (decrease) .................. (18,149,096) 17,896,252 NET ASSETS Beginning of period ........................ 238,646,596 220,750,344 ------------- ------------- End of period (including undistributed net investment income of $5,117,219 and $5,783,168, respectively) ................ $ 220,497,500 $ 238,646,596 ============= ============= - -------------------------------------------------------------------------------- See Notes to Financial Statements. 15 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE A: Significant Accounting Policies The AllianceBernstein Total Return Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to achieve a high return through a combination of current income and capital appreciation. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 16 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums or accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .625% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. 17 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $155,724, none of which was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: Purchases Sales ------------ --------------- Investment securities (excluding U.S. government securities) .................................. $ 94,536,138 $ 99,162,061 U.S. government securities ..................... 21,052,156 41,206,386 The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost ......................................................... $ 201,680,830 =============== Gross unrealized appreciation ................................ $ 22,761,463 Gross unrealized depreciation ................................ (4,877,451) --------------- Net unrealized appreciation .................................. $ 17,884,012 =============== 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contracts and the closing of such contracts would be included in net realized gain or loss on foreign currency transactions. 18 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: Securities Lending The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss in the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 19 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE F: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: ---------------------------------------------------------- SHARES AMOUNT ---------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- Class A Shares sold ....... 271,384 531,722 $ 5,117,800 $ 9,591,065 Shares issued in reinvestment of dividends .... 253,261 240,428 4,723,307 4,209,896 Shares redeemed ... (1,620,419) (1,661,415) (30,581,492) (29,948,111) ------------ ------------ -------------- -------------- Net decrease ...... (1,095,774) (889,265) $ (20,740,385) $ (16,147,150) ============ ============ ============== ============== Class B Shares sold ....... 234,077 1,218,508 $ 4,387,245 $ 21,798,149 Shares issued in reinvestment of dividends .... 58,657 46,134 1,088,094 804,109 Shares redeemed ... (297,472) (196,051) (5,576,548) (3,492,169) ------------ ------------ -------------- -------------- Net increase (decrease) ...... (4,738) 1,068,591 $ (101,209) $ 19,110,089 ============ ============ ============== ============== NOTE G: Risks Involved in Investing in the Portfolio Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. 20 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE I: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ------------ ------------- Distributions paid from: Ordinary income ........................... $ 5,811,401 $ 5,014,005 ------------ ------------- Total taxable distributions .................. 5,811,401 5,014,005 ------------ ------------- Total distributions paid ..................... $ 5,811,401 $ 5,014,005 ============ ============= As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ............................... $ 5,324,171 Undistributed long-term capital gains ....................... 5,468,508(a) Unrealized appreciation/(depreciation) ...................... 17,884,012(b) ------------- Total accumulated earnings/(deficit) ........................ $ 28,676,691 ============= (a) During the current fiscal year, the Portfolio utilized capital loss carryforwards of $14,904,349. (b) The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to tax treatment of paydown gains/losses, resulted in an increase in undistributed net investment income, and a decrease in accumulated net realized gain on investment transactions. These reclassifications had no effect on net assets. NOTE J: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. 21 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both 22 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or dis-criminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: Subsequent Events As of February 1, 2006, the Portfolio's investment objective is total return consistent with reasonable risk, through a combination of income and long-term growth of capital. 23 TOTAL RETURN PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------------- CLASS A -------------------------------------------------------- Year Ended December 31, -------------------------------------------------------- 2005 2004 2003 2002 2001(a) -------- -------- -------- -------- -------- Net asset value, beginning of period ...... $ 18.94 $ 17.76 $ 15.30 $ 17.65 $ 18.01 -------- -------- -------- -------- -------- Income From Investment Operations Net investment income (b) ................. .43 .46(c) .42 .45 .44 Net realized and unrealized gain (loss) on investment transactions ............. .30 1.12 2.47 (2.29) (.01) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value from operations .................. .73 1.58 2.89 (1.84) .43 -------- -------- -------- -------- -------- Less: Dividends and Distributions Dividends from net investment income ................................. (.49) (.40) (.43) (.32) (.28) Distributions from net realized gain on investment transactions ............. -0- -0- -0- (.19) (.42) Distributions in excess of net realized gain on investment transactions ........ -0- -0- -0- -0- (.09) -------- -------- -------- -------- -------- Total dividends and distributions ......... (.49) (.40) (.43) (.51) (.79) -------- -------- -------- -------- -------- Net asset value, end of period ............ $ 19.18 $ 18.94 $ 17.76 $ 15.30 $ 17.65 ======== ======== ======== ======== ======== Total Return Total investment return based on net asset value (d) .................... 3.91% 9.07% 19.05% (10.58)% 2.27% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........................ $175,005 $193,600 $197,334 $171,670 $183,098 Ratio to average net assets of: Expenses, net of waivers and reimbursements ...................... .71% .71% .79% .79% .78% Expenses, before waivers and reimbursements ...................... .71% .76% .79% .79% .78% Net investment income .................. 2.29% 2.57%(c) 2.60% 2.76% 2.50% Portfolio turnover rate ................... 52% 60% 81% 57% 71%
- -------------------------------------------------------------------------------- See footnote summary on page 25. 24 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------------- CLASS B ------------------------------------------------------- October 26, Year Ended December 31, 2001(e) to --------------------------------------- December 31, 2005 2004 2003 2002 2001(a) ------- ------- ------- ------ ------------ Net asset value, beginning of period .................... $ 18.83 $ 17.69 $ 15.27 $17.65 $ 17.56 ------- ------- ------- ------ ------------ Income From Investment Operations Net investment income (b) ............................... .38 .43(c) .36 .39 .06 Net realized and unrealized gain (loss) on investment transactions .............................. .29 1.10 2.48 (2.27) .03 ------- ------- ------- ------ ------------ Net increase (decrease) in net asset value from operations ........................................... .67 1.53 2.84 (1.88) .09 ------- ------- ------- ------ ------------ Less: Dividends and Distributions Dividends from net investment income .................... (.45) (.39) (.42) (.31) -0- Distributions from net realized gain on investment transactions ......................................... -0- -0- -0- (.19) -0- ------- ------- ------- ------ ------------ Total dividends and distributions ....................... (.45) (.39) (.42) (.50) -0- ------- ------- ------- ------ ------------ Net asset value, end of period .......................... $ 19.05 $ 18.83 $ 17.69 $15.27 $ 17.65 ======= ======= ======= ====== ============ Total Return Total investment return based on net asset value (d) .... 3.61% 8.79% 18.78% (10.80)% .51% Ratios/Supplemental Data Net assets, end of period (000's omitted) ............... $45,493 $45,047 $23,417 $3,302 $ 1,570 Ratio to average net assets of: Expenses, net of waivers and reimbursements .......... .96% .96% 1.05% 1.05% 1.00%(f) Expenses, before waivers and reimbursements .......... .96% 1.01% 1.05% 1.05% 1.00%(f) Net investment income ................................ 2.04% 2.35%(c) 2.29% 2.51% 1.80%(f) Portfolio turnover rate ................................. 52% 60% 81% 57% 71%
- -------------------------------------------------------------------------------- (a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change to Class A and B shares was to decrease net investment income per share by $.02 and $.02, respectively, increase net realized and unrealized gain (loss) on investments per share by $.02 and $.02, respectively, and decrease the ratio of net investment income to average net assets from 2.61% to 2.50% for Class A and from 2.41% to 1.80% for Class B. (b) Based on average shares outstanding. (c) Net of expenses waived or reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Commencement of distribution. (f) Annualized. 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Total Return Portfolio: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Total Return Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Total Return Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (unaudited) - -------------------------------------------------------------------------------- For corporate shareholders, 48% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 26 TOTAL RETURN PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Total Return Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority ------------- ------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter,which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ------------- ------------------- ----------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ------------- ------------------- ----------- ---------------- 3.A. Diversification 8,730,410 132,878 1,019,519 0 3.B. Issuing Senior Securities and 8,691,848 135,175 1,055,785 0 Borrowing Money 3.C. Underwriting Securities 8,711,653 149,607 1,021,546 0 3.D. Concentration of Investments 8,730,413 103,537 1,048,857 0 3.E. Real Estate and Companies that 9,456,179 125,166 301,462 0 Deal in Real Estate 3.F. Commodities, Commodity 9,385,414 184,483 312,910 0 Contracts and Futures Contracts 3.G. Loans 9,371,972 188,210 322,626 0 3.I. Exercising Control 8,777,137 126,321 979,350 0 3.J. Other Investment Companies 8,800,857 141,576 940,374 0 3.L. Purchases of Securities on Margin 8,754,386 176,287 952,134 0 3.M. Short Sales 8,766,077 164,592 952,138 0 3.N. Pledging, Hypothecating, 8,724,585 196,861 961,361 0 Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or Restricted Securities 8,741,323 172,560 968,924 0
27 TOTAL RETURN PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Voted For Voted Against Abstained Broker Non-Votes ------------- ------------------- ----------- ---------------- 3.T. Securities of Issuers in which 8,732,067 199,199 951,541 0 Officers, Directors, or Partners Have an Interest 3.V. Purchasing Voting or Other Securities of Issuers 8,792,722 139,831 950,254 0 3.W. Repurchase Agreements 8,831,558 120,876 930,373 0 4.B. The reclassification as 8,737,897 176,988 967,923 0 non-fundamental and with changes to the Portfolio's investment objective.
28 TOTAL RETURN PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Thomas J. Bardong, Vice President John J. Kelley(2), Vice President Stephen W. Pelensky(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 - -------------------------------------------------------------------------------- (1) Member of the Audit Committee, the Goverance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Balanced Shares Investment Team, comprised of senior members of the Relative Value Investment Team and senior members of the Global Credit Research Team. Mr. Stephen Pelensky of the Relative Value Investment Team is responsible for the day-to-day management of the equity component of the Portfolio's portfolio and Mr. John Kelley of the Global Credit Research Team is responsible for the day-to-day management of the debt component of the Portfolio's portfolio. 29 TOTAL RETURN PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of 106 SCB Partners Inc.; 1345 Avenue of the Americas Alliance Capital Management SCB, Inc. New York, NY 10105 Corporation ("ACMC") since 2001 10/2/57 and Chairman of the Board of (2005) AllianceBernstein Investment Research and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an 108 None 2 Sound View Drive independent consultant. He was Suite 100 formerly Senior Manager of Greenwich, CT 06830 Barrett Associates, Inc., a Chairman of the Board registered investment adviser, 9/7/32 with which he had been associated (1990) since prior to 2001. 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. Ruth Block, #, *** Formerly Executive Vice President 106 None 500 SE Mizner Blvd. and Chief Insurance Officer of Boca Raton, FL 33432 The Equitable Life Assurance 11/7/30 Society of the United States; (1992) Chairman and Chief Executive Officer of Evlico (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until 107 None P.O. Box 167 December 1994, he was Senior Vice Spring Lake, NJ 07762 President of ACMC responsible for 10/23/29 mutual fund administration. Prior (1990) to joining ACMC in 1984, he was Chief Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
30 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) John H. Dobkin, # Consultant. Formerly President of 106 None P.O. Box 12 Save Venice, Inc. (preservation Annandale, NY 12504 organization) from 2001-2002, 2/19/42 Senior Advisor from June (1992) 1999-June 2000 and President of Historic Hudson Valley (historic preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. 106 Asia Pacific Fund, Inc., c/o Alliance Capital Formerly managing partner of and The Merger Fund Management L.P. Lexington Capital, LLC 1345 Avenue of the Americas (investment advisory firm) from New York, NY 10105 December 1997 until December Attn: Philip L. Kirstein 2003. Prior thereto, Chairman and 1/26/44 CEO of Prudential Mutual Fund (2005) Management from 1987 to 1993. D. James Guzy, # Chairman of the Board of PLX 106 Intel Corporation P.O. Box 128 Technology (semi-conductors) and (semi-conductors); Glenbrook, NV 89413 of SRC Computers Inc., with which Cirrus Logic Corporation 3/7/36 he has been associated since (semi-conductors); (2005) prior to 2001. He is also Novellus Corporation President of the Arbor Company (semi-conductor (private family investments). equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan Photomasks, Inc.; the 220 Montgomery Street (semi-conductor manufacturing George Lucas Educational Penthouse 10 services), Austin, Texas, from Foundation; and Chairman of San Francisco, CA 94104-3402 2003 to present, and President the Board of the 10/10/41 since company acquired in 2005, Smithsonian's National (2005) and name changed from DuPont Museum of Natural History Photomasks. Prior to the company's sale in 2005, he was Chairman and CEO. He has also been Principal of Turner Venture Associates since 1993.
- -------------------------------------------------------------------------------- * 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 31 TOTAL RETURN PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Officer Information Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief Executive See biography above. 10/2/57 Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent 5/29/45 President and Independent Compliance Officer of the AllianceBernstein Compliance Officer Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he 4/28/45 has been associated since prior to 2001. John J. Kelley Vice President Senior Vice President of ACMC**, with which he 2/29/60 has been associated since prior to 2001. Stephen W. Pelensky Vice President Senior Vice President of ACMC**, with which he 9/8/55 has been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General 11/13/55 Counsel and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global 10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has 8/3/51 been associated since prior to 2001.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 32 TOTAL RETURN PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Total Return Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to two securities indices; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 33 TOTAL RETURN PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation 34 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 11 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 36 to 29 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Lehman Brothers U.S. Aggregate Index (the "LB Index") and the Standard & Poor's 500 Stock Index (the "S&P Index") for periods ended September 30, 2005 over the year to date, 1, 3-, 5- and 10-year and since inception periods (December 1992 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 4th 35 TOTAL RETURN PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- quintile in the 1-year period (adjusted to 5th quintile by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles), 3rd quintile in the 3-year period (adjusted to 4th quintile by the Senior Officer), and 1st quintile in the 5- and 10-year periods, and in the Performance Universe comparison the Portfolio was in the 4th quintile in the 1-year period, 3rd quintile in the 3-year period (adjusted to 4th quintile by the Senior Officer) and 1st quintile in the 5- and 10-year periods. The comparative information showed that the Portfolio underperformed the LB Index in the 5-year period, outperformed the LB Index in the other periods reviewed, outperformed the S&P Index in the 5- and 10-year periods and underperformed the S&P Index in all other periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., equity securities and fixed income securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 55 basis points was slightly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 3 basis points and that as a result the Adviser's total compensation from the Portfolio pursuant to the Advisory Agreement was slightly higher than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was somewhat higher than the Expense Group median and slightly higher than the Expense Universe median. The directors concluded that the Portfolio's expense ratio was satisfactory. Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not 36 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 37 TOTAL RETURN PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Balanced Shares Portfolio (the "Fund")(2), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplate eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(3) Advisory Fee Based on % of Average Category Daily Net Assets Fund - -------------------------------------------------------------------------------- Balanced 55 bp on 1st $2.5 billion Balanced Shares Portfolio 45 bp on next $2.5 billion 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - -------------------------------------------------------------------------------- Balanced Shares Portfolio $69,000 0.03% Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - -------------------------------------------------------------------------------- Balanced Shares Portfolio Class A 0.76% December 31 Class B 1.01% - -------------------------------------------------------------------------------- (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Prior to February 1, 2006, the Fund was known as AllianceBernstein Total Return Portfolio. (3) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 38 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: Asset Class Fee(4) - -------------------------------------------------------------------------------- Equity Blend 0.80% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) Effective Lipper Management Group Fund Fee Median Rank - -------------------------------------------------------------------------------- Balanced Shares Portfolio 0.550 0.560 5/11 - -------------------------------------------------------------------------------- (4) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates.5 (5) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. 39 TOTAL RETURN PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: Expense Lipper Lipper Lipper Lipper Ratio Universe Universe Group Group Fund (%)(8) Median (%) Rank Median (%) Rank - -------------------------------------------------------------------------------- Balanced Shares Portfolio 0.710 0.705 20/35 0.656 8/11 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - -------------------------------------------------------------------------------- Balanced Shares Portfolio $92,987 - -------------------------------------------------------------------------------- (6) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (7) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (8) Most recent fiscal year end Class A share total expense ratio. 40 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - -------------------------------------------------------------------------------- Balanced Shares Portfolio $24,973 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. Although the Fund did not effect any brokerage transaction and pay commissions to the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), during the Fund's recent fiscal year, the potential for such events exist. The Adviser represented that SCB's profitability from any business conducted with the Fund would be comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. - -------------------------------------------------------------------------------- (9) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. (10) The performance rankings are for the Class A shares of the Fund. (11) The Lipper Performance Group is identical to the Lipper Expense Group. (12) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 41 TOTAL RETURN PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Balanced Shares Portfolio Group Universe - -------------------------------------------------------------------------------- 1 year 9/11 28/36 3 year 7/11 22/36 5 year 2/11 6/32 10 year 2/10 4/29 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14).
Periods Ending September 30, 2005 Annualized Performance - -------------------------------------------------------------------------------------------- Fund 1 Year 3 Year 5 Year 10 Year Since Inception - -------------------------------------------------------------------------------------------- Balanced Shares Portfolio 8.08 11.72 4.52 9.52 9.28 Lehman Brothers Aggregate Bond Index 2.80 3.96 6.62 6.55 6.69 S&P 500 Index 12.25 16.71 -1.49 9.49 10.52
CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. (13) The performance returns are for the Class A shares of the Fund. (14) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 42 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN INTERNATIONAL VALUE PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. INTERNATIONAL VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein International Value Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks long-term growth of capital. The Portfolio will invest primarily in a diversified portfolio of foreign equity securities. The Portfolio's investment policies emphasize investment in companies that are determined by Alliance to be undervalued, using the fundamental value approach of Alliance's Bernstein research unit ("Bernstein"). In selecting securities for the Portfolio, Bernstein uses its fundamental research to identify companies whose long-term earnings power is not reflected in the current market price of their securities. In order to hedge a portion of currency risk, the Portfolio may from time to time invest in currency futures contracts or currency forward contracts. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index, for the one-year period ended December 31, 2005 and since the Portfolio's Class A shares inception on May 10, 2001. For the annual reporting period ended December 31, 2005, the Portfolio outperformed its benchmark due primarily to positive sector selection. Underweighted positions in the telecommunications and consumer cyclicals sectors enhanced the Portfolio's premium during the annual period under review, as did overweighted positions in the capital equipment, industrial commodities and finance sectors. Additionally, security selection within the finance and energy sectors added significantly to the Portfolio's relative return during the reporting period. MARKET REVIEW AND INVESTMENT STRATEGY International equity markets posted healthy gains during the one-year period ended December 31, 2005. Throughout 2005, the market grappled with fears that surging oil prices, an expected slowdown in China and a decisive turn in the global interest-rate cycle would stifle economic and corporate profits growth. However, the global economy proved remarkably resilient. The sustained strength of the global economy ensured that corporate profitability exceeded expectations. Returns in local currencies were generally higher, reflecting the unexpected appreciation of the U.S. dollar. The dollar staged a modest broad-based rally despite widespread fears that the growing size of the U.S. current account deficit would undermine the currency. Energy and metals and mining stocks led the market globally in 2005 thanks to booming world demand, while media and telecommunications companies trailed. The U.S. economy has shrugged off the effects of the post-Hurricane Katrina dip. European area growth picked up in the third quarter of 2005, giving the European Central Bank the confidence to raise interest rates for the first time in five years. Chinese economic activity remained strong, with rising imports helping to support commodity prices. Additionally, there is growing evidence of a durable recovery in Japan. However, the global economic outlook is not without risks. The European consumer remains cautious, and the U.S. is vulnerable to a slowdown in housing. Japan has little, if any, room to ease monetary policy or increase public spending if the recovery there stalls. Valuations remain compressed, presenting relatively few opportunities to exploit misvaluations between sectors. Within the very compressed market, the Portfolio is broadly diversified across sectors, but there are nevertheless themes arising from bottom-up stock selection. For example, the Portfolio has broad exposure to financials. During the reporting period, the Portfolio's management team favored several capital equipment companies, including aerospace and auto holdings, and maintained a bias towards energy stocks. 1 INTERNATIONAL VALUE PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE, AUSTRALASIA AND FAR EAST (EAFE) INDEX DOES NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Index is a market capitalization-weighted index that measures stock performance in 21 countries in Europe, Australasia and the Far East. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein International Value Portfolio. A WORD ABOUT RISK Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be "value" stocks are able to turn their business around or successfully employ corrective strategies, which would result in stock prices that rise as initially expected. Substantially all of the Portfolio's assets will be invested in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Because the Portfolio may invest in emerging markets and in developing countries, an investment also has the risk that market changes or other factors affecting emerging markets and developing countries, including political instability and unpredictable economic conditions, may have a significant effect on the Portfolio's net asset value. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 INTERNATIONAL VALUE PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------ PERIODS ENDED DECEMBER 31, 2005 1 YEAR SINCE INCEPTION* - ---------------------------------------------------------------------------------------------- AllianceBernstein International Value Portfolio Class A 16.92% 15.81% - ---------------------------------------------------------------------------------------------- AllianceBernstein International Value Portfolio Class B 16.58% 15.93% - ---------------------------------------------------------------------------------------------- MSCI EAFE Index 13.54% 6.71% - ----------------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class A shares on 5/10/01 and Class B shares on 8/15/01. The since inception return for the benchmark is from the Portfolio's Class A shares inception date. ALLIANCEBERNSTEIN INTERNATIONAL VALUE PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 5/10/01*-12/31/05 ALLIANCEBERNSTEIN INTERNATIONAL VALUE PORTFOLIO CLASS A: $19,770 MSCI EAFE INDEX: $13,518 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein International Value Portfolio Class A MSCI EAFE Index - ------------------------------------------------------------------------------- 5/10/01* $ 10,000 $ 10,000 12/31/01 $ 9,870 $ 8,499 12/31/02 $ 9,362 $ 7,144 12/31/03 $ 13,515 $ 9,901 12/31/04 $ 16,909 $ 11,906 12/31/05 $ 19,770 $ 13,518 * Since inception of the Portfolio's Class A shares on 5/10/01. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein International Value Portfolio Class A shares (from 5/10/01* to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 INTERNATIONAL VALUE PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED INTERNATIONAL VALUE PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ------------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,179.45 $4.72 0.86% Hypothetical (5% return before expenses) $1,000 $1,020.87 $4.38 0.86% CLASS B Actual $1,000 $1,178.09 $6.09 1.11% Hypothetical (5% return before expenses) $1,000 $1,019.61 $5.65 1.11%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 INTERNATIONAL VALUE PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- ING Groep N.V. $ 32,527,756 3.6% Orix Corp. 27,514,658 3.1 Renault, SA 25,460,936 2.8 Honda Motor Co., Ltd. 24,141,561 2.7 Sumitomo Mitsui Financial Group, Inc. 23,262,711 2.6 Canon, Inc. 22,247,349 2.5 Sanofi-Aventis 22,046,783 2.5 Continental AG 21,646,347 2.4 Arcelor 21,562,660 2.4 British American Tobacco Plc 20,735,070 2.3 ------------ ----- $241,145,831 26.9% SECTOR DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF SECTOR U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Financial $278,580,422 31.0% Energy 120,008,097 13.4 Capital Equipment 108,817,214 12.1 Industrial Commodities 79,149,752 8.8 Comsumer Staples 72,560,169 8.1 Technology/Electronics 55,296,764 6.2 Utilities 50,200,197 5.6 Telecommunications 34,712,040 3.9 Medical 31,485,675 3.5 Construction & Housing 10,023,629 1.1 Transportation 6,209,597 0.7 Consumer Cyclical 2,641,199 0.3 ------------ ----- Total Investments* 849,684,755 94.7 Cash and receivables, net of liabilities 47,579,166 5.3 ------------ ----- Net Assets $897,263,921 100.0% * Excludes short-term investments. Please note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 INTERNATIONAL VALUE PORTFOLIO COUNTRY DIVERSIFICATION DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COUNTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- United Kingdom $192,653,206 21.5% France 149,879,717 16.7 Japan 142,306,086 15.9 Germany 88,825,460 9.9 Korea 48,685,202 5.4 Spain 32,581,843 3.6 Netherlands 32,527,756 3.6 Singapore 22,405,690 2.5 Taiwan 19,612,264 2.2 Italy 19,298,238 2.1 Canada 18,670,444 2.1 Switzerland 18,633,459 2.1 Brazil 18,078,273 2.0 Belgium 15,724,559 1.8 China 13,327,491 1.5 Other* 16,475,067 1.8 ------------ ----- Total Investments** 849,684,755 94.7 Cash and receivables, net of liabilities 47,579,166 5.3 ------------ ----- Net Assets $897,263,921 100.0% * The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Hungary, Israel and Sweden. ** Excludes short-term investments. 6 INTERNATIONAL VALUE PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- COMMON STOCKS-94.7% FINANCIAL-31.0% BANKING-17.9% Bank Hapoalim Ltd. (Israel) 990,700 $ 4,569,419 Bank Leumi Le-Israel (Israel) 372,300 1,420,755 Barclays Plc (United Kingdom) 1,812,700 19,016,422 BNP Paribas, SA (France) 36,200 2,924,320 Credit Agricole, SA (France) 432,270 13,590,255 Credit Suisse Group (Switzerland) 365,800 18,633,459 Depfa Bank Plc (Germany) 360,460 5,321,531 HBOS Plc (United Kingdom) 1,065,100 18,171,766 Kookmin Bank (Korea) (a) 135,800 10,234,797 Royal Bank of Scotland Group Plc (United Kingdom) 684,100 20,644,211 Shinhan Financial Group Co., Ltd. (Korea) (a) 237,280 9,543,349 Societe Generale (France) 111,420 13,692,710 Sumitomo Mitsui Financial Group, Inc. (Japan) 2,202 23,262,711 ------------ 161,025,705 ------------ FINANCIAL SERVICES-3.1% Orix Corp. (Japan) 108,100 27,514,658 ------------ INSURANCE-10.0% Assurance Generales de France (France) 179,700 17,801,498 Aviva Plc (United Kingdom) 1,247,897 15,128,622 Friends Provident Plc (United Kingdom) 2,061,380 6,716,475 ING Groep N.V. (Netherlands) 937,671 32,527,756 Muenchener Rueckversicherungs - Gesellschaft AG (Germany) 131,800 17,865,708 ------------ 90,040,059 ------------ 278,580,422 ------------ ENERGY-13.4% ENERGY SOURCES-13.4% BP Plc (United Kingdom) 1,169,600 12,523,268 Canadian Natural Resources Ltd. (Canada) 376,600 18,670,444 China Petrolium & Chemical Corp. (China) 18,094,000 9,016,437 Eni S.p.A (Italy) 627,900 17,545,005 MOL Magyar Olaj-es Gazipari Rt. (Hungary) 31,600 2,965,542 MOL Magyar Olaj-es Gazipari Rt. (GDR) (Hungary) 34,630 3,228,022 PetroChina Co., Ltd. (China) 5,264,000 4,311,054 Petroleo Brasilerio, SA (ADR) (Brazil) (a) 264,000 16,993,680 Repsol YPF, SA (Spain) 531,700 15,564,214 Total, SA (France) 76,100 19,190,431 ------------ 120,008,097 ------------ CAPITAL EQUIPMENT-12.1% AEROSPACE & DEFENSE-2.5% BAE Systems Plc (United Kingdom) 1,376,000 9,044,941 European Aeronautic Defence and Space Co. (France) 360,900 13,610,124 ------------ 22,655,065 ------------ AUTOMOBILES-8.4% Continental AG (Germany) 244,400 21,646,347 Honda Motor Co., Ltd. (Japan) 418,300 24,141,561 Hyundai Motor Co., Ltd. (Korea) (a) 43,140 4,103,999 Renault, SA (France) 312,700 25,460,936 ------------ 75,352,843 ------------ MACHINERY & ENGINEERING-1.2% MAN AG (Germany) 202,700 10,809,306 ------------ 108,817,214 ------------ INDUSTRIAL COMMODITIES-8.8% CHEMICAL-0.1% Mitsui Chemicals, Inc. (Japan) 77,000 517,049 ------------ FOREST & PAPER-0.6% Svenska Cellulosa AB Cl. B (Sweden) 114,800 4,291,329 Votorantim Celulose e Papel, SA (ADR) (Brazil) 88,250 1,084,593 ------------ 5,375,922 ------------ METAL-NONFERROUS-1.6% Xstrata Plc (United Kingdom) 636,270 14,884,704 ------------ METAL-STEEL-6.5% Arcelor (France) 870,460 21,562,660 JFE Holdings, Inc. (Japan) 616,600 20,633,803 POSCO (Korea) 81,300 16,175,614 ------------ 58,372,077 ------------ 79,149,752 ------------ CONSUMER STAPLES-8.1% BEVERAGES & TOBACCO-4.3% British American Tobacco Plc (United Kingdom) 927,900 20,735,070 Japan Tobacco, Inc. (Japan) 1,216 17,779,358 ------------ 38,514,428 ------------ 7 INTERNATIONAL VALUE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- FOOD & HOUSEHOLD PRODUCTS-3.8% Delhaize Group (Belgium) 240,189 $ 15,724,559 J Sainsbury Plc (United Kingdom) 2,451,800 13,294,119 Tate & Lyle Plc (United Kingdom) 519,400 5,027,063 ------------ 34,045,741 ------------ 72,560,169 ------------ TECHNOLOGY/ELECTRONICS-6.2% DATA PROCESSING-2.5% Canon, Inc. (Japan) 379,000 22,247,349 ------------ ELECTRICAL & ELECTRONICS-0.6% Compal Electronics, Inc. (GDR) (Taiwan) 1,242,544 5,599,276 ------------ ELECTRONIC COMPONENTS & INSTRUMENTS-3.1% Flextronics International Ltd. (Singapore) (a) 460,700 4,809,708 Samsung Electronics Co., Ltd. (Korea) 13,410 8,627,443 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (Taiwan) 1,414,025 14,012,988 ------------ 27,450,139 ------------ 55,296,764 ------------ UTILITIES-5.6% ELECTRIC & GAS-5.6% E.ON AG (Germany) (a) 192,800 19,937,336 Endesa, SA (Spain) 649,359 17,017,629 RWE AG (Germany) 180,000 13,245,232 ------------ 50,200,197 ------------ TELECOMMUNICATIONS-3.9% TELECOMMUNICATIONS-3.9% Singapore Telecommunications Ltd. (Singapore) 11,236,643 17,595,982 Vodafone Group Plc (United Kingdom) 7,953,800 17,116,058 ------------ 34,712,040 ------------ MEDICAL-3.5% HEALTH & PERSONAL CARE-3.5% GlaxoSmithKline Plc (United Kingdom) 373,900 9,438,892 Sanofi-Aventis (France) 251,827 22,046,783 ------------ 31,485,675 ------------ CONSTRUCTION & HOUSING-1.1% BUILDING MATERIALS-0.2% Buzzi Unicem SpA (Italy) 111,900 1,753,233 ------------ CONSTRUCTION & HOUSING-0.9% George Wimpey Plc (United Kingdom) 336,800 2,788,841 Persimmon Plc (United Kingdom) 79,131 1,709,882 Taylor Woodrow Plc (United Kingdom) 574,800 3,771,673 ------------ 8,270,396 ------------ 10,023,629 ------------ TRANSPORTATION-0.7% TRANSPORTATION-SHIPPING-0.7% Mitsui OSK Lines Ltd. (Japan) 710,000 6,209,597 ------------ CONSUMER CYCLICALS-0.3% LEISURE & TOURISM-0.3% Whitbread Plc (United Kingdom) 161,914 2,641,199 ------------ Total Common Stocks (cost $696,056,520) 849,684,755 ------------ SHORT-TERM INVESTMENT-4.3% TIME DEPOSIT-4.3% The Bank of New York 3.25%, 1/03/06 (cost $38,890,000) $ 38,890 38,890,000 ------------ TOTAL INVESTMENTS-99.0% (cost $734,946,520) 888,574,755 Other assets less liabilities-1.0% 8,689,166 ------------ NET ASSETS-100% $897,263,921 ============ 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ FORWARD EXCHANGE CURRENCY CONTRACT (SEE NOTE D) U.S. $ CONTRACT VALUE ON U.S. $ AMOUNT ORIGINATION CURRENT UNREALIZED (000) DATE VALUE DEPRECIATION - ------------------------------------------------------------------------------- SALE CONTRACT Swedish Krona, settling 3/15/06 20,780 $2,625,030 $2,629,053 $(4,023) FINANCIAL FUTURES CONTRACTS PURCHASED (SEE NOTE D) VALUE AT NUMBER OF EXPIRATION ORIGINAL DECEMBER 31, UNREALIZED TYPE CONTRACTS MONTH VALUE 2005 APPRECIATION - ------------------------------------------------------------------------------- EURO STOXX March 50 Index 284 2006 $11,887,520 $12,063,788 $176,268 (a) Non-income producing security. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt See Notes to Financial Statements. 9 INTERNATIONAL VALUE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $734,946,520) $888,574,755 Cash 945 Foreign cash, at value (cost $9,846,200) 9,829,727(a) Receivable for capital stock sold 2,077,313 Receivable for investment securities sold 1,224,534 Dividends and interest receivable 1,081,170 ------------ Total assets 902,788,444 ------------ LIABILITIES Unrealized depreciation of forward exchange currency contracts 4,023 Payable for investment securities purchased 4,060,294 Advisory fee payable 527,837 Payable for capital stock redeemed 430,893 Distribution fee payable 171,800 Payable for variation margin on futures contracts 104,230 Transfer agent fee payable 65 Accrued expenses 225,381 ------------ Total liabilities 5,524,523 ------------ NET ASSETS $897,263,921 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 47,382 Additional paid-in capital 713,922,951 Undistributed net investment income 5,617,106 Accumulated net realized gain on investment and foreign currency transactions 23,902,521 Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 153,773,961 ------------ $897,263,921 ============ CLASS A SHARES Net assets $ 56,691,574 ============ Shares of capital stock outstanding 2,973,404 ============ Net asset value per share $ 19.07 ============ CLASS B SHARES Net assets $840,572,347 ============ Shares of capital stock outstanding 44,408,361 ============ Net asset value per share $ 18.93 ============ (a) An amount of U.S. $857,376 has been segregated as collateral for the forward exchange currency contract and the financial futures contracts outstanding at December 31, 2005. See Notes to Financial Statements. 10 INTERNATIONAL VALUE PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $1,357,795) $ 11,797,123 Interest 413,890 ------------ Total investment income 12,211,013 ------------ EXPENSES Advisory fee 4,131,454 Distribution fee -- Class B 1,250,382 Custodian 400,925 Printing 88,833 Administrative 75,250 Audit 41,750 Legal 14,699 Directors' fees 1,000 Transfer agency 794 Miscellaneous 21,847 ------------ Total expenses 6,026,934 Less expenses waived and reimbursed by the Adviser (see Note B) (16,750) ------------ Net expenses 6,010,184 ------------ Net investment income 6,200,829 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 23,014,532 Futures 1,040,735 Foreign currency transactions (520,951) Net change in unrealized appreciation/depreciation of: Investments 77,296,371 Futures 110,134 Foreign currency denominated assets and liabilities (112,256) ------------ Net gain on investment and foreign currency transactions 100,828,565 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $107,029,394 ============ See Notes to Financial Statements. 11 INTERNATIONAL VALUE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============ ============ INCREASE IN NET ASSETS FROM OPERATIONS Net investment income $ 6,200,829 $ 2,393,006 Net realized gain on investment and foreign currency transactions 23,534,316 9,024,108 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities 77,294,249 44,687,280 ------------ ------------ Net increase in net assets from operations 107,029,394 56,104,394 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (300,646) (191,011) Class B (2,221,447) (705,496) Net realized gain on investment and foreign currency transactions Class A (817,290) (78,951) Class B (7,232,618) (352,748) CAPITAL STOCK TRANSACTIONS Net increase 469,268,777 132,797,869 ------------ ------------ Total increase 565,726,170 187,574,057 NET ASSETS Beginning of period 331,537,751 143,963,694 ------------ ------------ End of period (including undistributed net investment income of $5,617,106 and $2,459,321, respectively) $897,263,921 $331,537,751 ============ ============ See Notes to Financial Statements. 12 INTERNATIONAL VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein International Value Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio commenced operations on May 10, 2001. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes toFinancial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 13 INTERNATIONAL VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2005, there were no expenses waived by the Adviser. Effective January 1, 2004 through September 6, 2004, in connection with the Adviser's settlement with the New York Attorney General's Office ("NYAG") the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. For the year ended December 31, 2005, such reimbursement amounted to $75,250 of which $16,750 was voluntarily waived by the Adviser. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $1,473,388, of which $61,791 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 526,380,559 $ 96,831,011 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures and foreign currency transactions) are as follows: Cost $ 745,936,429 ============= Gross unrealized appreciation $ 148,795,339 Gross unrealized depreciation (6,157,013) ------------- Net unrealized appreciation $ 142,638,326 ============= 1. FINANCIAL FUTURES CONTRACTS The Portfolio may buy or sell financial futures contracts for the purpose of hedging its portfolio against adverse effects of anticipated movements in the market. The Portfolio bears the market risk that arises from changes in the value of these financial instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. 15 INTERNATIONAL VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. 2. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 3. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 528,832 738,827 $ 9,037,927 $ 10,579,597 Shares issued in reinvestment of dividends and distributions 69,653 19,619 1,117,935 269,962 Shares redeemed (444,976) (290,296) (7,683,497) (4,116,268) ----------- ----------- ------------- ------------- Net increase 153,509 468,150 $ 2,472,365 $ 6,733,291 =========== =========== ============= ============= CLASS B Shares sold 27,316,701 9,118,920 $ 468,166,930 $ 131,486,643 Shares issued in reinvestment of dividends and distributions 592,360 77,188 9,454,065 1,058,244 Shares redeemed (628,505) (455,690) (10,824,583) (6,480,309) ----------- ----------- ------------- ------------- Net increase 27,280,556 8,740,418 $ 466,796,412 $ 126,064,578 =========== =========== ============= ============= NOTE F: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Concentration of Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE H: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 5,167,063 $ 1,328,206 Net long-term capital gains $ 5,404,938 $ -0- -------------- -------------- Total distributions paid $ 10,572,001 $ 1,328,206 ============== ============== 17 INTERNATIONAL VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 21,844,176 Undistributed long-term capital gains 18,982,242 Accumulated capital and other losses (320,905)(a) Unrealized appreciation/(depreciation) 142,788,075(b) -------------- Total accumulated earnings/(deficit) $ 183,293,588 ============== (a) Net foreign currency losses and passive foreign investment company losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred until January 1, 2006, post-October foreign currency losses of $2,951, and post-October passive foreign investment company losses of $317,954. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales, the tax treatment of passive foreign investment companies, and the recognition for tax purposes of gains/losses on certain derivative instruments. During the current fiscal year, permanent differences, primarily due to tax treatment of foreign currency gains and losses, resulted in a net decrease in undistributed net investment income, and an increase in accumulated net realized gain on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE I: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. 19 INTERNATIONAL VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 20 INTERNATIONAL VALUE PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- MAY 10, 2001(a) YEAR ENDED DECEMBER 31, TO -------------------------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $16.70 $13.45 $9.35 $9.87 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (b)(c) .26 .20 .13 .13 .04 Net realized and unrealized gain (loss) on investment and foreign currency transactions 2.49 3.16 4.01 (.64) (.17) Net increase (decrease) in net asset value from operations 2.75 3.36 4.14 (.51) (.13) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.10) (.08) (.04) (.01) -0- Distributions from net realized gain on investment transactions (.28) (.03) -0- -0- -0- Total dividends and distributions (.38) (.11) (.04) (.01) -0- Net asset value, end of period $19.07 $16.70 $13.45 $9.35 $9.87 TOTAL RETURN Total investment return based on net asset value (d) 16.92% 25.12% 44.36% (5.15)% (1.30)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $56,692 $47,095 $31,628 $14,391 $3,913 Ratio to average net assets of: Expenses, net of waivers and reimbursements .86% .95% 1.20% 1.17% .95%(e) Expenses, before waivers and reimbursements .87% 1.13% 1.49% 2.20% 8.41%(e) Net investment income (c) 1.54% 1.42% 1.16% 1.30% .59%(e) Portfolio turnover rate 18% 23% 14% 19% 22%
See footnote summary on page 22. 21 INTERNATIONAL VALUE PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B --------------------------------------------------------------- AUGUST 15, 2001(f) YEAR ENDED DECEMBER 31, TO -------------------------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $16.61 $13.39 $9.33 $9.87 $10.25 INCOME FROM INVESTMENT OPERATIONS Net investment income (b)(c) .19 .15 .08 .08 .01 Net realized and unrealized gain (loss) on investment and foreign currency transactions 2.50 3.16 4.01 (.61) (.39) Net increase (decrease) in net asset value from operations 2.69 3.31 4.09 (.53) (.38) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.09) (.06) (.03) (.01) -0- Distributions from net realized gain on investment transactions (.28) (.03) -0- -0- -0- Total dividends and distributions (.37) (.09) (.03) (.01) -0- Net asset value, end of period $18.93 $16.61 $13.39 $9.33 $9.87 TOTAL RETURN Total investment return based on net asset value (d) 16.58% 24.86% 43.95% (5.36)% (3.71)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $840,572 $284,443 $112,336 $26,133 $1,828 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.11% 1.20% 1.45% 1.44% 1.20%(e) Expenses, before waivers and reimbursements 1.12% 1.38% 1.74% 2.47% 9.31%(e) Net investment income (c) 1.08% 1.07% .38% .86% .17%(e) Portfolio turnover rate 18% 23% 14% 19% 22%
(a) Commencement of operations. (b) Based on average shares outstanding. (c) Net of expenses reimbursed or waived by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. (f) Commencement of distribution. 22 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN INTERNATIONAL VALUE PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein International Value Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein International Value Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 23 INTERNATIONAL VALUE PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein International Value Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.A. Diversification 33,823,179 1,065,743 1,240,825 1 3.B. Issuing Senior Securities 33,629,771 1,278,785 1,221,191 1 and Borrowing Money 3.D. Concentration of Investments 33,977,539 959,355 1,192,854 1 3.E. Real Estate and Companies 34,081,553 934,274 1,113,920 1 that Deal in Real Estate 3.F. Commodities, Commodity 33,572,262 1,420,144 1,137,342 1 Contracts and Futures Contracts 3.G. Loans 33,607,220 1,304,672 1,217,855 1 3.I. Exercising Control 34,062,394 848,741 1,218,612 1 3.N. Pledging, Hypothecating, 33,419,882 1,444,295 1,265,570 1 Mortgaging, or Otherwise Encumbering Assets 4.A. The reclassification of the 33,583,833 1,247,242 1,298,672 1 Portfolio's fundamental investment objective as non- fundamental with no change to the investment objective.
24 INTERNATIONAL VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer THOMAS J. BARDONG, Vice President HENRY S. D'AURIA(2), Vice President SHARON E. FAY(2), Vice President GIULIO A. MARTINI(2), Vice President KEVIN F. SIMMS(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the International Value Investment Policy Group. Ms. Sharon E. Fay, Mr. Kevin F. Simms, Mr. Henry D'Auria and Mr. Giulio A. Martini are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 25 INTERNATIONAL VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, 1345 Avenue of the Americas Management Corporation ("ACMC") since Inc.; SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. Prior 10/23/29 to joining ACMC in 1984, he was Chief Financial (1990) Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
26 INTERNATIONAL VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and The Merger Management L.P. (investment advisory firm) from December 1997 Fund 1345 Avenue of the Americas until December 2003. Prior thereto, Chairman New York, NY 10105 and CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President Lucas Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/1941 changed from DuPont Photomasks. Prior to Chairman of the (2005) the company's sale in 2005, he was Chairman Board of the and CEO. He has also been Principal of Smithsonian's Turner Venture Associates since 1993. National Museum of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 27 INTERNATIONAL VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Henry S. D'Auria Vice President Senior Vice President of ACMC**, with which he has 12/23/61 been associated since prior to 2001. He has served as Chief Investment Officer of Emerging Markets Value Equities since 2002 and Co-Chief Investment Officer of International Value Equities at ACMC** since June 2003. Sharon E. Fay Vice President Executive Vice President of ACMC**, with which she 6/19/60 has been associated since prior to 2001. She has served as Chief Investment Officer of Global Value Equities since June 2003 and of U.K. and European Value Equities since prior to 2001. She has also chaired the Global, European, and U.K. Value Investment Policy Groups since prior to 2001. Giulio A. Martini Vice President Senior Vice President of ACMC**, with which he has 7/2/55 been associated since prior to 2001. He has served as Head of Quantitative and Currency Strategies Value Equities since July 2003. Kevin F. Simms Vice President Senior Vice President of ACMC** and a Co-Chief 3/23/66 Investment Officer of International Value Equities since 2003, which he assumed in addition to his role as Director of Research of Global and International Value Equities at ACMC** since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001.
28 INTERNATIONAL VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
NAME, ADDRESS* PRINCIPAL POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 29 INTERNATIONAL VALUE PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein International Value Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors noted that in the Portfolio's latest fiscal year the Adviser had waived reimbursement payments from the Portfolio in light of the expense caps currently in effect for the Portfolio. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation 31 INTERNATIONAL VALUE PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 10 to 9 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 12 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1- and 3-year periods, and as compared to the Morgan Stanley Capital International Europe, Australasia and Far East Index (Net) (the "Index") for periods ended September 30, 2005 over the year to date, 1- and 3-year and since inception periods (May 2001 inception). The directors noted that in the Performance Group and Performance Universe comparisons, the Portfolio was in the 1st quintile in all 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ periods reviewed. The comparative information showed that the Portfolio outperformed the Index in all periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was highly satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was materially lower than the Expense Group median. The directors noted that in the Portfolio's latest fiscal year, the administrative expense reimbursement of 3 basis points had been waived by the Adviser. The directors also noted that the Portfolio's total expense ratio, which had been capped by the Adviser (although the expense ratio was currently significantly less than the cap), was slightly lower than the Expense Group median and the same as the Expense Universe median. The directors concluded that the Portfolio's expense ratio was satisfactory. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors 33 INTERNATIONAL VALUE PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 34 INTERNATIONAL VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein International Value Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- International 75 bp on 1st $2.5 billion International Value Portfolio 65 bp on next $2.5 billion 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- International Value Portfolio(3) $69,000 0.03% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. (3) The expense reimbursement has been waived by the Adviser. 35 INTERNATIONAL VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's most recent fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. It should be noted that the Fund was operating below its expense cap in the latest fiscal year; accordingly, the expense limitation undertaking of that Fund was of no effect. The gross expense ratios of the Fund during the most recently completed fiscal year are also listed below. EXPENSE CAP PURSUANT TO EXPENSE LIMITATION GROSS FISCAL FUND UNDERTAKING EXPENSE RATIO YEAR END - ------------------------------------------------------------------------------- International Value Class A 1.20% 1.13% December 31 Portfolio Class B 1.45% 1.38% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- International Value $714.8 International Strategic 0.528% Portfolio Value Schedule 90 bp on 1st $25 m 70 bp on next $25 m 60 bp on next $50 m 50 bp on the balance Minimum account size $25 m 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: FUND ACITM MUTUAL FUND(4) FEE - ------------------------------------------------------------------------------- International Value Alliance International Value 0.30% Portfolio TRB (Sumitomo)(5) The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: FUND FEE SCHEDULE - ------------------------------------------------------------------------------- International Value Client # 1 0.65% on first $75 million Portfolio 0.50% on next $25 million 0.40% on next $200 million 0.35% on next $450 million 0.30% thereafter Client # 2(6) 0.60% on first $1 billion 0.55% on next $500 million 0.50% on next $500 million 0.45% on next $500 million 0.40% thereafter Client # 3 Base fee of 0.22% on first $1 billion 0.18% on next $1.5 billion 0.16% thereafter +/- Performance Fee(7) It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. In addition, to the extent that certain of these sub-advisory relationships are with affiliates of the Adviser, the fee schedules may not reflect arms-length bargaining or negotiations. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. (4) The name in parenthesis is the distributor of the fund. (5) The ACITM fund is not a retail fund. (6) This is the fee schedule of a fund managed by an affiliate of the Adviser. (7) The performance fee is calculated by multiplying the Base Fee during the period by an adjustment factor that considers the excess or under performance of the fund versus its benchmark, the Morgan Stanley Capital International All World Index Excluding US (ACWI ex US) over a 60 month rolling period. The fund's annualized effective advisory fee rate over the most recent four quarterly payments, including base fee plus performance fee, is 0.23%. 37 INTERNATIONAL VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(8) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- International Value Portfolio 0.750 0.852 2/10 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(9) and Lipper Expense Universe(10). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: EXPENSE LIPPER LIPPER LIPPER LIPPER RATIO UNIVERSE UNIVERSE GROUP GROUP FUND (%)(11) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- International 0.958 0.958 7/13 0.980 5/10 Value Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund increased during calendar 2004 relative to 2003. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. (8) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the fee waiver or expense reimbursement that effectively reduce the contractual fee rates. In addition, the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (9) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (10) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (11) Most recent fiscal year end Class A share total expense ratio. 38 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ---------------------------------------------------------------------- International Value Portfolio $435,830 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ---------------------------------------------------------------------- International Value Portfolio $372,705 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(12) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. (12) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 39 INTERNATIONAL VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1 and 3 year performance rankings of the Fund(13) relative to its Lipper Performance Group(14) and Lipper Performance Universe(15) for the period ended September 30, 2005. INTERNATIONAL VALUE PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 2/10 2/12 3 year 1/9 1/10 Set forth below are the 1, 3 year and since inception performance returns of the Fund (in bold)(16) versus its benchmark(17). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- FUND 1 YEAR 3 YEAR SINCE INCEPTION - ------------------------------------------------------------------------------- INTERNATIONAL VALUE PORTFOLIO 26.97 30.79 15.80 MSCI EAFE Index (Net) 25.79 24.61 7.14 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (13) The performance rankings are for the Class A shares of the Fund. (14) The Lipper Performance Group is identical to the Lipper Expense Group. (15) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (16) The performance returns are for the Class A shares of the Fund. (17) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 40 (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN REAL ESTATE INVESTMENT PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. REAL ESTATE INVESTMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 7, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Real Estate Investment Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES Until February 1, 2006, the Portfolio's investment objective was total return from long-term growth of capital and income principally through investing in the equity securities of companies primarily engaged in, or related to, the real estate industry. As of February 1, 2006, the Portfolio's investment objective is total return from long-term growth of capital and income. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the National Association of Real Estate Investment Trusts (NAREIT) Equity Index, for the one- and five-year periods ended December 31, 2005 and since the Portfolio's Class A shares inception on January 9, 1997. Returns are also shown for the broad market, as represented by the S&P 500 Stock Index. For the annual reporting period ended December 31, 2005, the Portfolio underperformed its benchmark, the NAREIT Equity Index, but outperformed the broad market, as represented by the S&P 500 Stock Index. The Portfolio's underperformance was driven by unfavorable sector selection, while security selection provided an offset to the negative sector returns. The main detractor to Portfolio performance from a sector perspective was the Portfolio's overweight position in lodging. The 12-month period for this property type was characterized by recurring investor anxiety over a number of macro threats to the economy. Investors have tended to link the current health of the economy to their expectations for lodging. Anxiety over the effect of high oil prices on the economy impacted investor sentiment towards lodging stocks throughout the year. Investor concerns notwithstanding, lodging fundamentals have continued to improve throughout the year; revenue per average room growth has exceeded expectations for 2005 and prospects for 2006 remain solid. Underpinning solid fundamentals is a healthy supply/demand balance. Supply growth under 1.5% for 2006 is expected to lag lodging demand, which should lend support to strong occupancy and pricing. The Portfolio's lower-than-market weight in the self storage sector resulted in lost relative performance for the year as this property type had stellar performance during 2005. Security selection was a positive contributor in the office/industrial, lodging and retail sectors during the year. The Portfolio's holdings in the office sector produced strong performance as regionally-focused investments more than offset the poor performance of some more broadly diversified office investments. Office players with a focus in either specialized markets or niche geographies, characterized by strong growth and low vacancy, have performed better than national office companies. The latter continue to face challenging conditions as well as persistent higher-than-expected vacancy rates in some of their markets. The largest detractors during the year were investments in two companies that experienced meaningful negative earnings surprises in one instance and a lowering of growth expectations in the other. MARKET REVIEW AND INVESTMENT STRATEGY During 2005, improvement in real estate fundamentals continued across all property types as the U.S. economy strengthened, employment increased and consumer spending remained robust. As of the end of the year, the overall REIT FFO (funds from operations) guidance for 2006 reflects an average 7%-9% growth for the sector. Multi-family (apartments) and industrial property owners are now showing the best same-store sales growth comparisons since the beginning of 2001. The regional mall owners continue to post stellar results. Capital flows into real estate have continued unabated during the year. Institutions and private investors continued to allocate funds to real estate and appeared ready to exploit valuation discrepancies between public and private markets. Two separate transactions during the fourth quarter had a property opportunity fund commit to buy two small capitalization apartment owners; both offers reflected a premium to the market price. In total, over the course of the year, there were 10 privatizations and acquisitions involving $26 billion of equity and debt. On average, REITs continue to trade in line with private market valuations. Real estate investment trust performance, as measured by the NAREIT Equity Index, gained 12.16% during the 12-month period ended December 31, 2005, exceeding the S&P 500 Stock Index return of 4.91%. All sectors of the NAREIT Equity Index had a healthy return, except for health care. Self-storage, residential and retail achieved the best returns. Throughout most of the 12-month period, the Portfolio held overweight positions in the office/industrial and lodging sectors and underweight positions in the residential, health care, specialty/diversified and self storage sectors. The Portfolio continues to maintain a pro-cyclical bias and to overweight economically sensitive sectors. 1 REAL ESTATE INVESTMENT PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE NEITHER THE UNMANAGED STANDARD & POOR'S (S&P) 500 STOCK INDEX NOR THE UNMANAGED NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY INDEX REFLECTS FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The S&P 500 Stock Index is comprised of 500 U.S. companies and is a common measure of the performance of the overall U.S. stock market. The NAREIT Equity Index is a market-value-weighted index based upon the last closing price of the month for tax-qualified real estate investment trusts (REITs) listed on the NYSE, AMEX and NASDAQ. An investor cannot invest directly in an index, and its results are not indicative of any specific investment, including AllianceBernstein Real Estate Investment Portfolio. A WORD ABOUT RISK While the Portfolio invests principally in the equity securities of real estate investment trusts, in order to achieve its investment objectives, the Portfolio may invest up to 20% of its total assets in mortgage-backed securities which involve risks described in the prospectus. The Portfolio will invest substantially all of its assets in REITs and real estate companies and is subject to greater risk than would a fund with a more diversified portfolio. An investment in the Portfolio is subject to certain risks associated with the direct ownership of real estate and with the real estate industry in general, including declines in the value of real estate, general and local economic conditions and interest rates. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 REAL ESTATE INVESTMENT PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS SINCE INCEPTION* - ------------------------------------------------------------------------------------------ AllianceBernstein Real Estate Investment Portfolio Class A 11.67% 19.12% 12.51% - ------------------------------------------------------------------------------------------ AllianceBernstein Real Estate Investment Portfolio Class B 11.40% n/a 20.94% - ------------------------------------------------------------------------------------------ S&P 500 Stock Index 4.91% 0.54% 7.42% - ------------------------------------------------------------------------------------------ NAREIT Equity Index 12.16% 19.08% 12.40% - ------------------------------------------------------------------------------------------
n/a: not applicable * Since inception of the Portfolio's Class A shares on 1/9/97 and Class B shares on 4/24/01. The since inception return for the NAREIT Equity Index is from the closest month end to the Portfolio's Class A share inception date, which is 12/31/96. ALLIANCEBERNSTEIN REAL ESATE INVESTMENT PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 1/9/97*-12/31/05 ALLIANCEBERNSTEIN REAL ESTATE INVESTMENT PORTFOLIO CLASS A: $28,792 S&P 500 STOCK INDEX: $19,016 NAREIT EQUITY INDEX: $28,626 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein Real Estate Investment S&P 500 NAREIT Portfolio Class A Stock Index Equity Index - ------------------------------------------------------------------------------- 1/9/97* $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 12,340 $ 13,081 $ 12,026 12/31/98 $ 9,987 $ 16,822 $ 9,921 12/31/99 $ 9,476 $ 20,360 $ 9,463 12/31/00 $ 12,006 $ 18,507 $ 11,958 12/31/01 $ 13,301 $ 16,308 $ 13,624 12/31/02 $ 13,647 $ 12,706 $ 14,145 12/31/03 $ 19,010 $ 16,349 $ 19,397 12/31/04 $ 25,784 $ 18,126 $ 25,523 12/31/05 $ 28,792 $ 19,016 $ 28,626 * Since inception of the Portfolio's Class A shares on 1/9/97. Daily data is not available for the NAREIT Equity Index until 12/31/98. The first plot point for the NAREIT Equity Index is measured from 12/31/96 to 12/31/97. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Real Estate Investment Portfolio Class A shares (from 1/9/97* to 12/31/05) as compared to the performance of the Portfolio's benchmark, the NAREIT Equity Index, as well as the broad market, as represented by the S&P 500 Stock Index. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 REAL ESTATE INVESTMENT PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED REAL ESTATE PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,077.08 $4.55 0.87% Hypothetical (5% return before expenses) $1,000 $1,020.82 $4.43 0.87% CLASS B Actual $1,000 $1,076.10 $5.86 1.12% Hypothetical (5% return before expenses) $1,000 $1,019.56 $5.70 1.12%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 REAL ESTATE INVESTMENT PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Simon Property Group, Inc. $ 6,935,015 7.5% ProLogis 5,807,296 6.3 General Growth Properties, Inc. 5,432,044 5.9 Vornado Realty Trust 4,181,847 4.6 Public Storage, Inc. 3,981,936 4.3 Host Marriott Corp. 3,560,705 3.9 Equity Residential 3,532,536 3.8 Alexandria Real Estate Equities, Inc. 3,131,450 3.4 Boston Properties, Inc. 2,957,787 3.2 Corporate Office Properties Trust 2,956,928 3.2 ------------ ----- $ 42,477,544 46.1% INDUSTRY DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF INDUSTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Office $ 18,661,253 20.3% Apartments 14,977,870 16.3 Regional Malls 13,857,567 15.1 Shopping Centers 12,055,133 13.1 Lodging 8,938,565 9.7 Industrial 8,732,212 9.5 Diversified 6,025,082 6.5 Storage 4,625,425 5.0 Health Care 1,699,814 1.8 ------------ ----- Total Investments* 89,572,921 97.3 Cash and receivables, net of liabilities 2,463,533 2.7 ------------ ----- Net Assets $ 92,036,454 100.0% * Excludes short-term investments. Please Note: The industry classifications presented herein are based on the industry categorization methodology of the Adviser. 5 REAL ESTATE INVESTMENT PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- COMMON STOCKS-97.3% REAL ESTATE INVESTMENT TRUSTS-97.3% OFFICE-20.3% Alexandria Real Estate Equities, Inc. 38,900 $ 3,131,450 Boston Properties, Inc. 39,900 2,957,787 Brookfield Properties Corp. (Canada) 91,300 2,686,046 CarrAmerica Realty Corp. 20,400 706,452 Corporate Office Properties Trust 83,200 2,956,928 Equity Office Properties Trust 46,000 1,395,180 Maguire Properties, Inc. 52,400 1,619,160 Reckson Associates Realty Corp. 24,200 870,716 SL Green Realty Corp. 30,600 2,337,534 ------------ 18,661,253 ------------ APARTMENTS-16.3% Archstone-Smith Trust 68,300 2,861,087 Avalonbay Communities, Inc. 27,300 2,436,525 Camden Property Trust 35,500 2,056,160 Equity Residential 90,300 3,532,536 Essex Property Trust, Inc. 12,100 1,115,620 Mid-America Apartment Communities, Inc. 32,700 1,585,950 United Dominion Realty Trust, Inc. 59,300 1,389,992 ------------ 14,977,870 ------------ REGIONAL MALLS-15.1% General Growth Properties, Inc. 115,600 5,432,044 Simon Property Group, Inc. 90,500 6,935,015 The Macerich Co. 22,200 1,490,508 ------------ 13,857,567 ------------ SHOPPING CENTERS-13.1% Developers Diversified Realty Corp. 45,600 2,144,112 Federal Realty Investment Trust 24,800 1,504,120 Kimco Realty Corp. 87,300 2,800,584 Pan Pacific Retail Properties, Inc. 23,900 1,598,671 Regency Centers Corp. 47,800 2,817,810 Tanger Factory Outlet Centers, Inc. 41,400 1,189,836 ------------ 12,055,133 ------------ LODGING-9.7% Host Marriott Corp. 187,900 3,560,705 LaSalle Hotel Properties 25,300 929,016 Starwood Hotels & Resorts Worldwide, Inc. 36,300 2,318,118 Strategic Hotel Capital, Inc. 16,000 329,280 Sunstone-Hotel Investors, Inc. 67,800 1,801,446 ------------ 8,938,565 ------------ INDUSTRIAL-9.5% EastGroup Properties, Inc. 49,100 2,217,356 First Potomac Realty Trust 26,600 707,560 ProLogis 124,300 5,807,296 ------------ 8,732,212 ------------ DIVERSFIED-6.5% Cousins Properties, Inc. 22,800 645,240 Digital Realty Trust, Inc. 37,500 848,625 iStar Financial, Inc. 9,800 349,370 Vornado Realty Trust 50,100 4,181,847 ------------ 6,025,082 ------------ STORAGE-5.0% Public Storage, Inc. 58,800 3,981,936 Sovran Self Storage, Inc. 13,700 643,489 ------------ 4,625,425 ------------ HEALTH CARE-1.8% Windrose Medical Properties Trust 51,900 771,234 Ventas, Inc. 29,000 928,580 ------------ 1,699,814 ------------ Total Common Stocks (cost $55,120,777) 89,572,921 ------------ SHORT-TERM INVESTMENT TIME DEPOSIT-3.6% The Bank of New York 3.25%, 1/03/06 (cost $3,274,000) $ 3,274 3,274,000 ------------ TOTAL INVESTMENTS-100.9% (cost $58,394,777) 92,846,921 Other assets less liabilities-(0.9%) (810,467) ------------ NET ASSETS-100% $ 92,036,454 ============ See Notes to Financial Statements. 6 REAL ESTATE INVESTMENT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $58,394,777) $ 92,846,921 Cash 406 Dividends and interest receivable 376,289 Receivable for investment securities sold 272,269 Receivable for capital stock sold 94,542 ------------ Total assets 93,590,427 ------------ LIABILITIES Payable for investment securities purchased 1,410,647 Advisory fee payable 43,450 Payable for capital stock redeemed 13,984 Distribution fee payable 5,271 Transfer agent fee payable 57 Accrued expenses 80,564 ------------ Total liabilities 1,553,973 ------------ NET ASSETS $ 92,036,454 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 4,610 Additional paid-in capital 42,664,073 Undistributed net investment income 1,945,567 Accumulated net realized gain on investment transactions 12,970,060 Net unrealized appreciation of investments 34,452,144 ------------ $ 92,036,454 ============ CLASS A SHARES Net assets $ 67,160,938 ============ Shares of capital stock outstanding 3,362,009 ============ Net asset value per share $ 19.98 ============ CLASS B SHARES Net assets $ 24,875,516 ============ Shares of capital stock outstanding 1,247,814 ============ Net asset value per share $ 19.94 ============ See Notes to Financial Statements. 7 REAL ESTATE INVESTMENT PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $9,554) $ 2,898,045 Interest 41,546 ------------ Total investment income 2,939,591 ------------ EXPENSES Advisory fee 596,608 Distribution fee -- Class B 91,425 Custodian 119,712 Administrative 75,250 Printing 43,537 Audit 41,750 Legal 5,783 Directors' fees 3,000 Transfer agency 794 Miscellaneous 8,543 ------------ Total expenses 986,402 ------------ Net investment income 1,953,189 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions 25,044,217(a) Net change in unrealized appreciation/depreciation of investments (19,870,542) ------------ Net gain on investment transactions 5,173,675 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 7,126,864 ============ (a) On April 29, 2005, the Portfolio had a redemption-in-kind with total proceeds in the amount of $59,498,847. The net realized gain of the transactions of $11,771,415 will not be realized for tax purposes. See Notes to Financial Statements. 8 REAL ESTATE INVESTMENT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============ ============ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,953,189 $ 2,755,268 Net realized gain on investment transactions 25,044,217 9,975,335 Net change in unrealized appreciation/ depreciation of investments (19,870,542) 27,859,871 ------------ ------------ Net increase in net assets from operations 7,126,864 40,590,474 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (2,199,640) (1,670,715) Class B (550,085) (1,210,837) Net realized gain on investment transactions Class A (7,012,167) -0- Class B (2,183,116) -0- CAPITAL STOCK TRANSACTIONS Net increase (decrease) (59,043,161) 5,553,162 ------------ ------------ Total increase (decrease) (63,861,305) 43,262,084 NET ASSETS Beginning of period 155,897,759 112,635,675 ------------ ------------ End of period (including undistributed net investment income of $1,945,567 and $2,742,103, respectively) $ 92,036,454 $155,897,759 ============ ============ See Notes to Financial Statements. 9 REAL ESTATE INVESTMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Real Estate Investment Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek total return from long-term growth of capital and income principally through investing in equity securities of companies that are primarily engaged in or related to the real estate industry. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 10 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .90% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at 11 REAL ESTATE INVESTMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $85,737, of which $29,582 and $0, respectively, was paid to Sanford C. Bernstein &Co. LLC, and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U. S. government securities) $ 50,479,688 $ 55,348,642 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost $ 58,484,239 ============= Gross unrealized appreciation $ 34,396,083 Gross unrealized depreciation (33,401) ------------- Net unrealized appreciation $ 34,362,682 ============= 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the differ- 12 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ence between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as net unrealized appreciation or depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 13 REAL ESTATE INVESTMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 482,355 892,997 $ 9,469,405 $ 15,537,262 Shares issued in reinvestment of dividends and distributions 503,377 105,875 9,211,808 1,670,715 Shares redeemed (1,904,173) (1,116,458) (37,151,995) (18,939,018) ----------- ----------- ------------- ------------- Net decrease (918,441) (117,586) $ (18,470,782) $ (1,731,041) =========== =========== ============= ============= CLASS B Shares sold 492,284 980,923 $ 9,499,398 $ 16,451,716 Shares issued in reinvestment of dividends and distributions 149,437 77,074 2,733,201 1,210,837 Shares redeemed (2,678,456) (597,834) (52,804,978) (10,378,350) ----------- ----------- ------------- ------------- Net increase (decrease) (2,036,735) 460,163 $ (40,572,379) $ 7,284,203 =========== =========== ============= ============= NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Concentration of Risk--Although the Portfolio does not invest directly in real estate, it invests primarily in Real Estate Equity Securities and has a policy of concentration of its investments in the real estate industry. Therefore, an investment in the Portfolio is subject to certain risks associated with the direct ownership of real estate and with the real estate industry in general. To the extent that assets underlying the Portfolio's investments are concentrated geographically, by property type or in certain other respects, the Portfolio may be subject to additional risks. In addition, investing in Real Estate Investment Trusts ("REITs") involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs are also 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. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims of losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 6,167,554 $ 2,881,552 Net long-term capital gains 5,777,454 -0- -------------- -------------- Total taxable distributions 11,945,008 2,881,552 -------------- -------------- Total distributions paid $ 11,945,008 $ 2,881,552 ============== ============== As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 2,981,167 Undistributed long term capital gain 12,023,922 Unrealized appreciation/(depreciation) 34,362,682(a) -------------- Total accumulated earnings/(deficit) $ 49,367,771 ============== (a) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to the tax treatment of the redemption in kind, resulted in a net decrease in accumulated net capital gains and an increase in additional paid in capital. This reclassification had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. 15 REAL ESTATE INVESTMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006, the Portfolio's investment objective is total return from long-term growth of capital and income. 17 REAL ESTATE INVESTMENT PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $20.66 $15.62 $11.52 $11.50 $10.75 INCOME FROM INVESTMENT OPERATIONS Net investment income (a) .32 .39(b) .46 .44(b) .47(b) Net realized and unrealized gain (loss) on investment transactions 1.84 5.05 3.99 (.12) .67 Net increase in net asset value from operations 2.16 5.44 4.45 .32 1.14 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.68) (.40) (.35) (.30) (.39) Distributions from net realized gain on investment transactions (2.16) -0- -0- -0- -0- Total dividends and distributions (2.84) (.40) (.35) (.30) (.39) Net asset value, end of period $19.98 $20.66 $15.62 $11.52 $11.50 TOTAL RETURN Total investment return based on net asset value (c) 11.67% 35.63% 39.30% 2.60% 10.79% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $67,161 $88,441 $68,717 $50,062 $39,417 Ratio to average net assets of: Expenses, net of waivers and reimbursements .83% .77% 1.24% 1.06% .95% Expenses, before waivers and reimbursements .83% .99% 1.24% 1.29% 1.39% Net investment income 1.64% 2.26%(b) 3.50% 3.70%(b) 4.32%(b) Portfolio turnover rate 46% 35% 23% 31% 33%
See footnote summary on page 19. 18 REAL ESTATE INVESTMENT PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B --------------------------------------------------------------- APRIL 24, 2001(d) YEAR ENDED DECEMBER 31, TO -------------------------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $20.54 $15.55 $11.48 $11.49 $10.46 INCOME FROM INVESTMENT OPERATIONS Net investment income (a) .38 .34(b) .43 .40(b) .31(b) Net realized and unrealized gain (loss) on investment transactions 1.72 5.03 3.98 (.11) 1.11 Net increase in net asset value from operations 2.10 5.37 4.41 .29 1.42 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.54) (.38) (.34) (.30) (.39) Distributions from net realized gain on investment transactions (2.16) -0- -0- -0- -0- Total dividends and distributions (2.70) (.38) (.34) (.30) (.39) Net asset value, end of period $19.94 $20.54 $15.55 $11.48 $11.49 TOTAL RETURN Total investment return based on net asset value (c) 11.40% 35.28% 39.02% 2.31% 13.77% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $24,875 $67,457 $43,919 $16,626 $5,603 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.06% 1.02% 1.49% 1.31% 1.20%(e) Expenses, before waivers and reimbursements 1.06% 1.24% 1.49% 1.52% 1.84%(e) Net investment income 2.11% 2.02%(b) 3.22% 3.43%(b) 4.40%(b)(e) Portfolio turnover rate 46% 35% 23% 31% 33%
(a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (d) Commencement of distribution. (e) Annualized. 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN REAL ESTATE INVESTMENT PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Real Estate Investment Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Real Estate Investment Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 20 REAL ESTATE INVESTMENT PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc.-AllianceBernstein Real Estate Investment Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.A. Diversification 4,240,735 117,336 167,417 0 3.B. Issuing Senior Securities 4,229,311 135,086 161,091 0 and Borrowing Money 3.D. Concentration of Investments 4,227,289 126,360 171,839 0 3.E. Real Estate and Companies that 4,260,683 94,874 169,930 0 Deal in Real Estate 3.F. Commodities, Commodity 4,209,170 151,177 165,141 0 Contracts and Futures Contracts 3.G. Loans 4,220,534 150,873 154,082 0 3.H. Joint Securities Trading 4,203,969 159,593 161,926 0 Accounts 3.I. Exercising Control 4,241,142 133,695 150,651 0 3.K. Oil, Gas, and Other Types of 4,253,880 113,616 157,992 0 Minerals or Mineral Leases 3.L. Purchases of Securities on 4,207,091 151,663 166,733 0 Margin
21 REAL ESTATE INVESTMENT PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.M. Short Sales 4,204,322 170,327 150,839 0 3.N. Pledging, Hypothecating, 4,216,523 141,615 167,349 0 Mortgaging, or Otherwise Encumbering Assets 4.B. The reclassification as non- 4,197,958 164,824 162,706 0 fundamental and with changes to the Portfolio's investment objective.
22 REAL ESTATE INVESTMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer THOMAS J. BARDONG, Vice President TERESA MARZIANO(2), Vice President JOSEPH G. PAUL(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. The management of and investment decisions for the Portfolio's portfolio are made by the REIT Investment Policy Group. Mr. Joseph G. Paul and Ms. Teresa Marziano are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 23 REAL ESTATE INVESTMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC responsible Spring Lake, NJ 07762 for mutual fund administration. Prior to joining 10/23/29 ACMC in 1984, he was Chief Financial Officer of (1990) Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
24 REAL ESTATE INVESTMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from 1997 until 1345 Avenue of the Americas December 2003. Prior thereto, Chairman and New York, NY 10105 CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation (semi- P.O. Box 128 (semi-conductors) and of SRC Computers Inc., conductors); Cirrus Logic Glenbrook, NV 89413 with which he has been associated since prior to Corporation (semi-conductors); 3/7/36 2001. He is also President of the Arbor Company Novellus Corporation (semi- (2005) (private family investments). conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, Texas, the George Lucas Penthouse 10 from 2003 to present, and President since company Educational Foundation; San Francisco, CA 94104-3402 acquired in 2005, and name changed from DuPont and Chairman of the Board 10/10/41 Photomasks. Prior to the company's sale in 2005, of the Smithsonian's (2005) he was Chairman and CEO. He has also been National Museum of Principal of Turner Venture Associates since 1993. Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 25 REAL ESTATE INVESTMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION(1) Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Teresa Marziano Vice President Senior Vice President of ACMC**, with which she has 9/1/54 been associated since prior to 2001. Joseph G. Paul Vice President Senior Vice President of ACMC**, with which he has 2/6/60 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 26 REAL ESTATE INVESTMENT PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Real Estate Investment Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 27 REAL ESTATE INVESTMENT PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific prof- 28 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ itability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 to 11 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 17 to 13 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3- and 5-year periods, and as compared to the National Association of Real Estate Investment Trusts Equity Index (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3- and 5-year and since inception periods (January 1997 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 4th quintile in the 1-year period, 2nd quintile in the 3-year period (adjusted to 3rd quintile by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles) and 1st quintile in the 5-year period (adjusted to 2nd quintile by the Senior Officer), and in the 29 REAL ESTATE INVESTMENT PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Performance Universe comparison the Portfolio was in the 3rd quintile in the 1-year period, 2nd quintile in the 3-year period (adjusted to 3rd quintile by the Senior Officer) and 1st quintile in the 5-year period (adjusted to 2nd quintile by the Senior Officer). The comparative information showed that the Portfolio outperformed the Index in the 3-year period and slightly underperformed the Index in all other periods reviewed. Based on their review and their discussion of the reasons for the Portfolio's recent underperformance with the Adviser, the directors retained confidence in the Adviser's ability to continue to advise the Portfolio and concluded that the Portfolio's performance was understandable. The directors informed the Adviser that they planned to closely monitor the Portfolio's performance. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be slightly higher than that in the Portfolio's Advisory Agreement prior to taking account of the administrative expense reimbursements made to the Adviser. The directors noted that adding the five basis point administrative expense reimbursement to the Adviser resulted in a somewhat lower rate of total compensation to the Adviser under the institutional fee schedule than what is paid by the Portfolio. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 55 basis points was significantly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 5 basis points. The directors also noted that the Portfolio's total expense ratio was materially lower than the medians for the Expense Group and the Expense Universe. The directors concluded that the Portfolio's expense ratio was satisfactory. 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 31 REAL ESTATE INVESTMENT PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Real Estate Investment Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Value 55 bp on 1st $2.5 billion Real Estate Investment Portfolio 45 bp on next $2.5 billion 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Real Estate Investment Portfolio $69,000 0.05% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Real Estate Investment Portfolio Class A 0.99% December 31 Class B 1.24% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- Real Estate $94.3 Domestic REIT Strategy Schedule 0.559%(3) Investment Portfolio 70 bp on 1st $25 m 60 bp on next $25 m 50 bp on next $25 m negotiable on the balance Minimum account size $10m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. (3) Assumes 40 bp on the balance. 33 REAL ESTATE INVESTMENT PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: ASSET CLASS FEE - --------------------------------------------------------------- Real Estate 0.95% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Real Estate Investment Portfolio 0.550 0.820 1/13 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe(6). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO(%)(7) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- Real Estate 0.769 0.900 3/17 0.900 3/13 Investment Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. (4) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund increased during calendar 2004 relative to 2003. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - --------------------------------------------------------------------- Real Estate Investment Portfolio $135,416 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - --------------------------------------------------------------------- Real Estate Investment Portfolio $275,618 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 35 REAL ESTATE INVESTMENT PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3 and 5 year performance rankings of the Fund(9) relative to its Lipper Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. REAL ESTATE INVESTMENT PORTFOLIO GROUP UNIVERSE - ----------------------------------------------------------------------------- 1 year 9/13 10/17 3 year 5/11 6/14 5 year 3/11 3/13 Set forth below are the 1, 3, 5 year and since inception performance returns of the Fund (in bold)(12) versus its benchmark(13). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- SINCE FUND 1 YEAR 3 YEAR 5 YEAR INCEPTION - ------------------------------------------------------------------------------- REAL ESTATE INVESTMENT PORTFOLIO 26.57 27.05 18.83 12.55 NEREIT Equity Index 27.28 26.02 19.58 12.56 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 36 (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN(R) Investment Research and Management ANNUAL REPORT - -------------------------------------------------------------------------------- AllianceBernstein Variable Products Series Fund, Inc. ---------------------------- Annual Report December 31, 2005 ---------------------------- > AllianceBernstein Small/Mid Cap Value Portfolio Investment Products Offered ----------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ----------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. SMALL/MID CAP VALUE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Small/Mid Cap Value Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. Prior to May 2, 2005, the Portfolio was named AllianceBernstein Small Cap Value Portfolio. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of companies with relatively small and mid-sized market capitalizations. Under normal circumstances, the Portfolio will invest at least 80% of its total assets in these types of securities. The Portfolio's investment policies emphasize investment in companies that are determined by Alliance Capital Management L.P. ("Alliance"), the Portfolio's investment manager, to be undervalued. In selecting securities for the Portfolio, fundamental research is used to identify companies whose long-term earnings power is not reflected in the current market price of their securities. The Portfolio may also invest up to 15% of its total assets in foreign securities. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Russell 2500 Value Index, in addition to the broad small/mid-cap universe, as measured by the Russell 2500 Index, for the one-year period ended December 31, 2005 and since the Portfolio's Class A shares inception on May 2, 2001. For the annual reporting period ended December 31, 2005, the Portfolio modestly underperformed its benchmark. The Portfolio's modest underweight in the energy sector was the most significant detractor from performance. Specifically, the Portfolio was under-invested in refiners and smaller-cap exploration and production stocks, two energy sub-sectors that benefited the most in 2005 from historically high margins and prices. The Portfolio's overweight position in the autos & transportation sector was also a detractor, as higher energy prices were a headwind for the sector. This overweight was mitigated somewhat by a significant positive contribution from stock selection. The Portfolio's holdings in consumer discretionary stocks were the biggest contributor to performance in 2005. Specifically, several of the Portfolio's holdings saw significant progress in internal restructuring efforts that generated higher earnings, while performance was further aided by the acquisition of one of its holdings by a private equity firm. Also helping performance was a sizable underweight position in financial services which underperformed over the year. Finally, overweights and strong stock selection in producer durables and materials stocks contributed to Portfolio performance as continued economic expansion and commodity price inflation provided sizable tailwinds for these sectors. MARKET REVIEW AND INVESTMENT STRATEGY During the one-year period ended December 31, 2005, U.S. equity performance was robust as the continued U.S. economic expansion allayed investor fears that rising energy costs would diminish consumer spending. Small/mid-capitalization stocks outperformed large-cap stocks over the period, with the Russell 2500 Index handily beating the broader market, represented by the Standard & Poor's (S&P) 500 Stock Index. Within the small/mid-cap space, growth modestly outperformed value during the year. Within the small/mid-cap universe, there were significant variations in performance across sectors. Energy stocks led all others as historically high oil and natural gas prices drove robust profitability across the sector. Materials and producer durable stocks were also among the leaders as the global economic expansion continued to put stresses on availability of many raw materials, driving prices for a number of the commodities higher. Financial services stocks lagged in 2005 as rising short-term interest rates and the resulting flattening yield curve put pressure on the margins of the more interest-sensitive companies in the sector. Autos and transports also fared poorly as higher energy and declining North American auto sales increased investor concerns about profits in 2006. 1 SMALL/MID CAP VALUE PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure Neither the unmanaged Russell 2500 Value Index nor the Russell 2500 Index reflects fees and expenses associated with the active management of a mutual fund portfolio. The Russell 2500 Value Index contains those securities in the Russell 2500 Index with a less-than-average growth orientation. The Russell 2500 Index is a capitalization-weighted index that includes 2,500 small- and mid-cap U.S. stocks. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Small/Mid Cap Value Portfolio. A Word About Risk Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that rise as initially expected. The Portfolio concentrates its investments in the stocks of small-capitalization companies, which tend to be more volatile than large-cap companies. Small-cap stocks may have additional risks because these companies tend to have limited product lines, markets or financial resources. The Portfolio can invest in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Because the Portfolio may invest in emerging markets and in developing countries, an investment also has the risk that market changes or other factors affecting emerging markets and developing countries, including political instability and unpredictable economic conditions, may have a significant effect on the Portfolio's net asset value. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. - -------------------------------------------------------------------------------- (Historical Performance continued on next page) 2 SMALL/MID CAP VALUE PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Returns THE PORTFOLIO VS. ITS BENCHMARK --------------------------- PERIODS ENDED DECEMBER 31, 2005 1 Year Since Inception* - ------------------------------------------------------------------------------------- AllianceBernstein Small/Mid Cap Value Portfolio Class A 6.91% 14.61% - ------------------------------------------------------------------------------------- AllianceBernstein Small/Mid Cap Value Portfolio Class B 6.63% 14.43% - ------------------------------------------------------------------------------------- Russell 2500 Value Index 7.74% 13.50% - ------------------------------------------------------------------------------------- Russell 2500 Index 8.11% 9.72% - -------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class A shares on 5/2/01 and Class B shares on 5/1/01. ALLIANCEBERNSTEIN SMALL/MID CAP VALUE PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 5/2/01* - 12/31/05 AllianceBernstein Small/Mid Cap Value Portfolio Class A: $18,894 Russell 2500 Value Index: $18,043 Russell 2500 Index: $15,408 AllianceBernstein Small/Mid Cap Value Portfolio Class A Russell 2500 Value Index Russell 2500 Index - -------------------------------------------------------------------------------- 5/2/01* $10,000 $10,000 $10,000 12/31/2001 $11,180 $10,545 $10,073 12/31/2002 $10,487 $ 9,504 $ 6,260 12/31/2003 $14,814 $13,774 $12,048 12/31/2004 $17,673 $16,747 $14,252 12/31/2005 $18,894 $18,043 $15,408 * Since inception of the Portfolio's Class A shares on 5/2/01. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Small/Mid Cap Value Portfolio Class A shares (from 5/2/01* to 12/31/05) as compared to the performance of the Portfolio's benchmark, the Russell 2500 Value Index, and the Russell 2500 Index. The chart assumes the reinvestment of dividends and capital gains. - -------------------------------------------------------------------------------- See Historical Performance and Benchmark disclosures on previous page. 3 SMALL/MID CAP VALUE PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Account Value Account Value Expenses Paid Annualized Small Mid Cap Value Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - ----------------------------- ------------- ----------------- -------------- -------------- Class A Actual ........................... $ 1,000 $ 1,053.08 $ 4.45 0.86% Hypothetical (5% return before expenses) ..................... $ 1,000 $ 1,020.87 $ 4.38 0.86% Class B Actual ........................... $ 1,000 $ 1,052.02 $ 5.74 1.11% Hypothetical (5% return before expenses) ..................... $ 1,000 $ 1,019.61 $ 5.65 1.11%
- -------------------------------------------------------------------------------- * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 SMALL/MID CAP VALUE PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Beazer Homes USA, Inc. $ 6,490,044 2.0% StanCorp Financial Group, Inc. 6,343,649 2.0 PerkinElmer, Inc. 6,179,788 1.9 Quanta Services, Inc. 6,175,413 1.9 Allegheny Energy, Inc. 6,108,450 1.9 CNF, Inc. 5,920,148 1.9 Radian Group, Inc. 5,894,154 1.8 Old Republic International Corp. 5,638,022 1.8 A.G. Edwards, Inc. 5,238,948 1.6 Goodrich Corp. 5,096,400 1.6 ------------ ---- $ 59,085,016 18.4% - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION December 31, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Financial $ 60,093,458 18.8% Consumer Cyclicals 37,883,452 11.8 Capital Equipment 30,748,023 9.6 Consumer Growth 30,739,659 9.6 Utilities 26,052,193 8.1 Technology 23,770,392 7.4 Services 20,665,831 6.4 Non-Financial 19,942,114 6.2 Consumer Staples 19,415,490 6.1 Commodities 15,510,181 4.8 Energy 11,685,279 3.6 Industrial Resources 8,510,773 2.7 ------------ ----- Total Investments* 305,016,845 95.1 Cash and receivables, net of liabilities 15,633,156 4.9 ------------ ----- Net Assets $320,650,001 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 SMALL/MID CAP VALUE PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - ----------------------------------------------------------------------------- COMMON STOCKS-95.1% FINANCIAL-18.8% MAJOR REGIONAL BANKS-3.5% Central Pacific Financial Corp. ............ 101,900 $ 3,660,248 Popular, Inc. .............................. 95,539 2,020,650 TD Banknorth, Inc. ......................... 16,660 483,973 UnionBanCal Corp. .......................... 45,900 3,154,248 Whitney Holding Corp. ...................... 72,000 1,984,320 --------------- 11,303,439 --------------- MULTI-LINE INSURANCE-2.1% StanCorp Financial Group, Inc. ............. 127,000 6,343,649 UnitedHealth Group, Inc. ................... 4,500 279,630 --------------- 6,623,279 --------------- PROPERTY-CASUALTY INSURANCE-5.9% Old Republic International Corp. ........... 214,700 5,638,022 PartnerRe Ltd. (Bermuda) ................... 17,700 1,162,359 Platinum Underwriters Holdings Ltd. ........ 152,000 4,722,640 Radian Group, Inc. ......................... 100,600 5,894,154 RenaissanceRe Holdings Ltd. ................ 33,600 1,482,096 --------------- 18,899,271 --------------- REAL ESTATE INVESTMENT TRUST-1.1% FelCor Lodging Trust, Inc. ................. 125,450 2,158,995 Digital Realty Trust, Inc. ................. 63,500 1,437,005 --------------- 3,596,000 --------------- SAVINGS AND LOAN-4.5% Astoria Financial Corp. .................... 159,900 4,701,060 MAF Bancorp, Inc. .......................... 105,295 4,357,107 Sovereign Bancorp, Inc. .................... 135,000 2,918,700 Washington Federal, Inc. ................... 106,814 2,455,654 --------------- 14,432,521 --------------- MISCELLANEOUS FINANCIAL-1.7% A.G. Edwards, Inc. ......................... 111,800 5,238,948 --------------- 60,093,458 --------------- CONSUMER CYCLICALS-11.8% AUTOS & AUTO PARTS-0.4% Dana Corp. ................................. 175,300 1,258,654 --------------- RETAILERS-7.0% AutoNation, Inc. (a) ....................... 205,400 4,463,342 BJ's Wholesale Club, Inc. (a) .............. 149,400 4,416,264 Borders Group, Inc. ........................ 156,100 3,382,687 Insight Enterprises, Inc. (a) .............. 60,489 1,186,189 Office Depot, Inc. (a) ..................... 153,000 4,804,200 Payless ShoeSource, Inc. (a) ............... 163,900 4,113,890 --------------- 22,366,572 --------------- TEXTILES/SHOES- APPAREL MFG.-4.0% Jones Apparel Group, Inc. .................. 150,300 4,617,216 Liz Claiborne, Inc. ........................ 108,100 3,872,142 Reebok International Ltd. .................. 32,200 1,875,006 V.F. Corp. ................................. 44,500 2,462,630 --------------- 12,826,994 --------------- MISCELLANEOUS CONSUMER CYCLICALS-0.4% Brunswick Corp. ............................ 35,200 1,431,232 --------------- 37,883,452 --------------- CAPITAL EQUIPMENT-9.6% AEROSPACE - DEFENSE-1.6% Goodrich Corp. ............................. 124,000 5,096,400 --------------- AUTO TRUCKS - PARTS-2.4% ArvinMeritor, Inc. ......................... 54,000 777,060 PACCAR, Inc. ............................... 34,500 2,388,435 TRW Automotive Holdings Corp. (a) .......... 174,000 4,584,900 --------------- 7,750,395 --------------- ELECTRICAL EQUIPMENT-1.5% Cooper Industries Ltd. Cl. A (Bermuda) ............................... 42,200 3,080,600 The Genlyte Group, Inc. (a) ................ 29,600 1,585,672 --------------- 4,666,272 --------------- MACHINERY-2.7% Moog, Inc. Cl. A (a) ....................... 147,300 4,180,374 Terex Corp. (a) ............................ 78,000 4,633,200 --------------- 8,813,574 --------------- MISCELLANEOUS CAPITAL GOODS-1.4% SPX Corp. .................................. 96,600 4,421,382 --------------- 30,748,023 --------------- 6 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - ----------------------------------------------------------------------------- CONSUMER GROWTH-9.6% ADVERTISING-1.1% The Interpublic Group of Cos., Inc. (a) .... 367,600 $ 3,547,340 --------------- ENTERTAINMENT-1.0% Vail Resorts, Inc. (a) ..................... 92,700 3,061,881 --------------- HOSPITAL MANAGEMENT-1.0% Universal Health Services, Inc. Cl. B ...... 70,900 3,313,866 --------------- HOSPITAL SUPPLIES-1.5% Owens & Minor, Inc. ........................ 176,600 4,861,798 --------------- OTHER MEDICAL-1.9% PerkinElmer, Inc. .......................... 262,300 6,179,788 --------------- PHOTOGRAPHY-1.0% IKON Office Solutions, Inc. ................ 319,400 3,324,954 --------------- PUBLISHING-1.0% The Readers Digest Association, Inc. ....... 200,400 3,050,088 --------------- MISCELLANEOUS CONSUMER GROWTH-1.1% URS Corp. (a) .............................. 90,400 3,399,944 --------------- 30,739,659 --------------- UTILITIES-8.1% ELECTRICAL COMPANIES-7.7% Allegheny Energy, Inc. (a) ................. 193,000 6,108,450 Constellation Energy Group, Inc. ........... 41,000 2,361,600 Northeast Utilities ........................ 171,200 3,370,928 PNM Resources, Inc. ........................ 96,300 2,358,387 Puget Energy, Inc. ......................... 231,800 4,733,356 Wisconsin Energy Corp. ..................... 114,400 4,468,464 WPS Resources Corp. ........................ 22,000 1,216,820 --------------- 24,618,005 --------------- TELEPHONE-0.4% Centennial Communications Corp. (a) ........ 92,409 1,434,188 --------------- 26,052,193 --------------- TECHNOLOGY-7.4% COMMUNICATION - EQUIP. MFRS -1.7% ADC Telecommunications, Inc. (a) ........... 90,857 2,029,745 Andrew Corp. (a) ........................... 307,900 3,303,767 --------------- 5,333,512 --------------- COMPUTER/INSTRUMENTATION-1.8% Celestica, Inc. (Canada) (a) ............... 397,290 4,195,382 Sanmina-SCI Corp. (a) ...................... 411,679 1,753,753 --------------- 5,949,135 --------------- SEMICONDUCTORS-1.9% AVX Corp. .................................. 76,000 1,100,480 Vishay Intertechnology, Inc. (a) ........... 360,500 4,960,480 --------------- 6,060,960 --------------- MISCELLANEOUS INDUSTRIAL TECHNOLOGY-2.0% Arrow Electronics, Inc. (a) ................ 100,700 3,225,421 Avnet, Inc. (a) ............................ 22,000 526,680 Solectron Corp. (a) ........................ 107,400 393,084 Tech Data Corp. (a) ........................ 57,500 2,281,600 --------------- 6,426,785 --------------- 23,770,392 --------------- SERVICES-6.4% AIR TRANSPORT-0.7% Alaska Air Group, Inc. (a) ................. 66,600 2,378,952 --------------- RAILROADS-1.3% Laidlaw International, Inc. ................ 185,500 4,309,165 --------------- TRUCKERS-1.9% CNF, Inc. .................................. 105,925 5,920,148 --------------- MISCELLANEOUS INDUSTRIAL TRANSPORTATION-2.5% GATX Corp. ................................. 138,200 4,986,256 SEACOR Holdings, Inc. (a) .................. 45,100 3,071,310 --------------- 8,057,566 --------------- 20,665,831 --------------- NON-FINANCIAL-6.2% BUILDING MATERIALS - CEMENT-0.5% Texas Industries, Inc. ..................... 30,300 1,510,152 --------------- 7 SMALL/MID CAP VALUE PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Shares or Principal Amount Company (000) U.S. $ Value - ----------------------------------------------------------------------------- BUILDING MATERIALS - HEAT/PLUMBING/AIR-1.0% Hughes Supply, Inc. ........................ 94,000 $ 3,369,900 --------------- MISCELLANEOUS BUILDING-4.7% Beazer Homes USA, Inc. ..................... 89,100 6,490,044 Harsco Corp. ............................... 35,500 2,396,605 Quanta Services, Inc. (a) .................. 468,900 6,175,413 --------------- 15,062,062 --------------- 19,942,114 --------------- CONSUMER STAPLES-6.1% FOODS-4.2% Corn Products International, Inc. .......... 66,000 1,576,740 Del Monte Foods Co. (a) .................... 322,600 3,364,718 Performance Food Group Co. (a) ............. 144,700 4,105,139 Universal Corp. ............................ 96,700 4,192,912 --------------- 13,239,509 --------------- RESTAURANTS-1.6% Jack in the Box, Inc. (a) .................. 119,200 4,163,656 Papa John's International, Inc. (a) ........ 17,500 1,037,925 --------------- 5,201,581 --------------- RETAIL STORES - FOOD-0.3% SUPERVALU, Inc. ............................ 30,000 974,400 --------------- 19,415,490 --------------- COMMODITIES-4.8% CHEMICALS-1.2% Albemarle Corp. ............................ 34,500 1,323,075 Cytec Industries, Inc. ..................... 52,200 2,486,286 --------------- 3,809,361 --------------- CONTAINERS - METAL/GLASS/PAPER-1.4% Ball Corp. ................................. 43,000 1,707,960 Owens-Illinois, Inc. (a) ................... 139,800 2,941,392 --------------- 4,649,352 --------------- MISCELLANEOUS INDUSTRIAL COMMODITIES-0.7% United Stationers, Inc. (a) ................ 47,095 2,284,108 --------------- MISCELLANEOUS METALS-1.5 % Reliance Steel & Aluminum Co. .............. 78,000 4,767,360 --------------- 15,510,181 --------------- ENERGY-3.6% OFFSHORE DRILLING-1.5% Rowan Companies, Inc. (a) .................. 140,000 4,989,600 --------------- OIL WELL EQUIPMENT & SERVICES-0.5% Todco, Cl. A (a) ........................... 42,100 1,602,326 --------------- OILS - INTEGRATED DOMESTIC-1.6% Amerada Hess Corp. ......................... 16,400 2,079,848 Pogo Producing Co. ......................... 60,500 3,013,505 --------------- 5,093,353 --------------- 11,685,279 --------------- INDUSTRIAL RESOURCES-2.7% ALUMINUM-0.7% Mueller Industries, Inc. ................... 75,000 2,056,500 --------------- CHEMICALS-0.5% Chemtura Corp. ............................. 133,200 1,691,640 --------------- STEEL-0.3% Chaparral Steel Co. (a) .................... 30,300 916,575 --------------- MISCELLANEOUS METALS-1.2% Silgan Holdings, Inc. ...................... 106,480 3,846,058 --------------- 8,510,773 --------------- Total Common Stocks (cost $258,986,316) ..................... 305,016,845 --------------- SHORT-TERM INVESTMENT-4.4% TIME DEPOSIT-4.4% The Bank of New York 3.25%, 1/03/06 (cost $13,971,000) ...................... $ 13,971 13,971,000 --------------- TOTAL INVESTMENTS-99.5% (cost $272,957,316) ..................... 318,987,845 Other assets less liabilities-0.5% 1,662,156 --------------- NET ASSETS-100% ............................ $ 320,650,001 =============== - -------------------------------------------------------------------------------- (a) Non-income producing security. See Notes to Financial Statements. 8 SMALL/MID CAP VALUE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $272,957,316) .................................. $ 318,987,845 Cash ................................................... 701 Receivable for investment securities sold .............. 1,867,956 Receivable for capital stock sold ...................... 449,207 Dividends and interest receivable ...................... 360,452 ------------- Total assets ........................................... 321,666,161 ------------- LIABILITIES Payable for investment securities purchased ............ 543,904 Payable for capital stock redeemed ..................... 132,321 Advisory fee payable ................................... 203,241 Distribution fee payable ............................... 39,258 Transfer agent fee payable ............................. 65 Accrued expenses ....................................... 97,371 ------------- Total liabilities ...................................... 1,016,160 ------------- NET ASSETS ................................................ $ 320,650,001 ============= COMPOSITION OF NET ASSETS Capital stock, at par .................................. $ 18,844 Additional paid-in capital ............................. 248,834,775 Undistributed net investment income .................... 1,066,194 Accumulated net realized gain on investment transactions ......................................... 24,699,659 Net unrealized appreciation of investments ............. 46,030,529 ------------- $ 320,650,001 ============= Class A Shares Net assets ............................................. $ 134,234,756 ============= Shares of capital stock outstanding .................... 7,869,632 ============= Net asset value per share .............................. $ 17.06 ============= Class B Shares Net assets ............................................. $ 186,415,245 ============= Shares of capital stock outstanding .................... 10,974,471 ============= Net asset value per share .............................. $ 16.99 ============= - -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 SMALL/MID CAP VALUE PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $6,269) .... $ 3,700,166 Interest ............................................... 247,103 ------------- Total investment income ................................ 3,947,269 ------------- EXPENSES Advisory fee ........................................... 2,118,599 Distribution fee--Class B .............................. 399,981 Custodian .............................................. 133,269 Administrative ......................................... 75,250 Printing ............................................... 68,985 Audit .................................................. 41,750 Legal .................................................. 10,563 Directors' fees ........................................ 1,000 Transfer agency ........................................ 794 Miscellaneous .......................................... 14,115 ------------- Total expenses ......................................... 2,864,306 Less: expenses waived and reimbursed by the Adviser (see Note B) ......................................... (16,750) ------------- Net expenses ........................................... 2,847,556 ------------- Net investment income .................................. 1,099,713 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions ........... 24,799,701 Net change in unrealized appreciation/depreciation of transactions .......................................... (6,474,515) ------------- Net gain on investment transactions .................... 18,325,186 ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS ................ $ 19,424,899 ============= - -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 SMALL/MID CAP VALUE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 2005 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income .................................................... $ 1,099,713 $ 1,760,970 Net realized gain on investment transactions ............................. 24,799,701 12,197,879 Net change in unrealized appreciation/depreciation of investments ........ (6,474,515) 25,133,503 ------------- ------------- Net increase in net assets from operations ............................... 19,424,899 39,092,352 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A ............................................................... (876,310) (181,706) Class B ............................................................... (892,522) (80,321) Net realized gain on investment transactions Class A ............................................................... (5,292,917) (2,336,222) Class B ............................................................... (6,946,948) (2,409,632) CAPITAL STOCK TRANSACTIONS Net increase ............................................................. 53,737,282 53,508,942 ------------- ------------- Total increase ........................................................... 59,153,484 87,593,413 NET ASSETS Beginning of period ...................................................... 261,496,517 173,903,104 ------------- ------------- End of period (including undistributed net investment income of $1,066,194 and $1,735,313, respectively) .......................................... $ 320,650,001 $ 261,496,517 ============= =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 SMALL/MID CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE A: Significant Accounting Policies The AllianceBernstein Small/Mid Cap Value Portfolio (the "Portfolio"), formerly AllianceBernstein Small Cap Value Portfolio, is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio commenced operations on May 1, 2001. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 12 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2005, there were no expenses waived by the Adviser. Effective January 1, 2004 through September 6, 2004, in connection with the Adviser's settlement with the New York Attorney General's Office ("NYAG") the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio 13 SMALL/MID CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. For the year ended December 31, 2005, such reimbursement amounted to $75,250 of which $16,750 was voluntarily waived by the Adviser. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $222,960, of which $63,134 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows:
Purchases Sales ------------- ------------- Investment securities (excluding U.S. government securities) ................ $ 130,735,355 $ 90,501,016 U.S. government securities .................................................. -0- -0-
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost ........................................................................................ $ 272,957,316 ============= Gross unrealized appreciation ............................................................... $ 53,568,119 Gross unrealized depreciation ............................................................... (7,537,590) ------------- Net unrealized appreciation ................................................................. $ 46,030,529 =============
14 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as net unrealized appreciation or depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. 15 SMALL/MID CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE E: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows:
------------------------------------------------------------- SHARES AMOUNT ------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ ------------- ------------- Class A Shares sold ................................. 1,654,124 1,690,352 $ 27,337,346 $ 25,588,665 Shares issued in reinvestment of dividends and distributions ............... 388,002 172,225 6,169,227 2,517,928 Shares redeemed ............................. (1,237,579) (1,075,133) (20,426,892) (16,276,570) ------------ ------------ ------------- ------------- Net increase ................................ 804,547 787,444 $ 13,079,681 $ 11,830,023 ============ ============ ============= ============= Class B Shares sold ................................. 3,361,531 3,830,995 $ 55,477,125 $ 57,835,750 Shares issued in reinvestment of dividends and distributions ............... 494,604 170,661 7,839,470 2,489,953 Shares redeemed ............................. (1,372,037) (1,247,227) (22,658,994) (18,646,784) ------------ ------------ ------------- ------------- Net increase ................................ 2,484,098 2,754,429 $ 40,657,601 $ 41,678,919 ============ ============ ============= =============
NOTE F: Risks Involved in Investing in the Portfolio Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE H: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows:
2005 2004 ------------- ------------- Distributions paid from: Ordinary income .......................................................... $ 5,220,753 $ 1,422,125 Net long-term capital gains .............................................. 8,787,944 3,585,756 ------------- ------------- Total taxable distributions ................................................. 14,008,697 5,007,881 ------------- ------------- Total distributions paid .................................................... $ 14,008,697 $ 5,007,881 ============= =============
16 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ............................................................... $ 5,274,370 Undistributed long-term capital gains ....................................................... 20,491,483 Unrealized appreciation/(depreciation) ...................................................... 46,030,529 ------------- Total accumulated earnings/(deficit) ........................................................ $ 71,796,382 =============
For the current year there were no permanent differences. NOTE I: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an 17 SMALL/MID CAP VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other 18 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 19 SMALL/MID CAP VALUE PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------------------------- CLASS A ----------------------------------------------------------------- May 2, 2001(a) Year Ended December 31, to ---------------------------------------------- December 31, 2005 2004 2003 2002 2001 --------- --------- -------- -------- -------------- Net asset value, beginning of period .. $ 16.84 $ 14.49 $ 10.46 $ 11.18 $ 10.00 --------- --------- -------- -------- -------------- Income From Investment Operations Net investment income (b)(c) .......... .09 .14 .04 .12 .14 Net realized and unrealized gain (loss) on investment transactions .. 1.02 2.60 4.23 (.81) 1.04 --------- --------- -------- -------- -------------- Net increase (decrease) in net asset value from operations .............. 1.11 2.74 4.27 (.69) 1.18 --------- --------- -------- -------- -------------- Less: Dividends and Distributions Dividends from net investment income .. (.13) (.03) (.07) (.02) -0- Distributions from net realized gain on investment transactions ......... (.76) (.36) (.17) (.01) -0- --------- --------- -------- -------- -------------- Total dividends and distributions ..... (.89) (.39) (.24) (.03) -0- --------- --------- -------- -------- -------------- Net asset value, end of period ........ $ 17.06 $ 16.84 $ 14.49 $ 10.46 $ 11.18 ========= ========= ======== ======== ============== Total Return Total investment return based on net asset value (d) .................... 6.91% 19.30% 41.26% (6.20)% 11.80% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........................... $ 134,235 $ 118,981 $ 90,949 $ 55,592 $ 21,076 Ratio to average net assets of: Expenses, net of waivers and reimbursements ................... .87% .86% 1.20% 1.13% .95%(e) Expenses, before waivers and reimbursements ................... .87% 1.09% 1.28% 1.41% 2.65%(e) Net investment income (c) .......... .53% .96% .34% 1.04% 1.99%(e) Portfolio turnover rate ............... 33% 30% 21% 28% 12%
- -------------------------------------------------------------------------------- See footnote summary on page 21. 20 SMALL/MID CAP VALUE PORTFOLIO FINANCIAL HIGHLIGHTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------------------------- CLASS B ----------------------------------------------------------------- May 1, 2001(f) Year Ended December 31, to ---------------------------------------------- December 31, 2005 2004 2003 2002 2001 --------- --------- -------- -------- -------------- Net asset value, beginning of period .. $ 16.79 $ 14.46 $ 10.46 $ 11.20 $ 10.00 --------- --------- -------- -------- -------------- Income From Investment Operations Net investment income (b)(c) .......... .05 .11 .01 .08 .11 Net realized and unrealized gain (loss) on investment transactions .. 1.01 2.59 4.22 (.79) 1.09 --------- --------- -------- -------- -------------- Net increase (decrease) in net asset value from operations .............. 1.06 2.70 4.23 (.71) 1.20 --------- --------- -------- -------- -------------- Less: Dividends and Distributions Dividends from net investment income .. (.10) (.01) (.06) (.02) -0- Distributions from net realized gain on investment transactions ......... (.76) (.36) (.17) (.01) -0- --------- --------- -------- -------- -------------- Total dividends and distributions ..... (.86) (.37) (.23) (.03) -0- --------- --------- -------- -------- -------------- Net asset value, end of period ........ $ 16.99 $ 16.79 $ 14.46 $ 10.46 $ 11.20 ========= ========= ======== ======== ============== Total Return Total investment return based on net asset value (d) .................... 6.63% 19.08% 40.89% (6.37)% 12.00% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........................... $ 186,415 $ 142,516 $ 82,954 $ 22,832 $ 346 Ratio to average net assets of: Expenses, net of waivers and reimbursements ................... 1.12% 1.12% 1.45% 1.43% 1.20%(e) Expenses, before waivers and reimbursements ................... 1.12% 1.34% 1.53% 1.70% 3.17%(e) Net investment income (c) .......... .29% .75% .05% .74% 2.17%(e) Portfolio turnover rate ............... 33% 30% 21% 28% 12%
- -------------------------------------------------------------------------------- (a) Commencement of distribution. (b) Based on average shares outstanding. (c) Net of expenses reimbursed or waived by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. (f) Commencement of operations. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Small/Mid Cap Value Portfolio: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Small/Mid Cap Value Portfolio, formerly AllianceBernstein Small Cap Value Portfolio, of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Small/Mid Cap Value Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (unaudited) - -------------------------------------------------------------------------------- For corporate shareholders, 69% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 22 SMALL/MID CAP VALUE PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Small/Mid Cap Value Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority ----------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------------ ---------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------------ ---------- ---------------- 3.A. Diversification 15,814,480 483,320 757,136 0 3.B. Issuing Senior Securities and Borrowing Money 15,704,523 633,013 717,399 0 3.D. Concentration of Investments 15,836,843 521,354 696,739 0 3.E. Real Estate and Companies that Deal in Real Estate 15,813,273 530,793 710,868 0 3.F. Commodities, Commodity Contracts and Futures Contracts 15,755,875 614,895 684,166 0 3.G. Loans 15,742,489 609,559 702,887 0 3.I. Exercising Control 15,819,072 548,042 687,821 0 3.N. Pledging, Hypothecating, Mortgaging, or Otherwise Encumbering Assets 15,689,147 669,218 696,571 0 4.A. The reclassification of the Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective. 15,710,459 662,490 681,986 0
23 SMALL/MID CAP VALUE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr. (1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Thomas J. Bardong, Vice President Joseph G. Paul(2), Vice President James W. MacGregor(2), Vice President Andrew J. Weiner(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 - -------------------------------------------------------------------------------- (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Small/Mid-Cap Value Investment Policy Group. Mr. Joseph G. Paul, Mr. James W. MacGregor, and Mr. Andrew J. Weiner are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 24 SMALL/MID CAP VALUE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, Inc.; 1345 Avenue of the Americas Capital Management Corporation SCB, Inc. New York, NY 10105 ("ACMC") since 2001 and Chairman of 10/2/57 the Board of AllianceBernstein Investment (2005) Research and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was 9/7/32 formerly Deputy Comptroller and Chief (1990) Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of (1992) Evlico (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
25 SMALL/MID CAP VALUE PORTFOLIO MANAGEMENT OF THE FUND (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) John H. Dobkin, # Consultant. Formerly President of Save 106 None P.O. Box 12 Venice, Inc. (preservation organization) Annandale, NY 12504 from 2001-2002, Senior Advisor from June 2/19/42 1999-June 2000 and President of Historic (1992) Hudson Valley (historic preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific c/o Alliance Capital managing partner of Lexington Capital, LLC Fund, Inc., Management L.P. (investment advisory firm) from December and The 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, Merger Fund New York, NY 10105 Chairman and CEO of Prudential Mutual Fund Attn: Philip L. Kirstein Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since Cirrus Logic 3/7/36 prior to 2001. He is also President of the Corporation (semi- (2005) Arbor Company (private family investments). conductors); Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President Lucas Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/41 changed from DuPont Photomasks. Prior to the Chairman of the (2005) company's sale in 2005, he was Chairman and Board of the CEO. He has also been Principal of Turner Smithsonian's Venture Associates since 1993. National Museum of Natural History
- -------------------------------------------------------------------------------- * 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr Mayer is an "interested director" as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 26 SMALL/MID CAP VALUE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Officer Information Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent 5/29/45 and Independent Compliance Officer of the Compliance Officer AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with 4/28/45 which he has been associated since prior to 2001. Joseph G. Paul Vice President Senior Vice President of ACMC**, with 2/8/60 which he has been associated since prior to 2001. James W. MacGregor Vice President Senior Vice President of ACMC**, with 6/16/67 which he has been associated since prior to 2001. Andrew J. Weiner Vice President Senior Vice President of ACMC**, with 7/8/68 which he has been associated since prior to 2001. Emilie D.Wrapp Secretary Senior Vice President, Assistant General 11/13/55 Counsel and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global 10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he 8/3/51 has been associated since prior to 2001.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 27 SMALL/MID CAP VALUE PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Small/Mid Cap Value Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 28 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors noted that in the Portfolio's latest fiscal year the Adviser had waived reimbursement payments from the Portfolio in light of the expense caps currently in effect for the Portfolio. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. 29 SMALL/MID CAP VALUE PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 funds in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 23 to 20 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1- and 3-year periods, and as compared to the Russell 2500 Index (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1, and 3-year and since inception periods (May 2001 inception). The directors noted that in the Performance Group and Performance Universe comparisons the Portfolio was in the 5th quintile in the 1-year period and 1st quintile in the 3-year period. The comparative information showed that the Portfolio underperformed the Index in the YTD and 1-year periods and outperformed the Index in the 3-year and since inception periods. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. 30 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was the same as the Expense Group median. The directors noted that in the Portfolio's latest fiscal year, the administrative expense reimbursement of 3 basis points had been waived by the Adviser. The directors also noted that the Portfolio's total expense ratio, which had been capped by the Adviser (although the expense ratio was currently significantly lower than the cap), was the same as the Expense Group median and somewhat lower than the Expense Universe median. The directors concluded that the Portfolio's expense ratio was satisfactory. Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints 31 SMALL/MID CAP VALUE PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 32 SMALL/MID CAP VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Small/Mid Cap Value Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) Advisory Fee Based on % of Average Category Daily Net Assets Fund - ---------------------------------------------------------------------------- Specialty 75 bp on 1st $2.5 billion Small/Mid Cap Value Portfolio 65 bp on next $2.5 billion 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - ---------------------------------------------------------------------------- Small/Mid Cap Value Portfolio(3) $69,000 0.03% - ---------------------------------------------------------------------------- (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. (3) The expense reimbursement has been waived by the Adviser. 33 SMALL/MID CAP VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's most recent fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. It should be noted that the Fund was operating below its expense cap in the latest fiscal year; accordingly the expense limitation undertaking of that Fund was of no effect. The gross expense ratios of the Fund during the most recently completed fiscal year are also listed below. Expense Cap Pursuant to Expense Limitation Gross Expense Fiscal Year Fund Undertaking Ratio End - ------------------------------------------------------------------------------- Small/Mid Cap Value Class A 1.20% 1.09% December 31 Portfolio Class B 1.45% 1.34% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. Net Assets Effective Alliance 09/30/05 Alliance Institutional Institutional Fund ($MIL) Fee Schedule Advisory Fee - ------------------------------------------------------------------------------ Small/Mid Cap Value $300.6 Small & Mid Cap 0.416% Portfolio Value Schedule 95 bp on 1st $25 m 75 bp on next $25 m 65 bp on next $50 m 55 bp on the balance Minimum account size $10 m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. 34 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: Fund Fee Schedule - ------------------------------------------------------------------------------- Small/Mid Cap Value Client # 1 0.50% Portfolio Client # 2 0.72% on first $25 million 0.54% on next $225 million 0.50% thereafter Client # 3 0.80% Client # 4 1.00% on first $10 million 0.875% on next $10 million 0.75% thereafter It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) Effective Lipper Management Group Fund Fee Median Rank - ------------------------------------------------------------------------------- Small/Mid Cap Value Portfolio 0.750 0.750 7/13 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe(6). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: Expense Lipper Lipper Lipper Lipper Ratio Universe Universe Group Group Fund (%)(7) Median (%) Rank Median (%) Rank - ------------------------------------------------------------------------------- Small/Mid Cap Value Portfolio 0.866 0.943 10/22 0.866 7/13 Based on this analysis, the Fund has equally favorable rankings on management fees compared to total expenses. - -------------------------------------------------------------------------------- (4) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the fee waiver or expense reimbursement that effectively reduce the contractual fee rates. In addition, the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 35 SMALL/MID CAP VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - ------------------------------------------------------------------------------- Small/Mid Cap Value Portfolio $266,143 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - ------------------------------------------------------------------------------- Small/Mid Cap Value Portfolio $465,893 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and - -------------------------------------------------------------------------------- (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 36 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1 and 3 year performance rankings of the Fund(9) relative to its Lipper Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. Small/Mid Cap Value Portfolio Group Universe - ------------------------------------------------------------------------------- 1 year 12/13 19/23 3 year 2/13 2/20 Set forth below are the 1, 3 year and since inception performance returns of the Fund (in versus its bold)(12) benchmark(13). Periods Ending September 30, 2005 Annualized Performance - ------------------------------------------------------------------------------- Fund 1 Year 3 Year Since Inception - ------------------------------------------------------------------------------- Small/Mid Cap Value Portfolio 16.93 25.21 15.28 Russell 2500 Index 21.29 24.91 9.56 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 - -------------------------------------------------------------------------------- (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 37 [LOGO] ALLIANCEBERNSTEIN(R) Investment Research and Management ANNUAL REPORT - -------------------------------------------------------------------------------- AllianceBernstein Variable Products Series Fund, Inc. ----------------------------- Annual Report December 31, 2005 ----------------------------- > AllianceBernstein Utility Income Portfolio Investment Products Offered ----------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ----------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. UTILITY INCOME PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- LETTER TO INVESTORS February 7, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Utility Income Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks current income and capital appreciation by investing primarily in the equity and fixed-income securities of companies in the utilities industry. As of February 1, 2006, the Portfolio's investment objective is current income and long-term growth of capital. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Standard and Poor's (S&P) 500 GICS Utilities Composite, for the one-, five-and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio slightly underperformed its benchmark. The Portfolio's underperformance was principally attributed to the Portfolio's overweighted position in high quality, more defensive utilities, which include global utilities such as telephones, gas and water and are not included in the benchmark. MARKET REVIEW AND INVESTMENT STRATEGY The Fund's manager regards 2005 as a continuation of a restructuring year for the utility sector, as most companies aggressively improved their balance sheets by selling non-core assets, cutting capital expenditures, issuing equity, paying down debt and exiting from some non-regulated businesses. The most encouraging aspect was the sector's improving free cash flow and more disciplined capital deployment, which led to some merger and acquisition (M&A) activities. Separately, utilities benefited from a number of macro trends, including the improved credit environment, rising gas and power prices, the reduction of tax rates on dividends and very low long-term interest rates. On the other hand, utilities were negatively impacted by the expectation of rising interest rates, the increased cost for fuel, health care expenses and pension costs. To mitigate the impact of rising rates on the Portfolio, the Portfolio's manager moved the Portfolio into companies with greater volatility but above-average growth in earnings, dividends and cash flow. During the period under review, the manager continued to focus the Portfolio's investments on high quality names with attractive valuations. Within the electric utilities, focus was placed on the regulated integrated utilities instead of the non-regulated electric power marketers and generators. The manager remained cautious of the telephone utilities, primarily because of their fundamental uncertainties and competitive pressures. On the electric side, the manager remained cautious of the non-regulated generation and marketing sectors (given their improving balance sheets and easing liquidity concerns), but positive on the traditional regulated integrated utilities due to their earnings, stability, increasing free cash flow and growing dividends. Global utilities with weaker fundamentals outperformed the electrics with stronger fundamentals in the earlier part of 2005. The reason for this was that most of these companies received refinancing from their banks, thus easing their short-term liquidity problems and preventing them from filing for bankruptcy. Most of these fundamentally weak companies have abandoned their growth business models and returned to fundamental strategies. So far, these companies have restored some credibility in management and have started to execute on fundamentals and cash flow improvement. As the market begins to focus on high quality companies with strong fundamentals, performance will likely improve. 1 UTILITY INCOME PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure The unmanaged Standard & Poor's (S&P) 500 GICS Utilities Composite does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The S&P 500 GICS Utilities Composite encompasses those companies considered gas, electric or water utilities, or companies that operate as independent producers and/or distributors of power, including both nuclear and non-nuclear facilities. An investor cannot invest directly in an index or composite, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Utility Income Portfolio. A Word About Risk The Portfolio can invest in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. The Portfolio concentrates its investments in the utilities industries and may therefore be subject to greater risks, including government regulation, and volatility than a fund with a more diversified portfolio. While the Portfolio invests principally in equity and other fixed-income securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. - -------------------------------------------------------------------------------- (Historical Performance continued on next page) 2 UTILITY INCOME PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Returns THE PORTFOLIO VS. ITS BENCHMARK --------------------------- PERIODS ENDED DECEMBER 31, 2005 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- AllianceBernstein Utility Income Portfolio Class A 16.05% 0.87% 8.85% - -------------------------------------------------------------------------------- AllianceBernstein Utility Income Portfolio Class B 15.76% 21.17%* - -------------------------------------------------------------------------------- S&P 500 GICS Utilities Composite 16.83% -2.24% 6.79% - -------------------------------------------------------------------------------- * Since inception of the Portfolio's Class B shares on 7/22/02. ALLIANCEBERNSTEIN UTILITY INCOME PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95-12/31/05 AllianceBernstein Utility Income Portfolio Class A: $23,345 S&P 500 GICS Utilities Composite: $19,278 AllianceBernstein Utility Income Portfolio S&P 500 GICS Class A Utilities Composite 12/31/1995 10000 10000 12/31/1996 10788 10568 12/31/1997 13562 13173 12/31/1998 16804 15127 12/31/1999 20064 13738 12/31/2000 22362 21595 12/31/2001 17330 15022 12/31/2002 13497 10516 12/31/2003 16180 13277 12/31/2004 20116 16501 12/31/2005 23345 19278 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Utility Income Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. - -------------------------------------------------------------------------------- See Historical Performance and Benchmark disclosures on previous page. 3 UTILITY INCOME PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Account Value Account Value Expenses Paid Annualized Utility Income Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - ------------------------------ ------------- ----------------- -------------- -------------- Class A Actual ....................... $ 1,000 $ 1,047.19 $ 4.85 0.94% Hypothetical (5% return before expenses) ................. $ 1,000 $ 1,020.47 $ 4.79 0.94% Class B Actual ....................... $ 1,000 $ 1,045.30 $ 6.19 1.20% Hypothetical (5% return before expenses) ................. $ 1,000 $ 1,019.16 $ 6.11 1.20%
- -------------------------------------------------------------------------------- * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 UTILITY INCOME PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- FPL Group, Inc. (Common & Preferred) $ 2,572,619 3.8% TXU Corp. 2,472,761 3.6 Exelon Corp. 2,194,682 3.2 Entergy Corp. (Common & Preferred) 2,049,990 3.0 PG & E Corp. 2,049,024 3.0 The Williams Cos., Inc. 1,719,214 2.5 Kinder Morgan, Inc. 1,691,880 2.5 American Movil, SA de C.V. 1,603,448 2.3 Questar Corp. 1,566,990 2.3 American Electric Power Co., Inc. 1,538,605 2.3 ------------ ---- $ 19,459,213 28.5% - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION December 31, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Utilities $ 59,696,408 87.5% Consumer Services 3,781,076 5.5 Energy 2,453,523 3.6 Basic Industry 589,818 0.9 Capital Goods 420,600 0.6 ------------ ------ Total Investments* 66,941,425 98.1 Cash and receivables, net of liabilities 1,292,344 1.9 ------------ ------ Net Assets $ 68,233,769 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 UTILITY INCOME PORTFOLIO COUNTRY DIVERSIFICATION December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COUNTRY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- United States $56,083,191 82.2% Mexico 2,408,448 3.5 Brazil 1,872,096 2.7 United Kingdom 1,674,867 2.5 Hong Kong 906,505 1.3 Egypt 819,668 1.2 Canada 767,879 1.1 Taiwan 651,425 1.0 Other** 1,757,346 2.6 ------------ ----- Total Investments* 66,941,425 98.1 Cash and receivables, net of liabilities 1,292,344 1.9 ------------ ----- Net Assets $68,233,769 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Excludes short-term investments ** The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: China, Spain and Turkey. 6 UTILITY INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------------------- COMMON & PREFERRED STOCKS-97.0% UTILITIES-87.5% COMMUNICATION EQUIPMENT-1.7% QUALCOMM, Inc. ..................................... 27,100 $ 1,167,468 ------------ ELECTRIC & GAS UTILITY-67.6% AES Corp. (a) ...................................... 83,600 1,323,388 AES Tiete, SA (Brazil) ............................. 41,819,200 894,222 AGL Resources, Inc. ................................ 39,600 1,378,476 Allegheny Energy, Inc. (a) ......................... 24,000 759,600 Ameren Corp. ....................................... 25,700 1,316,868 American Electric Power Co., Inc. .................. 41,483 1,538,605 Atmos Energy Corp. ................................. 19,300 504,888 Cinergy Corp. ...................................... 8,800 373,648 Consolidated Edison, Inc. .......................... 27,100 1,255,543 CPFL Energia, SA (ADR) (Brazil) .................... 11,700 407,745 Dominion Resources, Inc. ........................... 16,500 1,273,800 DPL, Inc. .......................................... 400 10,404 DTE Energy Co. ..................................... 22,176 957,781 Duke Energy Corp. .................................. 35,600 977,220 Edison International ............................... 32,600 1,421,686 Entergy Corp. ...................................... 21,600 1,482,840 Entergy Corp. pfd. (a) ............................. 11,400 567,150 Equitable Resources, Inc. .......................... 38,000 1,394,220 Exelon Corp. ....................................... 41,300 2,194,682 FirstEnergy Corp. .................................. 21,000 1,028,790 FPL Group, Inc. .................................... 37,000 1,537,720 FPL Group, Inc. pfd. ............................... 16,700 1,034,899 Great Plains Energy, Inc. pfd. ..................... 28,000 696,920 Hong Kong & China Gas Co., Ltd. (Hong Kong) ........ 425,000 906,505 ITC Holdings Corp. ................................. 9,500 266,855 National Grid Plc (United Kingdom) ................. 98,284 960,908 New Jersey Resources Corp. ......................... 23,800 996,982 Northwest Natural Gas Co. .......................... 12,300 420,414 NSTAR .............................................. 49,100 1,409,170 PG&E Corp. ......................................... 55,200 2,049,024 Piedmont Natural Gas Co., Inc. ..................... 10,200 246,432 PNM Resources, Inc. pfd. ........................... 30,500 1,436,245 PPL Corp. .......................................... 52,000 1,528,800 Public Service Enterprise Group, Inc. .............. 22,361 1,452,794 Questar Corp. ...................................... 20,700 1,566,990 Scottish & Southern Energy (United Kingdom) ........ 40,945 713,959 Sempra Energy ...................................... 31,874 1,429,230 Southern Co. ....................................... 39,100 1,350,123 Tractebel Energia, SA (Brazil) ..................... 31,000 199,525 TXU Corp. .......................................... 49,268 2,472,761 Westar Energy, Inc. ................................ 23,000 494,500 Wisconsin Energy Corp. ............................. 14,000 546,840 Xcel Energy, Inc. .................................. 73,300 1,353,118 ------------ 46,132,270 ------------ PIPELINES-6.7% Kinder Morgan, Inc. ................................ 18,400 1,691,880 ONEOK, Inc. ........................................ 24,700 657,761 Southern Union Co. pfd. ............................ 6,900 496,110 The Williams Cos., Inc. ............................ 74,200 1,719,214 ------------ 4,564,965 ------------ PUBLIC UTILITIES - ELECTRIC & GAS-1.3% Georgia Power Co. pfd. ............................. 34,000 874,820 ------------ TELEPHONE UTILITY-7.2% AT&T, Inc. ......................................... 48,000 1,175,520 BellSouth Corp. .................................... 24,600 666,660 Chunghwa Telecom Co., Ltd. (ADR) (Taiwan) .......... 35,500 651,425 Sprint Nextel Corp. ................................ 62,175 1,452,408 Telefonica de Espana, SA (ADR) (Spain) ............. 13,651 614,568 Verizon Communications, Inc. ....................... 10,700 322,284 ------------ 4,882,865 ------------ MISCELLANEOUS-3.0% Aqua America, Inc. ................................. 48,800 1,332,240 Peabody Energy Corp. ............................... 9,000 741,780 ------------ 2,074,020 ------------ 59,696,408 ------------ ENERGY-2.5% DOMESTIC PRODUCERS-0.8% Energen Corp. ...................................... 16,000 581,120 ------------ INTERNATIONAL-1.1% Petroleo Brasileiro, SA (ADR) (Brazil) ............. 5,200 370,604 Talisman Energy, Inc. (Canada) ..................... 7,000 370,160 ------------ 740,764 ------------ OIL SERVICE-0.6% Suncor Energy, Inc. (Canada) ....................... 6,300 397,719 ------------ 1,719,603 ------------ CONSUMER SERVICES-5.5% BROADCASTING & CABLE-1.2% Grupo Televisa, SA (ADR) (Mexico) .................. 10,000 805,000 ------------ 7 UTILITY INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Shares or Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- CELLULAR COMMUNICATIONS-4.3% America Movil, SA de C.V. Series L (ADR) (Mexico) ......................... 54,800 $ 1,603,448 Orascom Telecom (GDR) (Egypt) ...................... 15,600 819,668 Turkcell Iletisim Hizmetleri AS (Turkcell) (ADR) (Turkey) ....................... 36,000 552,960 ------------ 2,976,076 ------------ 3,781,076 ------------ BASIC INDUSTRY-0.9% MINING & METALS-0.9% China Shenhua Energy Co., Ltd. (China) (a) ......... 535,500 589,818 ------------ CAPITAL GOODS-0.6% MISCELLANEOUS-0.6% General Electric Co. ............................... 12,000 420,600 ------------ Total Common and Preferred Stocks (cost $51,370,243) ....................... 66,207,505 ------------ MUTUAL FUNDS-1.1% Tortoise Energy Capital Corp. (cost $726,698) ................................. 33,000 733,920 ------------ SHORT-TERM INVESTMENT-1.5% TIME DEPOSIT-1.5% The Bank of New York 3.25% 1/03/06 (cost $1,024,000) ............................... $ 1,024 1,024,000 ------------ TOTAL INVESTMENTS-99.6% (cost $53,120,941) .............................. 67,965,425 Other assets less liabilities-0.4% ................. 268,344 ------------ NET ASSETS-100% .................................... $ 68,233,769 ============ - -------------------------------------------------------------------------------- (a) Non-income producing security. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt pfd. - Preferred Stock See Notes to Financial Statements. 8 UTILITY INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $53,120,941) ............................ $ 67,965,425 Cash .............................................................................. 1,755 Receivable for capital stock sold ................................................. 203,766 Dividends and interest receivable ................................................. 176,075 ------------ Total assets ...................................................................... 68,347,021 ------------ LIABILITIES Advisory fee payable .............................................................. 32,450 Distribution fee payable .......................................................... 2,081 Payable for capital stock redeemed ................................................ 68 Transfer agent fee payable ........................................................ 51 Accrued expenses .................................................................. 78,602 ------------ Total liabilities ................................................................. 113,252 ------------ NET ASSETS $ 68,233,769 ============ COMPOSITION OF NET ASSETS Capital stock, at par ............................................................. $ 3,308 Additional paid-in capital ........................................................ 59,604,639 Undistributed net investment income ............................................... 1,721,741 Accumulated net realized loss on investment and foreign currency transactions ..... (7,940,272) Net unrealized appreciation of investments and foreign currency denominated assets and liabilities ......................................................... 14,844,353 ------------ $ 68,233,769 ============ Class A Shares Net assets ........................................................................ $ 58,467,997 ============ Shares of capital stock outstanding ............................................... 2,833,056 ============ Net asset value per share ......................................................... $ 20.64 ============ Class B Shares Net assets ........................................................................ $ 9,765,772 ============ Shares of capital stock outstanding ............................................... 475,361 ============ Net asset value per share ......................................................... $ 20.54 ============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 UTILITY INCOME PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $17,886) .............................. $ 2,330,003 Interest .......................................................................... 59,527 ------------ Total investment income ........................................................... 2,389,530 ------------ EXPENSES Advisory fee ...................................................................... 356,552 Distribution fee--Class B ......................................................... 19,479 Custodian ......................................................................... 124,541 Administrative .................................................................... 75,250 Audit ............................................................................. 41,750 Printing .......................................................................... 17,388 Legal ............................................................................. 4,051 Directors' fees ................................................................... 1,000 Transfer agency ................................................................... 794 Miscellaneous ..................................................................... 9,167 ------------ Total expenses .................................................................... 649,972 ------------ Net investment income ............................................................. 1,739,558 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions ........................................................ 6,764,232 Foreign currency transactions .................................................. (11,184) Net change in unrealized appreciation/depreciation of: Investments .................................................................... 703,004 Foreign currency denominated assets and liabilities ............................ (131) ------------ Net gain on investment and foreign currency transactions .......................... 7,455,921 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS ........................................... $ 9,195,479 ============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 UTILITY INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 2005 2004 ------------- ------------ INCREASE IN NET ASSETS FROM OPERATIONS Net investment income ............................................... $ 1,739,558 $ 1,328,744 Net realized gain on investment and foreign currency transactions ... 6,753,048 3,926,301 Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities ............... 702,873 6,117,898 ------------- ------------ Net increase in net assets from operations .......................... 9,195,479 11,372,943 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A ........................................................... (1,190,148) (962,290) Class B ........................................................... (138,039) (85,051) CAPITAL STOCK TRANSACTIONS Net increase ........................................................ 1,458,437 2,457,294 ------------- ------------ Total increase ...................................................... 9,325,729 12,782,896 NET ASSETS Beginning of period ................................................. 58,908,040 46,125,144 ------------- ------------ End of period (including undistributed net investment income of $1,721,741 and $1,321,554, respectively) ....................... $ 68,233,769 $ 58,908,040 ============= ============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 UTILITY INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE A: Significant Accounting Policies The AllianceBernstein Utility Income Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek current income and capital appreciation by investing primarily in equity and fixed-income securities of companies in the utilities industry. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 12 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .75% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. 13 UTILITY INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $84,437, of which $6,691 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows:
Purchases Sales ------------ ------------ Investment securities (excluding U.S. government securities) ... $ 36,100,443 $ 32,474,328 U.S. government securities ..................................... -0- -0-
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost ........................................................................... $ 53,402,619 ============ Gross unrealized appreciation .................................................. $ 15,065,853 Gross unrealized depreciation .................................................. (503,047) ------------ Net unrealized appreciation .................................................... $ 14,562,806 ============
1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. 14 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: Securities Lending The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss in the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 15 UTILITY INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE F: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows:
---------------------------------------------------------- SHARES AMOUNT ---------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ ------------- ------------ Class A Shares sold ................... 912,042 565,570 $ 17,909,287 $ 9,076,079 Shares issued in reinvestment of dividends ............... 62,246 64,195 1,190,148 962,290 Shares redeemed ............... (1,024,664) (644,878) (20,038,375) (10,263,375) ------------ ------------ ------------- ------------ Net decrease .................. (50,376) (15,113) $ (938,940) $ (225,006) ============ ============ ============= ============ Class B Shares sold ................... 329,410 199,451 $ 6,459,035 $ 3,123,163 Shares issued in reinvestment of dividends ............... 7,239 5,685 138,039 85,051 Shares redeemed ............... (221,266) (32,981) (4,199,697) (525,914) ------------ ------------ ------------- ------------ Net increase .................. 115,383 172,155 $ 2,397,377 $ 2,682,300 ============ ============ ============= ============
NOTE G: Risks Involved in Investing in the Portfolio Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows:
2005 2004 ------------- ------------ Distributions paid from: Ordinary income .......................................... $ 1,328,187 $ 1,047,341 ------------- ------------ Total taxable distributions ................................. 1,328,187 1,047,341 ------------- ------------ Total distributions paid .................................... $ 1,328,187 $ 1,047,341 ============= ============
16 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ............................... $ 1,721,741 Accumulated capital and other losses ........................ (7,658,594)(a) Unrealized appreciation/(depreciation) ...................... 14,562,675(b) ------------ Total accumulated earnings/(deficit) ........................ $ 8,625,822 ============ (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $7,658,594, of which $7,213,715 expires in the year 2010 and $444,879 expires in the year 2011. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $6,748,228. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to tax treatment of foreign currency gains and losses, resulted in a net decrease in undistributed net investment income and a decrease in accumulated net realized loss on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE J: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurrance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. 17 UTILITY INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. 18 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for suffi-cient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: Subsequent Events As of February 1, 2006 the Portfolio's investment objective is current income and long-term growth of capital. 19 UTILITY INCOME PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------------ CLASS A ------------------------------------------------------ Year Ended December 31, ------------------------------------------------------ 2005 2004 2003 2002 2001 -------- -------- -------- -------- -------- Net asset value, beginning of period ............. $ 18.17 $ 14.95 $ 12.86 $ 16.82 $ 22.65 -------- -------- -------- -------- -------- Income From Investment Operations Net investment income (a) ........................ .53 .43(b) .35 .36 .29 Net realized and unrealized gain (loss) on investment and foreign currency transactions .. 2.35 3.13 2.18 (4.06) (5.23) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value from operations ............................... 2.88 3.56 2.53 (3.70) (4.94) -------- -------- -------- -------- -------- Less: Dividends and Distributions Dividends from net investment income ............. (.41) (.34) (.44) (.26) (.76) Distributions from net realized gain on investment transactions ....................... -0- -0- -0- -0- (.13) -------- -------- -------- -------- -------- Total dividends and distributions ................ (.41) (.34) (.44) (.26) (.89) -------- -------- -------- -------- -------- Net asset value, end of period ................... $ 20.64 $ 18.17 $ 14.95 $ 12.86 $ 16.82 ======== ======== ======== ======== ======== Total Return Total investment return based on net asset value (c) ........................... 16.05% 24.33% 19.88% (22.12)% (22.50)% Ratios/Supplemental Data Net assets, end of period (000's omitted) ............................... $ 58,468 $ 52,391 $ 43,323 $ 40,140 $ 62,684 Ratio to average net assets of: Expenses, net of waivers and reimbursements ............................. .97% 1.08% 1.48% 1.22% 1.02% Expenses, before waivers and reimbursements ............................. .97% 1.21% 1.48% 1.22% 1.02% Net investment income ......................... 2.72% 2.69%(b) 2.60 2.60% 1.49% Portfolio turnover rate .......................... 52% 48% 76% 90% 25%
- -------------------------------------------------------------------------------- See footnote summary on page 21. 20 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------ CLASS B ------------------------------------------------ July 22, 2002(d) Year Ended December 31, to ----------------------------- December 31, 2005 2004 2003 2002 ------- ------- ------- ---------------- Net asset value, beginning of period .................. $ 18.10 $ 14.92 $ 12.86 $ 11.40 ------- ------- ------- ------- Income From Investment Operations Net investment income (a) ............................. .48 .38(b) .28 .07 Net realized and unrealized gain on investment and foreign currency transactions ...................... 2.34 3.13 2.21 1.39 ------- ------- ------- ------- Net increase in net asset value from operations ....... 2.82 3.51 2.49 1.46 ------- ------- ------- ------- Less: Dividends Dividends from net investment income .................. (.38) (.33) (.43) -0- ------- ------- ------- ------- Net asset value, end of period ........................ $ 20.54 $ 18.10 $ 14.92 $ 12.86 ======= ======= ======= ======= Total Return Total investment return based on net asset value (c) 15.76% 24.01% 19.64% 12.81% Ratios/Supplemental Data Net assets, end of period (000's omitted) ............. $ 9,766 $ 6,517 $ 2,802 $ 39 Ratio to average net assets of: Expenses, net of waivers and reimbursements ........ 1.22% 1.30% 1.73% 1.45%(e) Expenses, before waivers and reimbursements ........ 1.22% 1.43% 1.73% 1.45%(e) Net investment income .............................. 2.45% 2.41%(b) 2.07% 1.92%(e) Portfolio turnover rate ............................... 52% 48% 76% 90%
- -------------------------------------------------------------------------------- (a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (d) Commencement of distribution. (e) Annualized. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Utility Income Portfolio We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Utility Income Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Utility Income Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (unaudited) - -------------------------------------------------------------------------------- For corporate shareholders, 100% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 22 UTILITY INCOME PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Utility Income Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority ----------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------- ---------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------- ---------- ---------------- 3.A. Diversification 2,769,506 90,758 172,643 0 3.B. Issuing Senior Securities 2,770,283 91,035 171,589 0 and Borrowing Money 3.D. Concentration of Investments 2,802,472 85,371 145,064 0 3.E. Real Estate and Companies that 2,803,846 87,830 141,230 0 Deal in Real Estate 3.F. Commodities, Commodity 2,793,419 94,424 145,064 0 Contracts and Futures Contracts 3.G. Loans 2,775,687 94,705 162,515 0 3.H. Joint Securities Trading 2,776,697 91,612 164,597 0 Accounts 3.I. Exercising Control 2,819,089 70,504 143,313 0 3.J. Other Investment Companies 2,809,928 77,233 145,746 0 3.K. Oil, Gas, and Other Types of 2,814,827 72,292 145,787 0 Minerals or Mineral Leases 3.L. Purchases of Securities on 2,776,795 95,312 160,799 0 Margin 3.M. Short Sales 2,777,985 113,656 141,266 0
23 UTILITY INCOME PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Voted For Voted Against Abstained Broker Non-Votes --------- ------------- --------- ---------------- 3.S. 65% Investment Limitations 2,788,964 81,770 162,172 0 3.V. Purchasing Voting or Other Securities of Issuers 2,795,599 88,098 149,210 0 4.B. The reclassification as non-fundamental and with changes to the Portfolio's investment objective. 2,773,608 102,014 157,285 0
24 UTILITY INCOME PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Thomas J. Bardong, Vice President Paul C. Rissman, Vice President Annie Tsao(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 - -------------------------------------------------------------------------------- (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The day-to-day management of and investment decisions for the Portfolio's portfolio are made by Ms. Annie Tsao, Senior Vice President and Research Analyst. 25 UTILITY INCOME PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, 1345 Avenue of the Americas Capital Management Corporation ("ACMC") Inc.; SCB, Inc. New York, NY 10105 since 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was 9/7/32 formerly Deputy Comptroller and Chief (1990) Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of (1992) Evlico (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save 106 None P.O. Box 12 Venice, Inc. (preservation organization) Annandale, NY 12504 from 2001-2002, Senior Advisor from June 2/19/42 1999-June 2000 and President of Historic (1992) Hudson Valley (historic preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
26 UTILITY INCOME PORTFOLIO MANAGEMENT OF THE FUND (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and The Merger Management L.P. (investment advisory firm) from December Fund 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Attn: Philip L. Kirstein Fund Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers (semi-conductors); Glenbrook, NV 89413 Inc., with which he has been associated Cirrus Logic 3/7/36 since prior to 2001. He is also President Corporation (semi- (2005) of the Arbor Company (private family conductors); Novellus investments). Corporation (semi- conductor equipment); Micro Component Technology (semi- conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks 220 Montgomery Street conductor manufacturing services), Inc.; the George Penthouse 10 Austin, Texas, from 2003 to present, and Lucas Educational San Francisco, CA 94104-3402 President since company acquired in 2005, Foundation; and 10/10/41 and name changed from DuPont Photomasks. Chairman of the (2005) Prior to the company's sale in 2005, he Board of the was Chairman and CEO. He has also been Smithsonian's Principal of Turner Venture Associates National Museum of since 1993. Natural History
- -------------------------------------------------------------------------------- * 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 27 UTILITY INCOME PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Officer Information(1) Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent 5/29/45 and Independent Compliance Officer of the Compliance Officer AllianceBernstein Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with 4/28/45 which he has been associated since prior to 2001. Paul C. Rissman Vice President Executive Vice President of ACMC**, 11/10/56 with which he has been associated since prior to 2001. Annie Tsao Vice President Senior Vice President of ACMC**, with 10/22/52 which she has been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant 11/13/55 General Counsel and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance 10/4/50 Financial Officer Global Investor Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller 8/3/51 Vice President of ACMC**, with which he has been associated since prior to 2001.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 28 UTILITY INCOME PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Utility Income Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 29 UTILITY INCOME PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific prof- 30 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- itability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 7 to 6 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 9 to 8 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Standard & Poor's 500 GICS Utilities Composite (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-, 3-, 5- and 10-year and since inception periods (May 1994 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 3rd quintile in the 1-year period, 4th quintile in the 3-year period, 2nd quintile in the 5-year period (adjusted to 3rd quintile by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles) and 3rd quintile in the 10-year period (adjusted to 4th quintile by the 31 UTILITY INCOME PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Senior Officer), and in the Performance Universe comparison the Portfolio was in the 4th quintile in the 3-year period and 3rd quintile in the 1-, 5- and 10-year periods (adjusted to 4th quintile in the 10-year period by the Senior Officer). The comparative information showed that the Portfolio outperformed the Index in the 5- and 10-year and since inception periods and underperformed the Index in the YTD, 1- and 3-year periods. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in equity and fixed income securities. They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 55 basis points was materially lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 14 basis points and that as a result the Adviser's total compensation from the Portfolio pursuant to the Advisory Agreement was somewhat higher than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was significantly higher than the Expense Group median. Expense Universe information was not provided by Lipper in light of the relatively small number of funds in the Portfolio's Lipper category. The directors noted that the Portfolio's relatively modest size (approximately $75 million as of September 30, 2005) caused the administrative expense reimbursement, which does not vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. 32 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 33 UTILITY INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Utility Income Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) Advisory Fee Based on % of Average Category Daily Net Assets Fund - -------------------------------------------------------------------------------- Value 55 bp on 1st $2.5 billion Utility Income Portfolio 45 bp on next $2.5 billion 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - -------------------------------------------------------------------------------- Utility Income Portfolio $69,000 0.14% - -------------------------------------------------------------------------------- (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 34 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - -------------------------------------------------------------------------------- Utility Income Portfolio Class A 1.21% December 31 Class B 1.43% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(3) Effective Lipper Management Group Fund Fee Median Rank - -------------------------------------------------------------------------------- Utility Income Portfolio 0.550 0.650 1/7 - -------------------------------------------------------------------------------- (3) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. 35 UTILITY INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(4). Lipper describes a Lipper Expense Group as a representative sample of comparable funds. The results of that analysis are set forth below: Lipper Lipper Expense Universe Group Fund Ratio (%)(5) Median (%) Rank - -------------------------------------------------------------------------------- Utility Income Portfolio 1.075 0.831 7/7 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - -------------------------------------------------------------------------------- Utility Income Portfolio $11,108 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - -------------------------------------------------------------------------------- Utility Income Portfolio $19,883 - -------------------------------------------------------------------------------- (4) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (5) Most recent fiscal year end Class A share total expense ratio. 36 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(6) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. Although the Fund did not effect any brokerage transaction and pay commissions to the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), during the Fund's recent fiscal year, the potential for such events exist. The Adviser represented that SCB's profitability from any business conducted with the Fund would be comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(7) relative to its Lipper Performance Group(8) and Lipper Performance Universe(9) for the period ended September 30, 2005. Utility Income Portfolio Group Universe - -------------------------------------------------------------------------------- 1 year 4/7 5/9 3 year 5/7 6/9 5 year 3/6 4/8 10 year 4/6 5/8 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(10) versus its - -------------------------------------------------------------------------------- (6) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. (7) The performance rankings are for the Class A shares of the Fund. (8) The Lipper Performance Group is identical to the Lipper Expense Group. (9) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 37 UTILITY INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- benchmark(11).
Periods Ending September 30, 2005 Annualized Performance - ------------------------------------------------------------------------------------- Fund 1 Year 3 Year 5 Year 10 Year Since Inception - ------------------------------------------------------------------------------------- Utility Income Portfolio 34.28 24.34 1.33 9.38 9.62 S&P 500 GICS Utility Composite 38.67 26.71 -0.36 8.27 9.48
CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 - -------------------------------------------------------------------------------- (10) The performance returns are for the Class A shares of the Fund. (11) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 38 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) - ------------------------------------------------------------------------------- ANNUAL REPORT - ------------------------------------------------------------------------------- [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. Annual Report December 31, 2005 > AllianceBernstein Value Portfolio INVESTMENT PRODUCTS OFFERED > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Value Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of companies with relatively large market capitalizations that Alliance believes are undervalued. In selecting securities for the Portfolio, Alliance's Bernstein unit ("Bernstein") uses fundamental 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 Portfolio may invest up to 15% of its total assets in foreign securities. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Russell 1000 Value Index, for the one-year period ended December 31, 2005 and since the Portfolio's Class A shares inception on July 22, 2002. For the annual reporting period ended December 31, 2005, the Portfolio advanced, but underperformed its benchmark. Generally speaking, value stocks outperformed growth stocks over the period, despite the outperformance of growth stocks over the last six months. Specifically, stock selection in the Portfolio's investment portfolio was negative, particularly within the finance and industrial resources sectors, and contributed to the Portfolio's underperformance during the 12-month reporting period. Portfolio returns versus the benchmark benefited from strong gains by the Portfolio's technology and transportation holdings, as well as strong security selection in consumer growth stocks. As a whole, the technology sector lagged the market, yet a number of the Portfolio's technology holdings traded up and added significantly to relative performance. Several of the Portfolio's transportation holdings contributed to relative performance, benefiting from strong revenue improvement driven by increased cargo rates and shipments of consumer goods and commodities. MARKET REVIEW AND INVESTMENT STRATEGY High energy costs are forcing Americans to dig more deeply into their pockets and are taking a toll on consumer sentiment. On the positive side, consensus economic forecasts indicate that hurricane damage will put only a small and temporary damper on the U.S. economy, given the economy's robustness prior to the event and the likely massive private and public spending on reconstruction. As a result of this relatively constructive macroeconomic backdrop, complacency continues to reign across the U.S. capital markets. Investors have become less demanding about how much they are compensated for taking risk. Credit spreads remain unusually tight and equity-market volatility remains unusually low. In this low-anxiety setting, investors are accepting unusually small discounts for investing in value stocks, and they are less motivated than usual to pay premiums for above-average growth and stability. As such, valuations within the equity market continue to be unusually compressed as measured by price/earnings ratios. Because the Portfolio's management team's (the "Team's") investment process explicitly targets portfolio risk to be proportional to the opportunity in value stocks, the Portfolio's positive and negative active sector weights remain unusually small. Likewise, the Portfolio's exposures to other risk factors that can drive performance, such as capitalization, are also closer to market and benchmark levels than usual. Hence, risk measured as tracking error remains low relative to the last few years and the Team's long-term expectations. 1 VALUE PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED RUSSELL 1000 VALUE INDEX DOES NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Index contains those securities in the Russell 1000 Index with a less-than-average growth orientation. The unmanaged Russell 1000 Index is comprised of 1000 of the largest capitalized companies that are traded in the United States. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Value Portfolio. A WORD ABOUT RISK Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that rise as initially expected. Because the Portfolio can invest in foreign securities, it includes risks not associated with funds that invest primarily in U.S. issues, including magnified fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. To the extent that the Portfolio invests a substantial amount of its assets in a particular country, an investment in the Portfolio has the risk that market changes or other factors affecting that country may have a more significant effect on the Portfolio's net asset value. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (HISTORICAL PERFORMANCE CONTINUED ON NEXT PAGE) 2 VALUE PORTFOLIO HISTORICAL PERFORMANCE (CONTINUED FROM PREVIOUS PAGE) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE PORTFOLIO VS. ITS BENCHMARK PERIODS ENDED DECEMBER 31, 2005 RETURNS ----------------------------- 1 Year Since Inception* - ------------------------------------------------------------------------------- AllianceBernstein Value Portfolio Class A 5.74% 16.33% AllianceBernstein Value Portfolio Class B 5.48% 6.58% Russell 1000 Value Index 7.05% 17.76% * Since inception of the Portfolio's Class A shares on 7/22/02 and Class B shares on 5/1/01. ALLIANCEBERNSTEIN VALUE PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 7/22/02*-12/31/05 ALLIANCEBERNSTEIN VALUE PORTFOLIO CLASS A: $16,836 RUSSELL 1000 VALUE INDEX: $17,550 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL] AllianceBernstein Value Russell 1000 Portfolio Class A Value Index - ------------------------------------------------------------------------- 7/22/02* $10,000 $10,000 12/31/02 $10,950 $10,823 12/31/03 $14,119 $14,073 12/31/04 $15,922 $16,394 12/31/05 $16,836 $17,550 * SINCE INCEPTION OF THE PORTFOLIO'S CLASS A SHARES ON 7/22/02. THIS CHART ILLUSTRATES THE TOTAL VALUE OF AN ASSUMED $10,000 INVESTMENT IN ALLIANCEBERNSTEIN VALUE PORTFOLIO CLASS A SHARES (FROM 7/22/02* TO 12/31/05) AS COMPARED TO THE PERFORMANCE OF THE PORTFOLIO'S BENCHMARK. THE CHART ASSUMES THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 VALUE PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED VALUE PORTFOLIO JANUARY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - -------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000 $1,048.62 $3.77 0.73% Hypothetical (5% return before expenses) $1,000 $1,021.53 $3.72 0.73% CLASS B Actual $1,000 $1,046.46 $4.95 0.96% Hypothetical (5% return before expenses) $1,000 $1,020.37 $4.89 0.96%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 VALUE PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Exxon Mobil Corp. $ 9,925,238 5.2% Citigroup, Inc. 8,429,660 4.4 Bank of America Corp. 6,567,145 3.4 JPMorgan Chase & Co. 4,151,574 2.1 Pfizer, Inc. 3,964,400 2.1 Altria Group, Inc. 3,777,096 2.0 Verizon Communications 3,445,728 1.8 ChevronTexaco Corp. 3,428,908 1.8 Hewlett-Packard Co. 3,327,607 1.7 General Electric Co. 3,207,075 1.7 ------------ ------ $ 50,224,431 26.2% SECTOR DIVERSIFICATION DECEMBER 31, 2005 _______________________________________________________________________________ SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Financial $64,235,242 33.5% Energy 24,672,709 12.8 Consumer Staples 18,167,686 9.5 Consumer Growth 15,327,238 8.0 Utilities 13,747,853 7.2 Technology 13,113,633 6.8 Consumer Cyclicals 9,711,957 5.1 Capital Equipment 8,939,354 4.7 Commodities 3,600,106 1.9 Services 3,433,833 1.8 Industrial Resources 2,638,972 1.4 Defense 2,412,659 1.2 Consumer Manufacturing 820,845 0.4 Health Care 687,240 0.3 Non-Financial 444,976 0.2 Industrial Commodities 391,092 0.2 ------------ ------ Total Investments* 182,345,395 95.0 Cash and receivables, net of liabilities 9,528,736 5.0 ------------ ------ Net Assets $191,874,131 100.0% * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodolgy of the Adviser. 5 VALUE PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- COMMON STOCKS-95.0% FINANCIAL-33.5% BANKS-6.6% Citigroup, Inc. 173,700 $ 8,429,660 JPMorgan Chase & Co. 104,600 4,151,574 ------------ 12,581,234 FINANCE - PERSONAL LOANS-0.6% Countrywide Credit Industries, Inc. 35,768 1,222,908 LIFE INSURANCE-2.1% Genworth Financial, Inc. 31,400 1,085,812 Jefferson-Pilot Corp. 8,400 478,212 MetLife, Inc. 29,700 1,455,300 Prudential Financial, Inc. 13,000 951,470 Torchmark Corp. 1,300 72,280 ------------ 4,043,074 MAJOR REGIONAL BANKS-10.7% Bank of America Corp. 142,300 6,567,145 BB&T Corp. 13,500 565,785 Comerica, Inc. 21,600 1,226,016 Huntington Bancshares, Inc. 40,200 954,750 KeyCorp. 27,950 920,394 Mellon Financial Corp. 31,300 1,072,025 National City Corp. 44,100 1,480,437 PNC Financial Services Group 14,700 908,901 SunTrust Banks, Inc. 17,600 1,280,576 U.S. Bancorp 51,900 1,551,291 Wachovia Corp. 53,150 2,809,509 Wells Fargo & Co. 19,000 1,193,770 ------------ 20,530,599 MULTI-LINE INSURANCE-2.0% American International Group, Inc. 31,300 2,135,599 The Hartford Financial Services Group, Inc. 18,500 1,588,965 ------------ 3,724,564 PROPERTY - CASUALTY INSURANCE-3.0% ACE Ltd. (Cayman Islands) 9,900 529,056 Allstate Corp. 7,500 405,525 Chubb Corp. 12,500 1,220,625 PartnerRe Ltd. (Bermuda) 4,300 282,381 RenaissanceRe Holdings Ltd. (Bermuda) 16,300 718,993 The St. Paul Travelers Cos., Inc. 40,333 1,801,675 XL Capital Ltd. Cl. A (Bermuda) 11,700 788,346 ------------ 5,746,601 SAVINGS AND LOANS-3.2% Astoria Financial Corp. 21,750 639,450 Fannie Mae 42,700 2,084,187 Freddie Mac 26,000 1,699,100 Washington Mutual, Inc. 39,800 1,731,300 ------------ 6,154,037 MISCELLANEOUS FINANCIAL-5.3% Lehman Brothers Holdings, Inc. 11,700 1,499,589 MBIA, Inc. 11,800 709,888 Merrill Lynch & Co., Inc. 42,300 2,864,979 MGIC Investment Corp. 11,900 783,258 Morgan Stanley 43,600 2,473,864 The Goldman Sachs Group, Inc. 11,500 1,468,665 Waddell & Reed Financial, Inc. 20,600 431,982 ------------ 10,232,225 ------------ 64,235,242 ENERGY-12.8% GAS PIPELINES-0.1% El Paso Corp. 23,000 279,680 OFFSHORE DRILLING-1.5% ENSCO International, Inc. 2,100 93,135 GlobalSantaFe Corp. (Cayman Islands) 22,100 1,064,115 Noble Corp. 14,000 987,560 Rowan Cos., Inc. (a) 19,200 684,288 ------------ 2,829,098 OILS - INTEGRATED DOMESTIC-3.4% ConocoPhillips 53,800 3,130,084 Marathon Oil Corp. 27,100 1,652,287 Occidental Petroleum Corp. 22,100 1,765,348 ------------ 6,547,719 OILS - INTEGRATED INTERNATIONAL-7.8% BP p.l.c. (ADR) (United Kingdom) 12,300 789,906 ChevronTexaco Corp. 60,400 3,428,908 Exxon Mobil Corp. 176,700 9,925,238 Total, SA (ADR) (France) 6,900 872,160 ------------ 15,016,212 ------------ 24,672,709 CONSUMER STAPLES-9.5% BEVERAGES - SOFT, LITE & HARD-1.6% Molson Coors Brewing Co. Cl. B 7,500 502,425 PepsiCo, Inc. 11,600 685,328 The Coca-Cola Co. 47,000 1,894,570 ------------ 3,082,323 6 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- FOOD-1.8% ConAgra Foods, Inc. 53,000 $ 1,074,840 General Mills, Inc. 26,200 1,292,184 Kraft Foods, Inc. 13,800 388,332 Sara Lee Corp. 40,600 767,340 ------------ 3,522,696 RESTAURANTS-1.1% Darden Restaurants, Inc. 9,700 377,136 McDonald's Corp. 51,800 1,746,696 ------------ 2,123,832 RETAIL STORES - FOOD-1.4% Safeway, Inc. 48,800 1,154,608 SUPERVALU, Inc. 19,400 630,112 The Kroger Co. (a) 49,000 925,120 ------------ 2,709,840 SOAPS-0.9% Clorox Co. 15,000 853,350 Unilever NV (Netherlands) 11,500 789,475 ------------ 1,642,825 SUGAR REFINERS-0.3% Archer-Daniels-Midland Co. 19,805 488,391 TOBACCO-2.4% Altria Group, Inc. 50,550 3,777,096 UST, Inc. 20,100 820,683 ------------ 4,597,779 ------------ 18,167,686 CONSUMER GROWTH-8.0% ADVERTISING-0.4% The Interpublic Group of Cos., Inc. (a) 76,900 742,085 DRUGS-4.2% Bristol-Myers Squibb Co. 18,850 433,173 Eli Lilly & Co. 20,000 1,131,800 Merck & Co., Inc. 80,200 2,551,162 Pfizer, Inc. 170,000 3,964,400 ------------ 8,080,535 ENTERTAINMENT-1.8% Time Warner, Inc. 128,400 2,239,296 Viacom, Inc. Cl. B 33,950 1,106,770 Walt Disney Co. 6,300 151,011 ------------ 3,497,077 HOSPITAL MANAGEMENT-0.2% HCA, Inc. 3,900 196,950 Tenet Healthcare Corp. (a) 15,400 117,964 ------------ 314,914 HOSPITAL SUPPLIES-0.6% Medco Health Solutions, Inc. (a) 22,000 1,227,600 RADIO - TV BROADCASTING-0.8% Comcast Corp. Cl. A (a) 56,434 1,465,027 ------------ 15,327,238 UTILITIES-7.2% ELECTRIC COMPANIES-2.3% American Electric Power Co., Inc. 28,075 1,041,302 Edison International 5,600 244,216 Entergy Corp. 18,900 1,297,485 Exelon Corp. 9,100 483,574 Northeast Utilities 30,700 604,483 Pinnacle West Capital Corp. 10,100 417,635 Wisconsin Energy Corp. 3,000 117,180 Xcel Energy, Inc. 9,700 179,062 ------------ 4,384,937 TELEPHONE-4.9% American Tower Corp. Cl. A (a) 11,000 298,100 AT&T, Inc. 78,900 1,932,261 BellSouth Corp. 13,600 368,560 Crown Castle International Corp. (a) 37,370 1,005,627 Sprint Nextel Corp. 99,000 2,312,640 Verizon Communications 114,400 3,445,728 ------------ 9,362,916 ------------ 13,747,853 TECHNOLOGY-6.8% COMMUNICATION - EQUIP. MFRS.-1.6% ADC Telecommunications, Inc. (a) 27,514 614,663 Corning, Inc. (a) 57,000 1,120,620 Nokia Oyj (ADR) (Finland) 51,100 935,130 Tellabs, Inc. (a) 36,100 393,490 ------------ 3,063,903 COMPUTERS-2.0% Hewlett-Packard Co. 116,228 3,327,607 International Business Machines Corp. 5,600 460,320 ------------ 3,787,927 COMPUTER / INSTRUMENTATION-1.1% Celestica, Inc. (Canada) (a) 43,100 455,136 Flextronics International Ltd. (Singapore) (a) 57,900 604,476 Sanmina-SCI Corp. (a) 111,000 472,860 Solectron Corp. (a) 152,210 557,089 ------------ 2,089,561 7 VALUE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- COMPUTER SERVICES / SOFTWARE-1.0% Electronic Data Systems Corp. 46,000 $ 1,105,840 Microsoft Corp. 31,900 834,185 ------------ 1,940,025 SEMICONDUCTORS-0.7% Agere System, Inc. (a) 42,210 544,509 Intel Corp. 35,800 893,568 ------------ 1,438,077 MISCELLANEOUS INDUSTRIAL TECHNOLOGY-0.4% Arrow Electronics, Inc. (a) 11,600 371,548 Tech Data Corp. (a) 10,650 422,592 ------------ 794,140 ------------ 13,113,633 CONSUMER CYCLICALS-5.1% AUTOS & AUTO PARTS-1.6% American Axle & Manufacturing Holdings, Inc. 10,500 192,465 Autoliv, Inc. (Sweden) 7,900 358,818 BorgWarner, Inc. 10,800 654,804 Dana Corp. 5,000 35,900 Lear Corp. 9,200 261,832 Magna International, Inc. Cl. A (Canada) 5,700 410,286 Toyota Motor Corp. (ADR) (Japan) 10,000 1,046,200 ------------ 2,960,305 RETAILERS-2.0% Limited Brands 39,500 882,825 Nordstrom, Inc. 15,800 590,920 Office Depot, Inc. (a) 51,000 1,601,400 Target Corp. 14,100 775,077 ------------ 3,850,222 TEXTILES/SHOES - APPAREL MFG.-0.6% Jones Apparel Group, Inc. 20,600 632,832 V.F. Corp. 7,900 437,186 ------------ 1,070,018 TIRES & RUBBER GOODS-0.1% Cooper Tire & Rubber Co. 14,100 216,012 TOYS-0.4% Mattel, Inc. 49,200 778,344 MISCELLANEOUS CONSUMER CYCLICALS-0.4% Newell Rubbermaid, Inc. 35,200 837,056 ------------ 9,711,957 CAPITAL EQUIPMENT-4.7% AEROSPACE - DEFENSE-1.1% B.F. Goodrich Corp. 21,700 891,870 The Boeing Co. 16,300 1,144,912 ------------ 2,036,782 AUTO TRUCKS - PARTS-0.5% Eaton Corp. 13,500 905,715 ELECTRICAL EQUIPMENT-2.2% Cooper Industries Ltd. Cl. A (Bermuda) 7,000 511,000 General Electric Co. 91,500 3,207,075 Hubbell Inc. Cl. B 11,500 518,880 ------------ 4,236,955 MISCELLANEOUS CAPITAL GOODS-0.9% SPX Corp. 14,400 659,088 Textron, Inc. 14,300 1,100,814 ------------ 1,759,902 ------------ 8,939,354 COMMODITIES-1.9% CHEMICALS-1.4% E.I. du Pont de Nemours & Co. 21,100 896,750 Eastman Chemical Co. 12,400 639,716 PPG Industries, Inc. 18,600 1,076,940 ------------ 2,613,406 PAPER-0.5% Temple-Inland, Inc. 22,000 986,700 ------------ 3,600,106 SERVICES-1.8% RAILROADS-1.8% Burlington Northern Santa Fe Corp. 13,800 977,316 CSX Corp. 24,500 1,243,865 Norfolk Southern Corp. 27,050 1,212,652 ------------ 3,433,833 INDUSTRIAL RESOURCES-1.4% CHEMICALS-0.4% The Lubrizol Corp. 15,700 681,851 CONTAINERS - METAL/GLASS/PAPER-0.4% Owens-Illinois, Inc. (a) 34,900 734,296 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- PAPER-0.6% Kimberly-Clark Corp. 20,500 $ 1,222,825 ------------ 2,638,972 DEFENSE-1.2% DEFENSE-1.2% Lockheed Martin Corp. 14,300 909,909 Northrop Grumman Corp. 25,000 1,502,750 ------------ 2,412,659 CONSUMER MANUFACTURING-0.4% MISCELLANEOUS-0.4% Bunge Ltd. (Bermuda) 14,500 820,845 HEALTH CARE-0.3% MEDICAL SERVICES-0.3% AmerisourceBergen Corp. 16,600 687,240 NON-FINANCIAL-0.2% BUILDING MATERIALS - CEMENT-0.2% Martin Marietta Materials, Inc. 5,800 444,976 SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------- INDUSTRIAL COMMODITIES-0.2% PAPER-0.2% Smurfit-Stone Container Corp. (a) 27,600 $ 391,092 Total Common Stocks (cost $154,189,877) 182,345,395 SHORT-TERM INVESTMENT-4.8% TIME DEPOSIT-4.8% The Bank of New York 3.25%, 1/03/06 (cost $9,157,000) $9,157 9,157,000 TOTAL INVESTMENTS-99.8% (cost $163,346,877) 191,502,395 Other assets less liabilities-0.2% 371,736 NET ASSETS-100% $191,874,131 (a) Non-income producing security. Glossary: ADR - American Depositary Receipt See Notes to Financial Statements. 9 VALUE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $163,346,877) $191,502,395 Cash 858 Receivable for capital stock sold 405,978 Dividends and interest receivable 224,817 Total assets 192,134,048 LIABILITIES Advisory fee payable 88,765 Payable for capital stock redeemed 60,505 Distribution fee payable 40,286 Transfer agent fee payable 65 Accrued expenses 70,296 Total liabilities 259,917 NET ASSETS $191,874,131 COMPOSITION OF NET ASSETS Capital stock, at par $ 14,947 Additional paid-in capital 155,055,552 Undistributed net investment income 2,231,572 Accumulated net realized gain on investment transactions 6,416,542 Net unrealized appreciation of investments 28,155,518 ------------ $191,874,131 CLASS A SHARES Net assets $ 290,673 Shares of capital stock outstanding 22,467 Net asset value per share $ 12.94 CLASS B SHARES Net assets $191,583,458 Shares of capital stock outstanding 14,924,615 Net asset value per share $ 12.84 See Notes to Financial Statements. 10 VALUE PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $9,426) $ 3,720,000 Interest 140,528 Total investment income 3,860,528 EXPENSES Advisory fee 902,805 Distribution fee--Class B 410,108 Custodian 126,175 Administrative 75,250 Printing 44,557 Audit 41,750 Legal 6,102 Directors' fees 1,000 Transfer agency 794 Miscellaneous 10,175 Total expenses 1,618,716 Less: expenses waived and reimbursed by the Adviser (see Note B) (16,750) Net expenses 1,601,966 Net investment income 2,258,562 REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions 6,469,868 Net change in unrealized appreciation/depreciation of investments 449,217 Net gain on investment transactions 6,919,085 NET INCREASE IN NET ASSETS FROM OPERATIONS $ 9,177,647 See Notes to Financial Statements. 11 VALUE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ------------ ------------ INCREASE IN NET ASSETS FROM OPERATIONS Net investment income $ 2,258,562 $ 1,903,722 Net realized gain on investment transactions 6,469,868 5,499,888 Net change in unrealized appreciation/depreciation of investments 449,217 9,888,130 Net increase in net assets from operations 9,177,647 17,291,740 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (184) -0- Class B (1,908,445) (1,139,078) Net realized gain on investment transactions Class A (222) -0- Class B (2,681,802) -0- CAPITAL STOCK TRANSACTIONS Net increase 35,488,418 18,084,364 Total increase 40,075,412 34,237,026 NET ASSETS Beginning of period 151,798,719 117,561,693 End of period (including undistributed net investment income of $2,231,572 and $1,881,639, respectively) $191,874,131 $151,798,719 See Notes to Financial Statements. 12 VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Value Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio commenced operations on May 1, 2001. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 13 VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .75% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2005 there were no such expenses waived by the Adviser. Effective January 1, 2004 through September 6, 2004, in connection with the Adviser's settlement with the New York Attorney General's Office ("NYAG") the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. For the year ended December 31, 2005, such reimbursement amounted to $75,250 of which $16,750 was voluntarily waived by the Adviser. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $75,013, of which $39,393 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investors Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES -------------- -------------- Investment securities (excluding U.S. government securities) $ 60,336,355 $ 32,664,389 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost $163,351,136 Gross unrealized appreciation $ 34,275,012 Gross unrealized depreciation (6,123,753) Net unrealized appreciation $ 28,151,259 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the differ- 15 VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ence between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004(A) 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 26,487 451 $ 333,385 $ 5,033 Shares issued in reinvestment of dividends and distributions 33 -0- 406 -0- Shares redeemed (4,504) (21) (57,121) (237) Net increase 22,016 430 $ 276,670 $ 4,796 (a) For the period May 10, 2004 through October 4, 2004, there were no Class A shares outstanding. 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS B Shares sold 5,620,924 3,265,962 $ 70,394,206 $ 37,561,380 Shares issued in reinvestment of dividends and distributions 376,250 101,244 4,590,247 1,139,078 Shares redeemed (3,174,997) (1,800,817) (39,772,705) (20,620,890) Net increase 2,822,177 1,566,389 $ 35,211,748 $ 18,079,568 NOTE F: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE H: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ----------- ----------- Distributions paid from: Ordinary income $ 2,208,016 $ 1,139,078 Net long-term capital gains 2,382,637 -0- Total distributions paid $ 4,590,653 $ 1,139,078 As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 2,421,697 Undistributed long-term capital gains 6,230,676 Unrealized appreciation/(depreciation) 28,151,259(a) Total accumulated earnings/(deficit) $ 36,803,632 (a) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. For the current fiscal year, there were no permanent differences. 17 VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE I: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled HINDO, ET AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND, ET AL. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled THE ATTORNEY GENERAL OF THE STATE OF WEST VIRGINIA V. AIM ADVISORS, INC., ET AL. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the HINDO Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled AUCOIN, ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. 19 VALUE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 20 VALUE PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ---------------------------------------------------- JULY 22, YEAR ENDED DECEMBER 31, 2002(B) TO ------------------------------------- DECEMBER 31, 2005 2004(A) 2003 2002 ----------- ----------- ----------- ----------- Net asset value, beginning of period $12.63 $11.20 $8.76 $8.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (c)(d) .22 .25 .16 .07 Net realized and unrealized gain on investment transactions .49 1.18 2.36 .69 Net increase in net asset value from operations .71 1.43 2.52 .76 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.18) -0- (.08) -0- Distributions from net realized gain on investment transactions (.22) -0- -0- -0- Total dividends and distributions (.40) -0- (.08) -0- Net asset value, end of period $12.94 $12.63 $11.20 $8.76 TOTAL RETURN Total investment return based on net asset value (e) 5.74% 12.77% 28.94% 9.50% RATIOS/SUPPLEMENTAL DATA Net assets, end of period $290,673 $5,699 $239 $187 Ratio to average net assets of: Expenses, net of waivers and reimbursements .73% .79%(f) .99% 1.20%(f) Expenses, before waivers and reimbursements .74% .98%(f) 1.06% 2.28%(f) Net investment income (d) 1.74% 2.02%(f) 1.51% 4.22%(f) Portfolio turnover rate 21% 27% 27% 12%
See footnote summary on page 22. 21 VALUE PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B ----------------------------------------------------------------- MAY 1, YEAR ENDED DECEMBER 31, 2001(G) TO -------------------------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $12.54 $11.16 $8.75 $10.07 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (c)(d) .17 .17 .12 .12 .08 Net realized and unrealized gain (loss) on investment transactions .50 1.31 2.36 (1.42) (.01) Net increase (decrease) in net asset value from operations .67 1.48 2.48 (1.30) .07 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.15) (.10) (.07) (.02) -0- Distributions from net realized gain on investment transactions (.22) -0- -0- -0- -0- Total dividends and distributions (.37) (.10) (.07) (.02) -0- Net asset value, end of period $12.84 $12.54 $11.16 $8.75 $10.07 TOTAL RETURN Total investment return based on net asset value (e) 5.48% 13.37% 28.46% (12.95)% .70% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $191,583 $151,793 $117,561 $68,366 $27,286 Ratio to average net assets of: Expenses, net of waivers and reimbursements .98% .97% 1.24% 1.21% 1.20%(f) Expenses, before waivers and reimbursements .99% 1.15% 1.33% 1.43% 2.47%(f) Net investment income (d) 1.38% 1.45% 1.29% 1.27% 1.29%(f) Portfolio turnover rate 21% 27% 27% 12% 4%
(a) There were no Class A shares outstanding for the period May 11, 2004 through October 3, 2004. (b) Commencement of distribution. (c) Based on average shares outstanding. (d) Net of expenses waived or reimbursed by the Adviser. (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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (f) Annualized. (g) Commencement of operations. 22 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN VALUE PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Value Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Value Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (UNAUDITED) _______________________________________________________________________________ For corporate shareholders, 100% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 23 VALUE PORTFOLIO RESULTS OF SHAREHOLDER MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Value Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ------------ ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES ------------ ------------- ------------ ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES ------------ ------------- ------------ ---------------- 3.A. Diversification 12,368,489 320,666 598,180 0 3.B. Issuing Senior Securities 12,422,031 283,912 581,392 0 and Borrowing Money 3.D. Concentration of Investments 12,517,301 152,593 617,441 0 3.E. Real Estate and Companies 12,471,321 251,001 565,013 0 that Deal in Real Estate 3.F. Commodities, Commodity 12,292,624 412,594 582,117 0 Contracts and Futures Contracts 3.G. Loans 12,489,574 225,150 572,611 0 3.I. Exercising Control 12,503,510 178,552 605,273 0 3.N. Pledging, Hypothecating, 12,500,380 224,288 562,667 0 Mortgaging, or Otherwise Encumbering Assets 4.A. The reclassification of the 12,305,965 398,574 582,796 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
24 VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), CHAIRMAN MARC O. MAYER, PRESIDENT RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, SENIOR VICE PRESIDENT AND INDEPENDENT COMPLIANCE OFFICER THOMAS J. BARDONG, VICE PRESIDENT MARILYN G. FEDAK(2), VICE PRESIDENT JOHN MAHEDY(2), VICE PRESIDENT CHRISTOPHER MARX(2), VICE PRESIDENT JOHN D. PHILLIPS(2), VICE PRESIDENT EMILIE D. WRAPP, SECRETARY MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER THOMAS R. MANLEY, CONTROLLER CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the U.S. Value Investment Policy Group. Ms. Marilyn G. Fedak, Mr. John Mahedy, Mr. Christopher Marx and Mr. John D. Philips are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 25 VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - -------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, 1345 Avenue of the Americas Management Corporation ("ACMC") since Inc.; SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been CHAIRMAN OF THE BOARD associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
26 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - -------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1997 1345 Avenue of the Americas until December 2003. Prior thereto, Chairman New York, NY 10105 and CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior to Cirrus Logic Corporation 3/7/36 2001. He is also President of the Arbor Company (semi-conductors); (2005) (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, the George Lucas Penthouse 10 Texas, from 2003 to present, and President since Educational Foundation; San Francisco, CA 94104-3402 company acquired in 2005, and name changed and Chairman of the 10/10/41 from DuPont Photomasks. Prior to the company's Board of the (2005) sale in 2005, he was Chairman and CEO. He has Smithsonian's also been Principal of Turner Venture Associates National Museum since 1993. of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 27 VALUE PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
PRINCIPAL NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President and Senior Vice President and Independent 5/29/45 Independent Compliance Compliance Officer of the AllianceBernstein Officer Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which 4/28/45 he has been associated since prior to 2001. Marilyn G. Fedak Vice President Executive Vice President of ACMC**, with 1/3/47 which she has been associated since prior to 2001. She is Head of SCB & Co.'s Value Equities Business and Co-Chief Investment Officer of U.S. Value Equities since prior to 2001. John Mahedy Vice President Senior Vice President of ACMC**, with which 7/26/63 he has been associated since prior to 2001. He is also Co-Chief Investment Officer of U.S. Value Equities since 2003 and Director of Research- US Value Equities since 2001. Christopher Marx Vice President Senior Vice President of ACMC**, with which 9/9/67 he has been associated since prior to 2001. John D. Phillips Vice President Senior Vice President of ACMC**, with which 3/7/47 he has been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President,Assistant General 11/13/55 Counsel and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global 10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has 8/3/51 been associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 28 VALUE PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT IN THIS DISCLOSURE, THE TERM "FUND" REFERS TO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC., AND THE TERM "PORTFOLIO" REFERS TO ALLIANCEBERNSTEIN VALUE PORTFOLIO. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 29 VALUE PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors noted that in the Portfolio's latest fiscal year the Adviser had waived reimbursement payments from the Portfolio in light of the expense caps currently in effect for the Portfolio. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 11 funds in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 34 to 33 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for 31 VALUE PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ periods ended September 30, 2005 over the 1- and 3-year periods, and as compared to the Russell 1000 Value Index (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1- and 3-year and since inception periods (July 2002 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 4th quintile in the 1-year period and 1st quintile in the 3-year period (adjusted to 2nd quintile in the 3-year period by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles), and in the Performance Universe comparison the Portfolio was in the 3rd quintile in both the 1- and 3-year periods. The comparative information showed that the Portfolio outperformed the Index in the since inception period and underperformed the Index in the YTD, 1- and 3-year periods. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than those paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 55 basis points was significantly lower than the Expense Group median. The directors noted that in the Portfolio's latest fiscal year, the administrative expense reimbursement of 5 basis points had been waived by the Adviser. The directors also noted that the Portfolio's total expense ratio, which had been capped by the Adviser (although the expense ratio was currently significantly lower than the cap), was slightly lower than the Expense Group median and somewhat lower than the Expense Universe median. The directors concluded that the Portfolio's expense ratio was satisfactory. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 33 VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Value Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Value 55 bp on 1st $2.5 billion Value Portfolio 45 bp on next $2.5 billion 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Value Portfolio(3) $69,000 0.05% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's most recent fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. It should be noted that the Fund was operating below its expense cap in the latest fiscal year; accordingly, the expense limitation undertaking of that Fund was of no effect. The gross expense ratios of the Fund during the most recently completed fiscal year are also listed below. EXPENSE CAP PURSUANT TO GROSS EXPENSE LIMITATION EXPENSE FUND UNDERTAKING RATIO FISCAL YEAR END - ------------------------------------------------------------------------------- Value Portfolio Class A 1.20% 0.98% December 31 Class B 1.45% 1.15% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. (3) The expense reimbursement has been waived by the Adviser. 35 VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- Value Portfolio $172.9 Diversified Value Schedule 0.408% 65 bp on 1st $25 m 50 bp on next $25 m 40 bp on next $50 m 30 bp on next $100 m 25 bp on the balance MINIMUM ACCOUNT SIZE $20 M The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: ASSET CLASS FEE(4) - ------------------------------------------------------------------------------- Equity Value 0.80% The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: FUND ACITM MUTUAL FUND(5) FEE - ------------------------------------------------------------------------------- Value Portfolio Bernstein Kokusai Value (Mizuho)(6) 0.30% (4) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. (5) The name in parenthesis is the distributor of the fund. (6) The ACITM fund is not a retail fund. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: FUND FEE SCHEDULE - ------------------------------------------------------------------------------- Value Portfolio Client # 1 0.25% for first $500 million 0.20% thereafter Client # 2(7) 0.50% on first $1 billion 0.40% on next $1 billion 0.30% on next $1 billion 0.20% thereafter Client # 3 0.23% on first $300 million 0.20% thereafter Client # 4 0.27% on first $300 million 0.16% on next $700 million 0.13% thereafter Client # 5 0.20% Client # 6 Base fee of 0.15% on first $1 billion 0.14% on next $2 billion 0.12% on next $2 billion 0.10% thereafter +/- Performance Fee(8) Client # 7 0.60% on first $10 million 0.50% on next $15 million 0.40% on next $25 million 0.30% on next $50 million 0.25% on next $50 million 0.225% on next $50 million 0.20% thereafter 0.47% on first $50 million for first six months Client # 8 0.60% on first $10 million 0.50% on next $15 million 0.40% on next $25 million 0.30% on next $50 million 0.25% on next $50 million 0.225% on next $50 million 0.175% on next $50 million 0.15% thereafter (7) This is the fee schedule of a fund managed by an affiliate of the Adviser. (8) The performance fee is calculated by multiplying the Base Fee during the period by an adjustment factor that considers the excess or under performance of the fund versus its benchmark, the Russell 1000 Value Index over a cumulative 36-month period. The fund's annualized effective advisory fee rate over the most recent four quarterly payments, including base fee plus performance fee, is 0.15%. 37 VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. In addition, to the extent that certain of these sub-advisory relationships are with affiliates of the Adviser, the fee schedules may not reflect arms-length bargaining or negotiations. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(9) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Value Portfolio 0.550 0.750 1/11 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(10) and Lipper Expense Universe(11). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO (%)(12) MEDIAN (%) RANK MEDIAN (%) RANK - ------------------------------------------------------------------------------- Value Portfolio 0.789 0.853 11/34 0.829 3/11 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. (9) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the fee waiver or expense reimbursement that effectively reduce the contractual fee rates. In addition, the effective management fee rate does not reflect (10) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (11) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (12) Most recent fiscal year end Class A share total expense ratio. 38 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund increased during calendar 2004 relative to 2003. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ------------------------------------------------------------------------------- Value Portfolio $328,189 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------------- Value Portfolio $380,300 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(13) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. (13) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 39 VALUE PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1 and 3 year performance rankings of the Fund(14) relative to its Lipper Performance Group(15) and Lipper Performance Universe(16) for the period ended September 30, 2005. VALUE PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 8/11 20/34 3 year 3/11 15/33 (14) The performance rankings are for the Class A shares of the Fund. (15) The Lipper Performance Group is identical to the Lipper Expense Group. (16) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 40 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the 1, 3 year and since inception performance returns of the Fund (in bold)(17) versus its benchmark(18). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- FUND 1 YEAR 3 YEAR SINCE INCEPTION - ------------------------------------------------------------------------------- Value Portfolio 14.22 18.75 17.21 Russell 1000 Value Index 16.69 20.48 15.22 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (17) The performance returns are for the Class A shares of the Fund. (18) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 41 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. DECEMBER 31, 2005 ANNUAL REPORT ALLIANCEBERNSTEIN GROWTH & INCOME PORTFOLIO ANNUAL REPORT - --------------------------- INVESTMENT PRODUCTS OFFERED > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. GROWTH & INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 8, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Growth & Income Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks reasonable current income and reasonable opportunities for appreciation through investments primarily in dividend-paying common stocks of good quality. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Russell 1000 Value Index, for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio underperformed its primary style benchmark, the Russell 1000 Value Index. During the 12-month period, the Portfolio's disappointing relative performance was primarily due to stock selection. Absolute and relative performance improved noticeably in the fourth quarter as stock selection recovered. On the sector front, the Portfolio's underweight positions in traditional value sectors like energy and financials hurt, while on the stock front, selection in media and health care was weak. At the stock level, weak stock selection in health care and underperforming "old" media holdings were primarily responsible for the Portfolio's underperformance versus the benchmark during the 12-month reporting period. Underperformance was due, in part, to the Portfolio's large investment in Boston Scientific, which did not perform well. The Portfolio continues to maintain a lower-than-benchmark and lower-than-peer-group profile in winning "value" sectors like commodities (e.g., energy and basic materials) and financials (e.g., real estate investment trusts and regional banks). The Portfolio's management team (the "Team") believes that both areas of the market, large exposures in the Portfolio's benchmark, are growing expensive on mid-cycle earnings. MARKET REVIEW AND INVESTMENT STRATEGY U.S. stocks rose during the 12-month period ended December 31, 2005 as the economy and corporate profits remained buoyant despite record energy prices, rising interest rates and one of the worst hurricane seasons in U.S. history. Energy stocks dominated returns for the 12-month reporting period, climbing more than 30%. The relative value opportunity that is seen today in high-quality and mega-cap stocks is the result of five years of massive outperformance by value stocks and small-cap stocks since the technology bubble burst in early 2000. The value rally has taken valuation spreads between the cheapest and most expensive stocks from extremely wide to extremely narrow within the large-cap market overall and within the value index. In addition, the massive outperformance by smaller-cap stocks has narrowed the valuation premium usually accorded to large-cap stocks--and erased the premium for mega caps. Indeed, the largest 50 U.S. stocks, which usually sell at a significant valuation premium to the U.S. market overall, are now selling at a discount, although they remain significantly more profitable than the market as a whole. The Team has taken advantage of this anomaly over the past two years by buying an unusually large number of mega-cap stocks. Today's tight valuation spreads largely reflect the compression in the range of corporate profitability. After a sustained period of strong global economic growth, traditional value stocks that are the biggest beneficiaries of low interest rates and high economic growth are delivering very strong profits (particularly energy and metals producers); few industries are in distress. Thus, returns on equity (ROE) are not only unusually high on average in the U.S. and around the world--but high ROEs are unusually widespread. In this setting, investors are willing to pay a higher valuation than usual for cyclicals and other traditional value stocks and are less willing to pay sizable valuation premiums for superior growth and stability. However, high ROEs should not remain so broadly distributed. As profitability diverges, so, too, will valuations. In the Team's view, investors are overpaying for improved fundamental performance that is likely to prove to be cyclical. The Team built the Portfolio's current emphasis on very large, high-quality and non-cyclical companies as their relative valuations fell. 1 GROWTH & INCOME PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. you should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED RUSSELL 1000 VALUE INDEX DOES NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Index contains those securities in the Russell 1000 Index with a less-than-average growth orientation. The Russell 1000 Index is comprised of 1000 of the largest capitalized companies that are traded in the United States. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Growth & Income Portfolio. A WORD ABOUT RISK The Portfolio's assets can be invested in foreign securities which may magnify asset value fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. you should read the prospectus before investing or sending money. (HISTORICAL PERFORMANCE CONTINUED ON NEXT PAGE) 2 GROWTH & INCOME PORTFOLIO HISTORICAL PERFORMANCE (CONTINUED FROM PREVIOUS PAGE) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ RETURNS ---------------------------------------- THE PORTFOLIO VS. ITS BENCHMARK PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------------------------------- AllianceBernstein Growth & Income Portfolio Class A 4.86% 3.91% 11.50% AllianceBernstein Growth & Income Portfolio Class B 4.60% 3.67% 5.07%* Russell 1000 Value Index 7.05% 5.28% 10.94% * Since inception of the Portfolio's Class B shares on 6/1/99. ALLIANCEBERNSTEIN GROWTH & INCOME PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95-12/31/05 ALLIANCEBERNSTEIN RUSSELL 1000 GROWTH & INCOME VALUE PORTFOLIO CLASS A INDEX - ---------------------------------------------------------- 12/31/95 $10,000 $10,000 12/31/96 $12,409 $12,164 12/31/97 $15,983 $16,443 12/31/98 $19,322 $19,013 12/31/99 $21,518 $20,411 12/31/00 $24,507 $21,842 12/31/01 $24,596 $20,621 12/31/02 $19,172 $17,420 12/31/03 $25,403 $22,652 12/31/04 $28,314 $26,387 12/31/05 $29,691 $28,247 ALLIANCEBERNSTEIN GROWTH & INCOME PORTFOLIO CLASS A: $29,691 RUSSELL 1000 VALUE INDEX: $28,247 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Growth & Income Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 GROWTH & INCOME PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. BEGINNING ENDING ANNUALIZED GROWTH & INCOME ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID EXPENSE PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* RATIO* - ------------------------------------------------------------------------------- CLASS A Actual $1,000 $1,050.68 $3.10 0.60% Hypothetical (5% return before expenses) $1,000 $1,022.18 $3.06 0.60% CLASS B Actual $1,000 $1,049.38 $4.39 0.85% Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33 0.85% * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 GROWTH & INCOME PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- American International Group, Inc. $ 122,814,000 4.6% Citigroup, Inc. 112,579,894 4.2 JPMorgan Chase & Co. 105,436,485 4.0 Fannie Mae 102,901,242 3.9 General Electric Co. 101,301,510 3.8 Microsoft Corp. 96,067,255 3.6 The Home Depot, Inc. 91,857,216 3.5 Time Warner, Inc. 91,774,512 3.5 Air Products and Chemicals, Inc. 87,305,250 3.3 WellPoint, Inc. 81,026,745 3.1 $ 993,064,109 37.5% SECTOR DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Finance $ 718,344,902 27.1% Consumer Services 420,907,346 15.9 Technology 274,891,502 10.4 Energy 261,411,176 9.9 Capital Goods 234,513,020 8.9 Health Care 206,299,445 7.8 Consumer Staples 178,903,521 6.7 Utilities 105,110,766 4.0 Transportation 92,894,040 3.5 Basic Industry 87,305,250 3.3 Consumer Manufacturing 20,856,960 0.8 Total Investments* 2,601,437,928 98.3 Cash and receivables, net of liabilities 43,626,727 1.7 Net Assets $ 2,645,064,655 100.0% * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 GROWTH & INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- COMMON STOCKS-98.3% FINANCE-27.1% BANKING - MONEY CENTER-5.2% JPMorgan Chase & Co. 2,656,500 $105,436,485 The Bank of New York Co., Inc. 328,900 10,475,465 Wachovia Corp. 427,300 22,587,078 ------------ 138,499,028 ------------ BANKING - REGIONAL-3.3% Bank of America Corp. 1,310,000 60,456,500 Northern Trust Corp. 540,020 27,983,836 ------------ 88,440,336 ------------ BROKERAGE & MONEY MANAGEMENT-1.6% Merrill Lynch & Co., Inc. 325,400 22,039,342 The Goldman Sachs Group, Inc. 163,600 20,893,356 ------------ 42,932,698 ------------ INSURANCE-8.8% ACE Ltd. (Cayman Islands) 1,060,200 56,657,088 American International Group, Inc. 1,800,000 122,814,000 Axis Capital Holdings Ltd. (Bermuda) 1,439,700 45,033,816 MetLife, Inc. 173,200 8,486,800 ------------ 232,991,704 ------------ MORTGAGE BANKING-3.9% Fannie Mae 2,108,200 102,901,242 ------------ MISCELLANEOUS-4.3% Citigroup, Inc. 2,319,800 112,579,894 ------------ 718,344,902 ------------ CONSUMER SERVICES-15.9% BROADCASTING & CABLE-10.5% Comcast Corp. Cl. A (a) 600,000 15,576,000 Comcast Corp. Special CL. A (A) 519,200 13,338,248 News Corp. Cl. A 4,476,600 69,611,130 Time Warner, Inc. 5,262,300 91,774,512 Viacom, Inc. Cl. B 2,232,400 72,776,240 Westwood One, Inc. 930,000 15,159,000 ------------ 278,235,130 ------------ ENTERTAINMENT & LEISURE-0.8% Carnival Corp. (Panama) 400,000 21,388,000 ------------ RESTAURANT & LODGING-0.9% McDonald's Corp. 675,000 22,761,000 ------------ RETAIL - GENERAL MERCHANDISE-3.7% Lowe's Cos., Inc. 100,000 $6,666,000 The Home Depot, Inc. 2,269,200 91,857,216 ------------ 98,523,216 ------------ 420,907,346 ------------ TECHNOLOGY-10.4% COMMUNICATION EQUIPMENT-0.4% Juniper Networks, Inc. (a) 518,800 11,569,240 ------------ COMPUTER HARDWARE/ STORAGE-2.9% EMC Corp. (a) 1,195,600 16,284,072 International Business Machines Corp. (IBM) 745,300 61,263,660 ------------ 77,547,732 ------------ COMPUTER SERVICES-0.7% Fiserv, Inc. (a) 408,000 17,654,160 ------------ SEMICONDUCTOR COMPONENTS-0.7% Texas Instruments, Inc. 550,000 17,638,500 ------------ SOFTWARE-5.7% McAfee, Inc. (a) 385,500 10,458,615 Microsoft Corp. 3,673,700 96,067,255 Oracle Corp. (a) 3,600,000 43,956,000 ------------ 150,481,870 ------------ 274,891,502 ------------ ENERGY-9.9% DOMESTIC PRODUCERS-1.7% Apache Corp. 136,300 9,339,276 Noble Energy, Inc. 859,700 34,645,910 ------------ 43,985,186 ------------ INTERNATIONAL-4.2% Chevron Corp. 966,000 54,839,820 Exxon Mobil Corp. 981,300 55,119,621 ------------ 109,959,441 ------------ OIL SERVICE-2.6% Baker Hughes, Inc. 335,600 20,397,768 Marathon Oil Corp. 171,300 10,444,161 Nabors Industries Ltd. (Bermuda) (a) 515,000 39,011,250 ------------ 69,853,179 ------------ MISCELLANEOUS-1.4% ConocoPhillips 646,500 37,613,370 ------------ 261,411,176 ------------ 6 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------- CAPITAL GOODS-8.9% ELECTRICAL EQUIPMENT-1.6% Emerson Electric Co. 575,000 $42,952,500 ------------ MISCELLANEOUS-7.3% General Electric Co. 2,890,200 101,301,510 Illinois Tool Works, Inc. 215,000 18,917,850 United Technologies Corp. 1,276,000 71,341,160 ------------ 191,560,520 ------------ 234,513,020 ------------ HEALTH CARE-7.8% DRUGS-2.5% Eli Lilly & Co. 387,500 21,928,625 Forest Laboratories, Inc. (a) 593,400 24,139,512 Pfizer, Inc. 816,800 19,047,776 ------------ 65,115,913 ------------ MEDICAL PRODUCTS-1.5% Boston Scientific Corp. (a) 1,638,700 40,131,763 Zimmer Holdings, Inc. (a) 16,700 1,126,248 ------------ 41,258,011 ------------ MEDICAL SERVICES-3.8% Health Management Associates, Inc. Cl. A 860,600 18,898,776 WellPoint, Inc. (a) 1,015,500 81,026,745 ------------ 99,925,521 ------------ 206,299,445 ------------ CONSUMER STAPLES-6.7% HOUSEHOLD PRODUCTS-2.0% Colgate-Palmolive Co. 275,000 15,083,750 The Procter & Gamble Co. 650,000 37,622,000 ------------ 52,705,750 ------------ TOBACCO-3.4% Altria Group, Inc. 675,900 50,503,248 Loews Corp.-Carolina Group 559,500 24,612,405 Reynolds American, Inc. 162,400 15,481,592 ------------ 90,597,245 ------------ MISCELLANEOUS-1.3% Fortune Brands, Inc. 456,300 35,600,526 ------------ 178,903,521 ------------ UTILITIES-4.0% ELECTRIC & GAS UTILITY-0.9% FirstEnergy Corp. 500,000 24,495,000 ------------ TELEPHONE UTILITY-3.1% AT&T, Inc. 1,786,200 $43,744,038 BellSouth Corp. 900,000 24,390,000 Verizon Communications, Inc. 414,400 12,481,728 ------------ 80,615,766 ------------ 105,110,766 ------------ TRANSPORTATION-3.5% AIR FREIGHT-1.9% United Parcel Service, Inc. Cl. B 657,600 49,418,640 ------------ RAILROAD-1.6% Union Pacific Corp. 540,000 43,475,400 ------------ 92,894,040 ------------ BASIC INDUSTRY-3.3% CHEMICALS-3.3% Air Products and Chemicals, Inc. 1,475,000 87,305,250 ------------ CONSUMER MANUFACTURING-0.8% BUILDING & RELATED-0.7% American Standard Cos., Inc. 435,000 17,378,250 ------------ TEXTILE PRODUCTS-0.1% Building Materials Holding Corp. 51,000 3,478,710 ------------ 20,856,960 ------------ Total Common Stocks (cost $2,340,934,390) 2,601,437,928 ------------ SHORT-TERM INVESTMENT -0.4% TIME DEPOSIT-0.4% The Bank of New York 3.25%, 1/03/06 (cost $9,865,000) $ 9,865 9,865,000 ------------ TOTAL INVESTMENTS-98.7% (cost $2,350,799,390) 2,611,302,928 Other assets less liabilities-1.3% 33,761,727 -------------- NET ASSETS-100% $2,645,064,655 -------------- (a) Non-income producing security. See Notes to Financial Statements. 7 GROWTH & INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $2,350,799,390) $2,611,302,928 Cash 424 Receivable for capital stock sold 32,342,649 Receivable for investment securities sold 5,086,235 Dividends and interest receivable 3,031,377 ------------- Total assets 2,651,763,613 ------------- LIABILITIES Payable for capital stock redeemed 2,973,941 Payable for investment securities purchased 1,773,196 Advisory fee payable 1,224,524 Distribution fee payable 446,237 Transfer agent fee payable 56 Accrued expenses 281,004 ------------- Total liabilities 6,698,958 ------------- NET ASSETS $2,645,064,655 ------------- COMPOSITION OF NET ASSETS Capital stock, at par $107,094 Additional paid-in capital 2,238,216,513 Undistributed net investment income 29,198,990 Accumulated net realized gain on investment transactions 117,038,520 Net unrealized appreciation of investments 260,503,538 ------------- $2,645,064,655 ------------- CLASS A SHARES Net assets $571,371,467 ------------- Shares of capital stock outstanding 22,969,018 ------------- Net asset value per share $24.88 ------------- CLASS B SHARES Net assets $2,073,693,188 ------------- Shares of capital stock outstanding 84,124,698 ------------- Net asset value per share $24.65 ------------- See Notes to Financial Statements. 8 GROWTH & INCOME PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $7,479) $49,715,768 Interest 785,250 ------------ Total investment income 50,501,018 ------------ EXPENSES Advisory fee 14,516,438 Distribution fee--Class B 5,194,420 Printing 675,776 Custodian 322,425 Legal 108,754 Administrative 75,250 Audit 41,750 Directors' fees 1,000 Transfer agency 794 Miscellaneous 147,219 ------------ Total expenses 21,083,826 ------------ Net investment income 29,417,192 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions 283,236,433 Net change in unrealized appreciation/depreciation of investments (195,422,198) ------------ Net gain on investment transactions 87,814,235 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $117,231,427 ------------ See Notes to Financial Statements. 9 GROWTH & INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 29,417,192 $ 35,537,953 Net realized gain on investment transactions 283,236,433 105,022,737 Net change in unrealized appreciation/ depreciation of investments (195,422,198) 128,326,583 ------------- ----------- Net increase in net assets from operations 117,231,427 268,887,273 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A (8,911,022) (5,566,213) Class B (26,654,854) (13,683,981) CAPITAL STOCK TRANSACTIONS Net increase (decrease) (109,030,745) 147,448,288 ------------- ----------- Total increase (decrease) (27,365,194) 397,085,367 NET ASSETS Beginning of period 2,672,429,849 2,275,344,482 -------------- ------------- End of period (including undistributed net investment income of $29,198,990 and $35,347,674, respectively) $ 2,645,064,655 $ 2,672,429,849 -------------- ------------- See Notes to Financial Statements. 10 GROWTH & INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Growth & Income Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek reasonable current income and reasonable opportunity for appreciation through investments primarily in dividend-paying, common stocks of good quality. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 11 GROWTH & INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. Dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, under the terms of an investment advisory agreement, the Portfolio paid the Adviser an advisory fee at an annual rate of .625% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 12 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $3,874,322, of which $437,638 and $0, respectively, was paid to Sanford C. Bernstein &Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ------------ ------------ Investment securities (excluding U.S. government securities) $1,899,331,849 $1,986,067,153 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost $2,359,355,867 -------------- Gross unrealized appreciation $ 323,832,072 Gross unrealized depreciation (71,885,011) -------------- Net unrealized appreciation $251,947,061 -------------- 13 GROWTH & INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: Shares Amount --------------------------- ------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 4,893,371 3,532,531 $118,926,296 $78,969,217 Shares issued in reinvestment of dividends 374,098 251,523 8,911,021 5,566,213 Shares redeemed (8,360,399) (5,415,639) (200,754,368) (120,998,817) ------------ ------------ -------------- -------------- Net decrease (3,092,930) (1,631,585) $(72,917,051) $(36,463,387) ------------ ------------ -------------- -------------- CLASS B Shares sold 9,256,122 17,417,975 $221,922,437 $384,138,537 Shares issued in reinvestment of dividends 1,127,532 623,132 26,654,855 13,683,981 Shares redeemed (11,912,162) (9,695,569) (284,690,986) (213,910,843) ------------ ------------ -------------- -------------- Net increase (decrease) (1,528,508) 8,345,538 $(36,113,694) $183,911,675 ------------ ------------ -------------- -------------- NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ----------- ----------- Distributions paid from: Ordinary income $35,565,876 $19,250,194 ----------- ------------ Total taxable distributions 35,565,876 19,250,194 ----------- ------------ Total distributions paid $35,565,876 $19,250,194 ----------- ------------ 15 GROWTH & INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $29,198,990 Undistributed long-term capital gains 125,594,997(a) Unrealized appreciation/(depreciation) 251,947,061(b) -------------- Total accumulated earnings/(deficit) $406,741,048 -------------- (a) On December 31, 2005, the Portfolio had no net capital loss carryforwards. During the current fiscal year the Portfolio utilized capital loss carryforwards of $159,256,387. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. For the current fiscal year there were no permanent differences. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on(i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled HINDO, ET AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND, ET AL. ("HINDO COMPLAINT") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the HINDO Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled THE ATTORNEY GENERAL OF THE STATE OF WEST VIRGINIA V. AIM ADVISORS, INC., ET AL. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the HINDO Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled AUCOIN, ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the 17 GROWTH & INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006 the Portfolio's investment objective is long-term growth of capital. 18 GROWTH & INCOME PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A ----------------------------------------------------------------- Year Ended December 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $24.08 $21.80 $16.62 $22.16 $23.15 Income From Investment Operations Net investment income (a) .31 .36(b) .23 .22 .21 Net realized and unrealized gain (loss) on investment and foreign currency transactions .85 2.12 5.15 (5.01) (.05) Net increase (decrease) in net asset value from operations 1.16 2.48 5.38 (4.79) .16 Less: Dividends and Distributions Dividends from net investment income (.36) (.20) (.20) (.12) (.14) Distributions from net realized gain on investment transactions -0- -0- -0- (.63) (1.01) Total dividends and distributions (.36) (.20) (.20) (.75) (1.15) Net asset value, end of period $24.88 $24.08 $21.80 $16.62 $22.16 Total Return Total investment return based on net asset value (c) 4.86% 11.46% 32.50% (22.05)% .36% Ratios/Supplemental Data Net assets, end of period (000's omitted) $571,372 $627,689 $603,673 $456,402 $673,722 Ratio to average net assets of: Expenses, net of waivers and reimbursements .59% .60% .66% .68% .67% Expenses, before waivers and reimbursements .59% .65% .66% .68% .67% Net investment income 1.29% 1.62%(b) 1.25% 1.15% .95% Portfolio turnover rate 72% 50% 57% 69% 80%
See footnote summary on page 20. 19 GROWTH & INCOME PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B ----------------------------------------------------------------- Year Ended December 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $23.87 $21.62 $16.49 $22.03 $23.06 Income From Investment Operations Net investment income (a) .25 .31(b) .18 .17 .16 Net realized and unrealized gain (loss) on investment and foreign currency transactions .83 2.10 5.11 (4.98) (.05) Net increase (decrease) in net asset value from operations 1.08 2.41 5.29 (4.81) .11 Less: Dividends and Distributions Dividends from net investment income (.30) (.16) (.16) (.10) (.13) Distributions from net realized gain on investment transactions -0- -0- -0- (.63) (1.01) Total dividends and distributions (.30) (.16) (.16) (.73) (1.14) Net asset value, end of period $24.65 $23.87 $21.62 $16.49 $22.03 Total Return Total investment return based on net asset value (c) 4.60% 11.22% 32.18% (22.26)% .15% Ratios/Supplemental Data Net assets, end of period (000's omitted) $2,073,693 $2,044,741 $1,671,671 $1,067,952 $889,394 Ratio to average net assets of: Expenses, net of waivers and reimbursements .85% .85% .91% .93% .92% Expenses, before waivers and reimbursements .85% .90% .91% .93% .92% Net investment income 1.05% 1.39%(b) .99% .91% .75% Portfolio turnover rate 72% 50% 57% 69% 80%
(a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ To the Shareholders and Board of Directors of AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Growth & Income Portfolio: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Growth & Income Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Growth & Income Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (UNAUDITED) For corporate shareholders, 100% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 21 GROWTH & INCOME PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Growth and Income Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D. Voted For Voted Against Abstained Broker Non-Votes 329,393,925 7,649,880 14,187,089 0 3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes - --------------------------------------------------------------------------------------------------- 3.A. Diversification 92,746,927 2,011,396 3,159,232 0 3.B. Issuing Senior Securities and Borrowing Money 91,929,671 2,604,670 3,383,214 0 3.C. Underwriting Securities 92,484,942 2,282,699 3,149,915 0 3.D. Concentration of Investments 92,880,087 1,995,614 3,041,854 0 3.E. Real Estate and Companies that Deal in Real Estate 92,735,709 2,142,038 3,039,808 0 3.F. Commodities, Commodity Contracts and Futures Contracts 92,176,278 2,666,598 3,074,679 0 3.G. Loans 91,929,414 2,756,071 3,232,070 0 3.I. Exercising Control 92,858,831 1,885,330 3,173,394 0 3.J. Other Investment Companies 92,425,486 2,159,970 3,332,099 0 3.N. Pledging, Hypothecating, Mortgaging, or Otherwise Encumbering Assets 91,040,596 3,384,086 3,492,872 0 3.O. Illiquid or Restricted Securities 91,227,156 3,173,810 3,516,589 0
22 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
Voted For Voted Against Abstained Broker Non-Votes - --------------------------------------------------------------------------------------------------- 3.T. Securities of Issuers in which Officers, Directors, or Partners Have an Interest 90,851,697 3,785,625 3,280,233 0 3.V. Purchasing Voting or Other Securities of Issuers 92,075,500 2,449,710 3,392,345 0 3.W. Repurchase Agreements 92,174,070 2,370,276 3,373,208 0 4.B. The reclassification as non- fundamental and with changes to the Portfolio's investment objective. 92,136,912 2,335,511 3,445,133 0
23 GROWTH & INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Board Of Directors William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) Officers Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Thomas J. Bardong, Vice President Frank V. Caruso(2), Vice President Paul C. Rissman, Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The day-to-day management of and investment decisions for the Portfolio's portfolio are made by Mr. Frank V. Caruso, a member of the Adviser's Relative Value Investment Team. 24 GROWTH & INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since 2001 SCB, Inc. New York, NY 10105 and Chairman of the Board of AllianceBernstein 10/2/57 Investment Research and Management, Inc. (2005) ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been CHAIRMAN OF THE BOARD associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and 106 None 500 SE Mizner Blvd. Chief Insurance Officer of The Equitable Boca Raton, FL 33432 Life Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. Prior 10/23/29 to joining ACMC in 1984, he was Chief Financial (1990) Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
25 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS CONTINUED John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc.;and The Merger Management L.P. (investment advisory firm) from December Fund 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Fund Attn: Philip L. Kirstein Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic 3/7/36 to 2001. He is also President of the Arbor Corporation (2005) Company (private family investments). (semi-conductors); Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan Photomasks, 220 Montgomery Street (semi-conductor manufacturing services), Inc.; the George Penthouse 10 Austin, Texas, from 2003 to present, and Lucas Educational San Francisco, CA 94104-3402 President since company acquired in 2005, Foundation;and Chairman 10/10/41 and name changed from DuPont Photomasks. of the Board of the (2005) Prior to the company's sale in 2005, he was Smithsonian's Chairman and CEO. He has also been Principal National Museum of Turner Venture Associates since 1993. of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 26 GROWTH & INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION(1) Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which Compliance Officer he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Frank V. Caruso Vice President Senior Vice President of ACMC**, with which 10/28/56 he has been associated since prior to 2001. Paul C. Rissman Vice President Executive Vice President of ACMC**, with which he 11/10/56 has been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel 11/13/55 and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 27 GROWTH & INCOME PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Growth and Income Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 28 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 29 GROWTH & INCOME PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 12 to 8 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 36 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Russell 1000 Value Index (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3-, 5- and 10-year and since inception periods (January 1991 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 5th quintile in the 1-year period, 2nd quintile in the 3- and 5-year periods (adjusted to 3rd quintile in the 3-year period by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles) and 1st quintile in the 10-year period, and in the Performance Universe comparison the Portfolio was in the 4th quintile in the 1-year period (adjusted to 5th quintile by the Senior Officer), in the 3rd quintile in the 3-year period, 2nd quintile in the 5-year period and 1st quintile in the 10-year period. The comparative information showed that the Portfolio outperformed the Index in the 10-year period and underperformed the Index in all other periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. 31 GROWTH & INCOME PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 54.2 basis points was slightly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 1 basis point and that as a result the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement was the same as the Expense Group median. The directors also noted that the Portfolio's total expense ratio was somewhat lower than the Expense Group median and significantly lower than the Expense Universe median. The directors concluded that the Portfolio's expense ratio was satisfactory. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints and that the Portfolio's net assets were in excess of the first breakpoint so that as the Portfolio's assets increase, the fee rates are reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements result in a sharing of economies of scale as the Portfolio's net assets increase. 32 GROWTH & INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Growth and Income Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2)
ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ---------------------------------------------------------------------------------------- Value 55 bp on 1st $2.5 Billion Growth and Income Portfolio 45 bp on next $2.5 billion 40 bp on the balance
The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Growth and Income Portfolio $69,000 0.01% 1 It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. 2 Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 33 GROWTH & INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - ------------------------------------------------------------------------------- Growth and Income Portfolio Class A 0.65% December 31 Class B 0.90% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- Growth and Income Portfolio $2,608.2 Relative Value Schedule 0.261% 65 bp on 1st $25m 50 bp on next $25m 40 bp on next $50m 30 bp on next $100m 25 bp on the balance minimum account size $10m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: ASSET CLASS FEE(3) - ------------------------------------------------------------------------------- Equity Value 0.80% 3 The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: FUND FEE SCHEDULE - ------------------------------------------------------------------------------- Growth and Income Portfolio Client # 1 0.30% on first $1 billion 0.25% on next $500 million 0.20% thereafter Client # 2(4) 0.30% Client # 3(4) 0.60% on first $1 billion 0.55% on next $500 million 0.50% on next $500 million 0.45% on next $500 million 0.40% thereafter It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. In addition, to the extent that certain of these sub-advisory relationships are with affiliates of the Adviser, the fee schedules may not reflect arms-length bargaining or negotiations. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------ Growth and Income Portfolio 0.542 0.551 6/12 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO (%)(8) MEDIAN (%) RANK MEDIAN (%) RANK - ------------------------------------------------------------------------------ Growth and Income Portfolio 0.599 0.854 6/38 0.665 4/12 Based on this analysis, the Fund has a more favorable ranking on a total expense basis than it does on a management fee basis. 4 This is the fee schedule of a fund managed by an affiliate of the Adviser. 5 It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. 6 Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. 7 Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. 8 Most recent fiscal year end Class A share total expense ratio. 35 GROWTH & INCOME PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12b-1 FEE RECEIVED - ------------------------------------------------------------------------------- Growth and Income Portfolio $4,603,123 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------------- Growth and Income Portfolio $1,727,386 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the 9 It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. GROWTH AND INCOME PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 11/12 29/36 3 year 5/12 16/33 5 year 4/10 9/23 10 year 1/8 1/10 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14).
PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - -------------------------------------------------------------------------------------------- FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPTION - -------------------------------------------------------------------------------------------- GROWTH AND INCOME PORTFOLIO 11.40 17.98 3.77 11.66 11.38 Russell 1000 Value Index 16.69 20.48 5.76 11.52 13.05
10 The performance rankings are for the Class A shares of the Fund. 11 The Lipper Performance Group is identical to the Lipper Expense Group. 12 For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 13 The performance returns are for the Class A shares of the Fund. 14 The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 37 GROWTH & INCOME PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 38 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. December 31, 2005 Annual Report > AllianceBernstein Growth Portfolio Investment Products Offered o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and"third"quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. Growth Portfolio AllianceBernstein Variable Products Series Fund Letter to Investors February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Growth Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES Until February 1, 2006, the Portfolio's investment objective was long-term growth of capital. Current income is incidental to the Portfolio's objective. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. The Portfolio invests primarily in equity securities of companies with favorable earnings outlooks and whose long-term growth rates are expected to exceed that of the U.S. economy over time. The Portfolio emphasizes investments in large- and mid-cap companies. The Portfolio also may invest up to 25% of its total assets in lower-rated, fixed-income securities and convertible bonds, and generally up to 20% of its total assets in foreign securities. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its new benchmark, the Russell 3000 Growth Index, and the broad market, as represented by the S&P 500 Stock Index, for the one-, five- and 10-year periods ended December 31, 2005. Performance is also shown for the Portfolio's old benchmark, the Russell 3000 Index. The Portfolio's benchmark was changed because the new benchmark more closely matches the Portfolio's investment style. For the annual reporting period ended December 31, 2005, the Portfolio outperformed its new benchmark. The Portfolio's outperformance reflected generally favorable stock selection across three principal sectors--technology, financial services and health care. MARKET REVIEW AND INVESTMENT STRATEGY U.S. equity markets produced moderate returns for calendar year 2005 with the S&P 500 Stock Index achieving a 4.91% return. Growth stocks, as represented by the Russell 3000 Growth Index, produced a 5.17% total return. While the year presented significant economic and investment challenges, in particular escalating energy prices and monetary tightening, U.S. economic growth sustained a 3.5%-4.2% pace of expansion through the first three quarters of the year. Corporate profit growth was robust and, in many cases, better than anticipated, reinforced by continued impressive growth of cash flow and record balance-sheet liquidity. The Portfolio's performance also reflected strong earnings growth. Consensus expectations for 2005 Russell 1000 Growth Index earnings were initially for 15% growth as the year commenced, and have since risen to 19%. This, in and of itself, is an interesting contrast with the comparatively modest equity return of 5.3% for the index. In comparison, the Portfolio began the year with consensus-expected 2005 earnings growth of 20%--one-third ahead of that projected for the benchmark--and this rose steadily over the course of the year to a revised expectation of 30% growth; 50% above initial consensus projections and 58% faster growth than that of the Russell 1000 Growth Index. The past five years have seen an extraordinary compression in equity valuations with the relative valuation accorded many leading and relatively consistent growth stocks at historically modest levels. Accordingly, the Portfolio's management team has sought to build the Portfolio around successful, often dominant companies that exhibit superior growth characteristics. Over the past five years, the Portfolio's holdings achieved average compound growth in revenues per share of 16%, approximately double that attained by the Russell 1000 Growth Index (9%) and the S&P 500 Index (7%). Similarly, over the past five years, Portfolio earnings-per-share compounded at 27%, almost twice that of the Russell benchmark (15%) and almost 2.5 times the S&P 500 (12%). 1 Growth Portfolio AllianceBernstein Variable Products Series Fund Historical Performance An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure The unmanaged Russell 3000 Growth Index, the unmanaged Russell 3000 Index and the unmanaged Standard & Poor's (S&P) 500 Stock Index do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 3000 Growth Index contains those securities in the Russell 3000 Index with a greater-than-average growth orientation. The Russell 3000 Index is comprised of 3000 of the largest capitalized companies that are traded in the United States. The S&P 500 Stock Index is comprised of 500 U.S. companies and is a common measure of the performance of the overall U.S. stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Growth Portfolio. A Word About Risk The Portfolio can invest in foreign securities. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, market or economic developments. In addition, fluctuations in the value of investments in foreign currency denominated securities may be magnified by changes in foreign exchange rates. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, it may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. (Historical Performance continued on next page) 2 Growth Portfolio Historical Performance (continued from previous page) AllianceBernstein Variable Products Series Fund THE PORTFOLIO VS. ITS BENCHMARKS Returns PERIODS ENDED DECEMBER 31, 2005 1 Year 5 Years 10 Years - ------------------------------------------------------------------------------------ AllianceBernstein Growth Portfolio Class A 11.97% -0.92% 8.58% AllianceBernstein Growth Portfolio Class B 11.64% -1.16% -0.46%* Russell 3000 Growth Index 5.17% -3.15% 6.48% S&P 500 Stock Index 4.91% 0.54% 9.07% Russell 3000 Index 6.12% 1.58% 9.20%
* Since inception of the Portfolio's Class B shares on 6/1/99. ALLIANCEBERNSTEIN GROWTH PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95 - 12/31/05 Russell 3000 Index: $24,117 S&P 500 Stock Index: $23,834 AllianceBernstein Growth Portfolio Class A: $22,779 Russell 3000 Growth Index: $18,739 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
AllianceBernstein Growth Russell 3000 Russell 3000 S&P 500 Portfolio Class A Index Growth Index Stock Index - -------------------------------------------------------------------------------------- 12/31/95 10,000 10,000 10,000 10,000 12/31/96 12,849 12,182 12,188 12,295 12/31/97 16,706 16,053 15,691 16,395 12/31/98 21,504 19,929 21,186 21,084 12/31/99 28,917 24,094 28,353 25,519 12/31/00 23,854 22,296 21,996 23,196 12/31/01 18,255 19,744 17,678 20,441 12/31/02 13,129 15,489 12,723 15,925 12/31/03 17,732 20,300 16,663 20,491 12/31/04 20,344 22,726 17,818 22,718 12/31/05 22,779 24,117 18,739 23,834
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Growth Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's new benchmark, the Russell 3000 Growth Index, its old benchmark, the Russell 3000 Index and the broad market, as represented by the S&P 500 Stock Index. The chart assumes the reinvestment of dividends and capital gains. See Historical Performance and Benchmark disclosures on previous page. 3 Growth Portfolio Fund Expenses AllianceBernstein Variable Products Series Fund As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. Beginning Ending Account Value Account Value Expenses Paid Annualized Growth Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - ------------------------------------------------------------------------------------------------------------ Class A Actual $1,000 $1,117.24 $4.64 0.87% Hypothetical (5% return before expenses) $1,000 $1,020.82 $4.43 0.87% Class B Actual $1,000 $1,115.10 $5.97 1.12% Hypothetical (5% return before expenses) $1,000 $1,019.56 $5.70 1.12%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 Growth Portfolio Ten Largest Holdings December 31, 2005 AllianceBernstein Variable Products Series Fund COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Legg Mason, Inc. $13,848,133 4.7% Google, Inc. Cl.A 13,399,978 4.6 WellPoint, Inc. 12,152,017 4.2 QUALCOMM, Inc. 10,994,016 3.8 Yahoo!, Inc. 10,551,174 3.6 Apple Computer, Inc. 10,531,885 3.6 American International Group, Inc. 10,063,925 3.5 eBay, Inc. 9,255,500 3.2 Citigroup, Inc. 9,113,934 3.1 Juniper Networks, Inc. 8,962,370 3.1 ----------- ------ $108,872,932 37.4% Sector Diversification December 31, 2005 SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Technology $96,325,162 33.1% Finance 52,916,044 18.2 Health Care 50,728,652 17.4 Consumer Services 36,286,679 12.5 Consumer Manufacturing 22,943,082 7.9 Capital Goods 7,589,235 2.6 Oil & Gas Field Services 7,470,835 2.6 Aerospace & Defense 3,912,898 1.3 Multi-Industry Companies 3,040,010 1.0 Consumer Staples 2,132,388 0.7 Basic Industry 1,575,765 0.6 ----------- ------ Total Investments* 284,920,750 97.9 Cash and receivables, net of liabilities 6,209,160 2.1 ----------- ------ Net Assets $291,129,910 100.0% * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 Growth Portfolio Portfolio Of Investments December 31, 2005 AllianceBernstein Variable Products Series Fund Company Shares U.S. $ Value - ------------------------------------------------------------------------------- COMMON STOCKS-97.9% TECHNOLOGY-33.1% COMMUNICATION EQUIPMENT-7.4% Corning, Inc. (a) 83,900 $1,649,474 Juniper Networks, Inc. (a) 401,900 8,962,370 QUALCOMM, Inc. 255,200 10,994,016 ----------- 21,605,860 COMPUTER HARDWARE/ STORAGE-5.1% Apple Computer, Inc. (a) 146,500 10,531,885 EMC Corp. (a) 316,500 4,310,730 ----------- 14,842,615 COMPUTER SERVICES-1.0% Infosys Technologies Ltd. (ADR) (India) 37,585 3,039,123 INTERNET MEDIA-8.2% Google, Inc. Cl.A (a) 32,300 13,399,978 Yahoo!, Inc. (a) 269,300 10,551,174 ----------- 23,951,152 SEMI-CONDUCTOR COMPONENTS-6.6% Advanced Micro Devices, Inc. (a) 184,200 5,636,520 Broadcom Corp. Cl.A (a) 168,400 7,940,060 Marvell Technology Group Ltd. (Bermuda) (a) 98,100 5,502,429 ----------- 19,079,009 SOFTWARE-2.6% Autodesk, Inc. 33,700 1,447,415 Business Objects S.A. (ADR) (France) (a) 48,000 1,939,680 NAVTEQ Corp. (a) 42,000 1,842,540 SAP AG (ADR) (Germany) 49,400 2,226,458 ----------- 7,456,093 MISCELLANEOUS-2.2% Amphenol Corp. Cl.A 143,500 6,351,310 ----------- 96,325,162 FINANCE-18.2% BANKING - MONEY CENTER-1.1% JPMorgan Chase & Co. 78,700 3,123,603 BROKERAGE & MONEY MANAGEMENT-9.8% Legg Mason, Inc. 115,700 13,848,133 Merrill Lynch & Co., Inc. 46,400 3,142,672 The Charles Schwab Corp. 193,100 2,832,777 The Goldman Sachs Group, Inc. 68,000 8,684,280 ----------- 28,507,862 INSURANCE-3.5% American International Group, Inc. 147,500 $10,063,925 MISCELLANEOUS-3.8% Citigroup, Inc. 187,800 9,113,934 State Street Corp. 38,000 2,106,720 ----------- 11,220,654 ----------- 52,916,044 HEALTH CARE-17.4% BIOTECHNOLOGY-4.4% Affymetrix, Inc. (a) 43,900 2,096,225 Genentech, Inc. (a) 76,300 7,057,750 Gilead Sciences, Inc. (a) 68,500 3,605,155 ----------- 12,759,130 DRUGS-1.5% Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 104,200 4,481,642 MEDICAL PRODUCTS-4.6% Alcon, Inc. (Switzerland) 30,800 3,991,680 St. Jude Medical, Inc. (a) 144,500 7,253,900 Zimmer Holdings, Inc. (a) 31,900 2,151,336 ----------- 13,396,916 MEDICAL SERVICES-6.9% Caremark Rx, Inc. (a) 84,300 4,365,897 UnitedHealth Group, Inc. 57,500 3,573,050 WellPoint, Inc. (a) 152,300 12,152,017 ----------- 20,090,964 ----------- 50,728,652 CONSUMER SERVICES-12.5% ADVERTISING-0.8% Getty Images, Inc. (a) 26,300 2,347,801 APPAREL-1.3% Coach, Inc. (a) 69,500 2,317,130 Urban Outfitters, Inc. (a) 56,500 1,430,015 ----------- 3,747,145 BROADCASTING & CABLE-0.5% XM Satellite Radio Holdings, Inc. Cl.A (a) 49,500 1,350,360 RETAIL - GENERAL MERCHANDISE-7.5% eBay, Inc. (a) 214,000 9,255,500 Lowe's Cos., Inc. 128,815 8,586,808 The Home Depot, Inc. 71,100 2,878,128 Williams-Sonoma, Inc. (a) 26,900 1,160,735 ----------- 21,881,171 6 AllianceBernstein Variable Products Series Fund Shares or Principal Amount Company (000) U.S. $ Value - ------------------------------------------------------------------------------- MISCELLANEOUS-2.4% Corporate Executive Board Co. 20,000 $1,794,000 Iron Mountain, Inc. (a) 69,100 2,917,402 Strayer Education, Inc. 24,000 2,248,800 ----------- 6,960,202 ----------- 36,286,679 CONSUMER MANUFACTURING-7.9% BUILDING & RELATED-7.7% Centex Corp. 87,500 6,255,375 D.R. Horton, Inc. 76,533 2,734,524 Lennar Corp. Cl.A 87,400 5,333,148 NVR, Inc. (a) 7,850 5,510,700 Pulte Homes, Inc. 66,000 2,597,760 ----------- 22,431,507 TEXTILE PRODUCTS-0.2% Building Materials Holding Corp. 7,500 511,575 ----------- 22,943,082 CAPITAL GOODS-2.6% MACHINERY-0.7% Actuant Corp. Cl.A 34,900 1,947,420 MISCELLANEOUS-1.9% General Electric Co. 83,600 2,930,180 United Technologies Corp. 48,500 2,711,635 ----------- 5,641,815 ----------- 7,589,235 OIL & GAS FIELD SERVICES-2.6% ENERGY EQUIPMENT & SERVICE-2.6% Schlumberger Ltd. (Netherlands) 76,900 7,470,835 AEROSPACE & DEFENSE-1.3% AEROSPACE-0.5% The Boeing Co. 21,200 1,489,088 DEFENSE ELECTRONICS-0.8% L-3 Communications Holdings, Inc. 32,600 $2,423,810 ----------- 3,912,898 MULTI-INDUSTRY COMPANIES-1.0% Danaher Corp. 54,500 3,040,010 CONSUMER STAPLES-0.7% HOUSEHOLD PRODUCTS-0.2% The Procter & Gamble Co. 10,100 584,588 RETAIL - FOOD & DRUG-0.5% Whole Foods Market, Inc. 20,000 1,547,800 ----------- 2,132,388 BASIC INDUSTRY-0.6% CHEMICALS-0.6% Hexcel Corp. (a) 87,300 1,575,765 Total Common Stocks (cost $197,322,778) 284,920,750 SHORT-TERM INVESTMENT-2.3% TIME DEPOSIT-2.3% The Bank of New York 3.25%, 1/03/06 (cost $6,828,000) $ 6,828 6,828,000 TOTAL INVESTMENTS-100.2% (cost $ 204,150,778) 291,748,750 Other assets less liabilities-(0.2%) (618,840) ----------- NET ASSETS-100% $291,129,910 (a) Non-income producing security. Glossary: ADR-American Depositary Receipt See Notes to Financial Statements. 7 Growth Portfolio Statement Of Assets And Liabilities December 31, 2005 AllianceBernstein Variable Products Series Fund ASSETS Investments in securities, at value (cost $204,150,778) $ 291,748,750 Cash 372 Dividends and interest receivable 97,457 Receivable for capital stock sold 15,833 Total assets 291,862,412 LIABILITIES Payable for capital stock redeemed 342,802 Advisory fee payable 188,527 Distribution fee payable 36,133 Transfer agent fee payable 57 Accrued expenses 164,983 Total liabilities 732,502 NET ASSETS $ 291,129,910 COMPOSITION OF NET ASSETS Capital stock, at par $14,346 Additional paid-in capital 313,785,186 Accumulated net realized loss on investment transactions (110,267,594) Net unrealized appreciation of investments 87,597,972 $ 291,129,910 Class A Shares Net assets $123,535,273 Shares of capital stock outstanding 6,029,807 Net asset value per share $20.49 Class B Shares Net assets $ 167,594,637 Shares of capital stock outstanding 8,315,843 Net asset value per share $20.15 See Notes to Financial Statements. 8 Growth Portfolio Statement Of Operations Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund INVESTMENT INCOME Dividends (net of foreign taxes withheld of $26,010) $1,188,668 Interest 65,764 Total investment income 1,254,432 EXPENSES Advisory fee 2,076,979 Distribution fee--Class B 384,383 Custodian 129,583 Printing 75,588 Administrative 75,250 Audit 41,750 Legal 11,134 Directors' fees 1,000 Transfer agency 794 Miscellaneous 25,871 Total expenses 2,822,332 Net investment loss (1,567,900) REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions 31,913,461 Net change in unrealized appreciation/depreciation of investments 224,967 Net gain on investment transactions 32,138,428 NET INCREASE IN NET ASSETS FROM OPERATIONS $30,570,528 See Notes to Financial Statements. 9 Growth Portfolio Statement Of Changes In Net Assets AllianceBernstein Variable Products Series Fund Year Ended Year Ended December 31, December 31, 2005 2004 - ------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment loss $(1,567,900) $(1,530,586) Net realized gain on investment transactions 31,913,461 19,525,775 Net change in unrealized appreciation/ depreciation of investments 224,967 18,576,850 Net increase in net assets from operations 30,570,528 36,572,039 CAPITAL STOCK TRANSACTIONS Net decrease (29,684,827) (8,596,957) Total increase 885,701 27,975,082 NET ASSETS Beginning of period 290,244,209 262,269,127 End of period (including undistributed net investment income of $0 and $7,546, respectively) $291,129,910 $290,244,209 See Notes to Financial Statements. 10 Growth Portfolio Notes To Financial Statements December 31, 2005 AllianceBernstein Variable Products Series Fund NOTE A: Significant Accounting Policies The AllianceBernstein Growth Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to provide long-term growth of capital. Current income is incidental to the Portfolio's objective. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in"the State of Maryland on November 17, 1987, as an open-end series investment company. The"Fund offers twenty-three separately managed pools of"assets which have differing investment objectives and"policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 11 Growth Portfolio Notes To Financial Statements (continued) AllianceBernstein Variable Products Series Fund 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions"are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .75% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted"to $278,647 of which $207 and $0, respectively, was paid to Sanford C. Bernstein &Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. 12 AllianceBernstein Variable Products Series Fund The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: Purchases Sales Investment securities (excluding U.S. government securities) $135,078,683 $ 168,488,040 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost $204,321,666 Gross unrealized appreciation $88,914,740 Gross unrealized depreciation (1,487,656) Net unrealized appreciation $87,427,084 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. 13 Growth Portfolio Notes To Financial Statements (continued) AllianceBernstein Variable Products Series Fund Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) call options and purchase put options on U.S. securities and foreign currencies that are traded on U.S. securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: Securities Lending The Portfolio has entered into a securities lending agreement with UBS Warburg LLC(the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. NOTE F: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class"A and Class"B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: Shares Amount --------------------------- ------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- Shares sold 257,660 401,183 $ 4,929,540 $ 6,730,222 Shares redeemed (1,731,181) (1,790,906) (31,847,558) (29,838,731) Net decrease (1,473,521) (1,389,723) $(26,918,018) $(23,108,509) Class B Shares sold 1,576,527 3,293,538 $ 28,719,338 $ 55,088,374 Shares redeemed (1,731,169) (2,464,295) (31,486,147) (40,576,822) Net increase (decrease) (154,642) 829,243 $ (2,766,809) $ 14,511,552 14 AllianceBernstein Variable Products Series Fund NOTE G: Risks Involved in Investing in the Portfolio Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: Components of Accumulated Earnings (Deficit) As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Accumulated capital and other losses $(110,096,706)(a) Unrealized appreciation/(depreciation) 87,427,084(b) Total accumulated earnings/(deficit) $(22,669,622) (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $110,096,706 of which $10,861,885 expires in the year 2009, $84,319,349 expires in the year 2010, and $14,915,472 expires in the year 2011. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $31,870,988. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the tax treatment of dividends received. During the current fiscal year, permanent differences, primarily due to net operating losses, resulted in a net decrease in accumulated net investment loss and a decrease in additional paid in capital. These reclassifications had no effect on net assets. NOTE J: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; 15 Growth Portfolio Notes To Financial Statements (continued) AllianceBernstein Variable Products Series Fund (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement , please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. 16 AllianceBernstein Variable Products Series Fund On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: Subsequent Events As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. 17 Growth Portfolio Financial Highlights AllianceBernstein Variable Products Series Fund Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A ----------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $18.30 $15.95 $ 11.81 $16.42 $25.10 Income From Investment Operations Net investment loss (a) (.08) (.07) (.06) (.06) (.06) Net realized and unrealized gain (loss) on investment transactions 2.27 2.42 4.20 (4.55) (5.47) Net increase (decrease) in net asset value from operations 2.19 2.35 4.14 (4.61) (5.53) Less: Dividends and Distributions Dividends from net investment income -0- -0- -0- -0- (.06) Distributions from net realized gain on investment transactions -0- -0- -0- -0- (1.85) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (1.23) Return of capital -0- -0- -0- -0- (.01) Total dividends and distributions -0- -0- -0- -0- (3.15) Net asset value, end of period $20.49 $18.30 $15.95 $ 11.81 $16.42 Total Return Total investment return based on net asset value (b) 11.97% 14.73% 35.06% (28.08)% (23.47)% Ratios/Supplemental Data Net assets, end of period (000's omitted) $123,535 $137,345 $141,809 $121,439 $226,237 Ratio to average net assets of: Expenses .88% .88% .89% .88% .85% Net investment loss (.43)% (.43)% (.43)% (.44 )% (.31)% Portfolio turnover rate 49% 56% 49% 38% 104%
See footnote summary on page 19. 18 AllianceBernstein Variable Products Series Fund Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B ----------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $18.05 $15.76 $11.70 $16.31 $24.99 Income From Investment Operations Net investment loss (a) (.12) (.11) (.09) (.09) (.11) Net realized and unrealized gain (loss) on investment transactions 2.22 2.40 4.15 (4.52) (5.44) Net increase (decrease) in net asset value from operations 2.10 2.29 4.06 (4.61) (5.55) Less: Dividends and Distributions Dividends from net investment income -0- -0- -0- -0- (.04) Distributions from net realized gain on investment transactions -0- -0- -0- -0- (1.85) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (1.23) Return of capital -0- -0- -0- -0- (.01) Total dividends and distributions -0- -0- -0- -0- (3.13) Net asset value, end of period $20.15 $18.05 $15.76 $11.70 $16.31 Total Return Total investment return based on net asset value (b) 11.64% 14.53% 34.70% (28.26)% (23.65)% Ratios/Supplemental Data Net assets, end of period (000's omitted) $167,595 $152,899 $120,460 $71,724 $94,215 Ratio to average net assets of: Expenses 1.13% 1.13% 1.14% 1.13% 1.11% Net investment loss (.68)% (.68)% (.68)% (.69)% (.59)% Portfolio turnover rate 49% 56% 49% 38% 104%
(a) Based on average shares outstanding. (b) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 19 Report Of Independent Registered Public Accounting Firm AllianceBernstein Variable Products Series Fund To the Shareholders and Board of Directors of AllianceBernstein"Variable Products Series Fund, Inc. AllianceBernstein Growth Portfolio We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Growth Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Growth Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 20 Growth Portfolio Results of Shareholders Meeting (unaudited) AllianceBernstein Variable Products Series Fund A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc.- AllianceBernstein Growth Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority - ------------------------------------------------------------------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D. Voted For Voted Against Abstained Broker Non-Votes - ------------------------------------------------------------------------------- 329,393,925 7,649,880 14,187,089 0 3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes - --------------------------------------------------------------------------------------------------- 3.A. Diversification 10,962,788 299,032 272,163 0 3.B. Issuing Senior Securities 10,848,911 400,074 284,998 0 and Borrowing Money 3.C. Underwriting Securities 10,973,403 252,921 307,658 0 3.D. Concentration of Investments 11,042,276 244,291 247,415 0 3.E. Real Estate and Companies that 10,947,150 341,073 245,759 0 Deal in Real Estate 3.F. Commodities, Commodity 10,877,220 415,616 241,146 0 Contracts and Futures Contracts 3.G. Loans 10,861,427 440,068 232,488 0 4.B. The reclassification as non- 10,861,828 317,779 354,376 0 fundamental and with changes to the Portfolio's investment objective.
21 Growth Portfolio AllianceBernstein Variable Products Series Fund Board Of Directors William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) Officers Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Thomas J. Bardong, Vice President Alan Levi(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) Mr. Alan Levi is the investment professional primarily responsible for the day-to-day management of the Portfolio's portfolio. 22 Growth Portfolio AllianceBernstein Variable Products Series Fund Management of the Fund Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ----------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, 1345 Avenue of the Americas Management Corporation ("ACMC") since Inc.; SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research (2005) and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York"Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
23 Growth Portfolio Management of the Fund (continued) AllianceBernstein Variable Products Series Fund
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ----------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. 106 Asia Pacific Fund, c/o Alliance Capital Formerly managing partner of Inc., and The Merger Management L.P. Lexington Capital, LLC (investment Fund 1345 Avenue of the Americas advisory firm) from 1997 until New York, NY 10105 December 2003. Prior thereto, Attn: Philip L. Kirstein Chairman and CEO of Prudential 1/26/44 Mutual Fund Management from 1987 (2005) to 1993. D. James Guzy, # Chairman of the Board of PLX 106 Intel Corporation P.O. Box 128 Technology (semi-conductors) and of (semi-conductors); Glenbrook, NV 89413 SRC Computers Inc., with which he Cirrus Logic Corporation 3/7/36 has been associated since prior to (semi-conductors); (2005) 2001. He is also President of the Novellus Corporation Arbor Company (private family (semi-conductor equipment); investments). Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President Lucas Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/41 changed from DuPont Photomasks. Prior to Chairman of the (2005) the company's sale in 2005, he was Chairman Board of the and CEO. He has also been Principal of Smithsonian's Turner Venture Associates since 1993. National Museum of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 24 Growth Portfolio AllianceBernstein Variable Products Series Fund Officer Information Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Alan Levi Vice President Senior Vice President of ACMC**, with which he has 9/27/49 been associated since prior to 2001. Emilie D.Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior"to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has"been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 25 Growth Portfolio Continuance Disclosure AllianceBernstein Variable Products Series Fund Information Regarding the Review and Approval of the Portfolio's Advisory Agreement In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Growth Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 26 AllianceBernstein Variable Products Series Fund 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation 27 Growth Portfolio Continuance Disclosure (continued) AllianceBernstein Variable Products Series Fund methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 to 4 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 38 to 16 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Russell 3000 Index (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-, 3-, 5- and 10-year and since inception periods (September 1994 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 2nd quintile in the 1- and 3-year periods and in the 1st quintile in the 5-year period 28 AllianceBernstein Variable Products Series Fund (adjusted to 2nd quintile in the 5-year period by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles), and in the Performance Universe comparison the Portfolio was in the 2nd quintile in the 1- and 3-year periods (adjusted to 3rd quintile in the 3-year period by the Senior Officer) and in the 3rd quintile in the 5- and 10-year periods (adjusted to 4th quintile in the 10-year period by the Senior Officer). The comparative information showed that the Portfolio outperformed the Index in the YTD, 1- and 3-year periods and underperformed the Index in the other periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises a registered investment company that has investment strategies similar to the Portfolio at a fee rate that is lower than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was the same as the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 2 basis points and that as a result the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement was slightly higher than the Expense 29 Growth Portfolio Continuance Disclosure (continued) AllianceBernstein Variable Products Series Fund Group median. The directors also noted that the Portfolio's total expense ratio was the same as the median for the Expense Group and slightly higher than the median for the Expense Universe. The directors concluded that the Portfolio's expense ratio was satisfactory. Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 30 Growth Portfolio Senior Officer Fee Evaluation AllianceBernstein Variable Products Series Fund THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Growth Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003, is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) Advisory Fee Based on % of Average Category Daily Net Assets Fund - ------------------------------------------------------------------------------- Growth 75 bp on 1st $2.5 billion Growth Portfolio 65 bp on next $2.5 billion 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - ------------------------------------------------------------------------------- Growth Portfolio $69,000 0.02% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 31 Growth Portfolio Senior Officer Fee Evaluation (continued) AllianceBernstein Variable Products Series Fund Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - ------------------------------------------------------------------------------- Growth Portfolio Class A 0.88% December 31 Class B 1.13% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund.
Net Assets Effective Alliance 09/30/05 Alliance Institutional Institutional Fund ($MIL) Fee Schedule Advisory Fee - ---------------------------------------------------------------------------------------------------- Growth Portfolio $280.5 Growth Schedule 0.366% 80 bp on 1st $25m 50 bp on next $25m 40 bp on next $50m 30 bp on next $100m 25 bp on the balance minimum account size $10m
The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. 32 AllianceBernstein Variable Products Series Fund The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a substantially similar investment style as the Fund: Asset Class Fee(3) - ------------------------------------------------------------------------------- Equity Growth 0.80% The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fee for the following sub-advisory relationship: Fund Fee Schedule - ------------------------------------------------------------------------------- Growth Portfolio Client # 1 0.25% It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) Effective Lipper Management Group - ------------------------------------------------------------------------------- Fund Fee Median Rank Growth Portfolio 0.750 0.750 6/13 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe(6). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: Lipper Lipper Lipper Lipper Expense Universe Universe Group Group Fund Ratio (%)(7) Median (%) Rank Median (%) Rank - ------------------------------------------------------------------------------- Growth Portfolio 0.884 0.858 22/39 0.888 6/13 Based on this analysis, the Fund has equally favorable rankings on management fees compared to total expenses. (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. (4) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 33 Growth Portfolio Senior Officer Fee Evaluation (continued) AllianceBernstein Variable Products Series Fund III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - ------------------------------------------------------------------------------- Growth Portfolio $348,513 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - ------------------------------------------------------------------------------- Growth Portfolio $502,703 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 34 AllianceBernstein Variable Products Series Fund The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(9) relative to its Lipper Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. Growth Portfolio Group Universe - ------------------------------------------------------------------------------- 1 year 5/13 14/38 3 year 4/12 15/36 5 year 3/11 14/32 10 year 3/4 10/16 (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 35 Growth Portfolio Senior Officer Fee Evaluation (continued) AllianceBernstein Variable Products Series Fund Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(12) versus its benchmark(13).
Periods Ending September 30, 2005 Annualized Performance - ---------------------------------------------------------------------------------------- Fund 1 Year 3 Year 5 Year 10 Year Since Inception - ----------------------------------------------------------------------------------------- Growth Portfolio 19.89 18.67 -4.68 8.24 10.75 Russell 3000 Growth Index 14.57 18.13 -0.72 9.54 11.20
CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 36 (This page left intentionally blank) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN INTERNATIONAL PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. INTERNATIONAL PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 13, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein International Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. On February 1, 2006, the Portfolio's name changed to International Research Growth Portfolio. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks to obtain a total return on its assets from long-term growth of capital principally through a broad portfolio of marketable securities of established non-United States companies (or United States companies having their principal activities and interests outside the United States), companies participating in foreign economies with prospects for growth, and foreign government securities. As a secondary objective, the Portfolio attempts to increase its current income without assuming undue risk. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Morgan Stanley Captial International (MSCI) Europe, Australasia and Far East (EAFE) Index, for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio outperformed its benchmark, the MSCI EAFE Index. A large part of the Portfolio's outperformance was due to successful stock and sector selection. The most notable drivers were good stock selection in the energy and natural resources sectors, as well as in industrial and infrastructure. The Portfolio also benefited from positive stock selection in technology, telecommunications and health care. Additionally, the Portfolio benefited from an overweight position in the energy and oil services industry, and also, within this category, exposure to emerging market stocks which performed strongly. The Portfolio also benefited from an overweight position in the health care sector, which outperformed the MSCI EAFE Index's position over the year. MARKET REVIEW AND INVESTMENT STRATEGY The economic environment was characterized by a strong rise in oil prices during the year, driven by worldwide economic growth and tight supply. Equity markets performed strongly and short-term interest rates increased in many countries in order to stave off the threat of inflation. Despite the rise in oil prices and interest rates, the global economy remained resilient. Inflation was held in check, and as a result, long-term interest rates were subdued. Against this backdrop of resilient economic growth, corporate profitability was strong. The U.S. economy proved to be resilient, despite the impact of Hurricane Katrina, while Chinese growth continued to be strong. During the year, Europe displayed stronger economic performance, prompting the European Central Bank to increase interest rates. Meanwhile, Japan moved into a period of sustained economic growth. Against the backdrop of strong oil prices and continued tight supply, the Portfolio was overweight in the energy sector and oil services stocks. Arguably, these stocks would be the beneficiaries of increased capital expenditure to meet increasing demand, led, in particular, by China. As a result of increased U.S. Federal Reserve tightening and the prospect for increased interest rates globally, the Portfolio was underweight in financial stocks. Financial stocks tend to perform poorly during periods of rising short rates. However, as it appeared that the Federal Reserve was approaching the end of the rate tightening cycle, the Portfolio's underweight position was closed. Within the financial sector, the Portfolio was overweight in capital market stocks that would be beneficiaries of strong equity markets and healthy corporate liquidity, leading to increased merger & acquisition activity. The Portfolio was also overweight in health care. This sector generally benefits from periods of rising interest rates and maturing economic activity with an emphasis on the higher growth segments in medtech (eye care, dental and orthopaedics). In the industrial sectors, the Portfolio was underweight in the auto sector which was exposed to higher gas prices. Focus was placed on industrials, such as commercial construction and aerospace. 1 INTERNATIONAL PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE, AUSTRALASIA AND FAR EAST (EAFE) INDEX DOES NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Index is a market capitalization weighted index that measures stock performance in 21 countries in Europe, Australasia and the Far East. An investor cannot invest directly in an index, and its results are not indicative of any specific investment, including AllianceBernstein International Portfolio. A WORD ABOUT RISK Substantially all of the Portfolio's assets will be invested in foreign securities. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments. In addition, because the Portfolio will invest in foreign currency denominated securities, fluctuations in the value of the Portfolio's investments may be magnified by changes in foreign exchange rates. The Portfolio may at times buy and sell foreign currencies or enter into forward foreign currency exchange contracts and can invest up to 50% of its assets in such financial instruments. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Also, at the discretion of the Investment Manager, the Portfolio can invest up to 10% of its total assets in illiquid securities or make loans of portfolio securities of up to 30% of its total assets. In addition, the Portfolio may also enter into repurchase agreements of up to seven days' duration for up to 10% of the Portfolio's total assets. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 INTERNATIONAL PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------------------------------------------------- AllianceBernstein International Portfolio Class A 19.16% 3.94% 5.50% - ------------------------------------------------------------------------------------------------- AllianceBernstein International Portfolio Class B 18.78% 11.82%* - ------------------------------------------------------------------------------------------------- MSCI EAFE Index 13.54% 4.55% 5.84% - -------------------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class B shares on 10/26/01. ALLIANCEBERNSTEIN INTERNATIONAL PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95-12/31/05 ALLIANCEBERNSTEIN INTERNATIONAL PORTFOLIO CLASS A: $17,078 MSCIEAFE INDEX: $17,637 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein International Portfolio Class A MSCI EAFE Index - ------------------------------------------------------------------------------- 12/31/95 $ 10,000 $ 10,000 12/31/96 $ 10,725 $ 10,605 12/31/97 $ 11,082 $ 10,794 12/31/98 $ 12,525 $ 12,953 12/31/99 $ 17,564 $ 16,445 12/31/00 $ 14,076 $ 14,114 12/31/01 $ 10,930 $ 11,088 12/31/02 $ 9,260 $ 9,321 12/31/03 $ 12,185 $ 12,918 12/31/04 $ 14,332 $ 15,533 12/31/05 $ 17,078 $ 17,637 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein International Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 INTERNATIONAL PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED INTERNATIONAL PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,187.79 $7.33 1.33% Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.77 1.33% CLASS B Actual $1,000 $1,185.85 $8.71 1.58% Hypothetical (5% return before expenses) $1,000 $1,017.24 $8.03 1.58%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 INTERNATIONAL PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Credit Suisse Group $ 2,296,276 3.0% UBS AG 2,104,994 2.8 Schlumberger Ltd. 2,049,865 2.7 Roche Holding AG 1,953,570 2.6 Nabors Industries Ltd. 1,855,875 2.5 BNP Paribas, SA 1,579,860 2.1 Novartis AG 1,546,331 2.0 Nomura Holdings, Inc. 1,486,080 2.0 Smedvig ASA 1,310,979 1.7 Toyota Motor Corp. 1,306,103 1.7 ------------ ----- $ 17,489,933 23.1% SECTOR DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF SECTOR U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Finance $ 20,042,801 26.5% Energy 10,727,327 14.2 Health Care 8,641,729 11.5 Consumer Services 8,346,751 11.1 Technology 6,653,646 8.8 Consumer Staples 4,816,284 6.4 Consumer Manufacturing 4,030,486 5.3 Capital Goods 3,195,538 4.2 Basic Industry 3,035,285 4.0 Utilities 2,039,081 2.7 Aerospace & Defense 1,111,417 1.5 Transportation 851,203 1.1 Multi-Industry 845,526 1.1 ------------ ----- Total Investments 74,337,074 98.4 Cash and receivables, net of liabilities 1,221,716 1.6 ------------ ----- Net Assets $ 75,558,790 100.0% Please note: The sector classifications presented herein are based on the sector categorization methodolgy of the Adviser. 5 INTERNATIONAL PORTFOLIO COUNTRY DIVERSIFICATION DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COUNTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Japan $ 12,760,679 16.9% United Kingdom 11,912,151 15.8 Switzerland 11,732,862 15.5 France 6,511,918 8.6 Netherlands 3,419,862 4.5 Ireland 2,585,283 3.4 Norway 2,279,024 3.0 Italy 2,141,358 2.8 Bermuda 1,855,875 2.5 Spain 1,845,691 2.4 South Korea 1,745,305 2.3 Australia 1,575,221 2.1 Hong Kong 1,567,266 2.1 Sweden 1,375,241 1.8 Russia 1,304,107 1.7 Greece 1,254,553 1.7 Germany 1,250,013 1.7 Brazil 1,139,402 1.5 Taiwan 878,818 1.2 Turkey 858,531 1.1 South Africa 827,677 1.1 Other* 3,516,237 4.7 ------------ ----- Total Investments 74,337,074 98.4 Cash and receivables, net of liabilities 1,221,716 1.6 ------------ ----- Net Assets $ 75,558,790 100.0% * The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Cayman Islands, China, Egypt, Finland, Hungary, India, Israel, and Mexico. 6 INTERNATIONAL PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- COMMON STOCKS & OTHER INVESTMENTS-98.4% FINANCE-26.5% BANKING - MONEY CENTER-15.7% Anglo Irish Bank Corp. Plc (Ireland) 61,427 $ 929,727 Banco Bilbao Vizcaya Argentaria, SA (Spain) 55,300 987,314 BNP Paribas, SA (France) 19,557 1,579,860 Credit Suisse Group (Switzerland) 45,079 2,296,276 EFG Eurobank Ergasias (Greece) 24,803 783,514 Kookmin Bank (South Korea)(a) 13,940 1,050,612 Mitsubishi Tokyo Financial Group, Inc. (Japan) 63 857,918 Standard Chartered Plc (United Kingdom) 29,531 657,113 Sumitomo Mitsui Financial Group, Inc. (Japan) 63 665,554 UBS AG (Switzerland) 22,146 2,104,994 ------------ 11,912,882 ------------ BANKING - REGIONAL-1.6% Allied Irish Banks Plc (Ireland) 26,567 570,213 Turkiye Is Bankasi (Isbank) (Turkey) 77,810 669,603 ------------ 1,239,816 ------------ BROKERAGE & MONEY MANAGEMENT-2.8% Man Group Plc (United Kingdom) 18,511 608,313 Nomura Holdings, Inc. (Japan) 77,200 1,486,080 ------------ 2,094,393 ------------ INSURANCE-5.4% Cathay Financial Holding Co., Ltd. (Taiwan) 194,000 350,752 ING Groep N.V. (Netherlands) 34,098 1,182,858 Prudential Plc (United Kingdom) 81,865 775,416 QBE Insurance Group Ltd. (Australia) 62,879 898,088 Swiss Re (Switzerland) (a) 11,627 849,628 ------------ 4,056,742 ------------ MISCELLANEOUS-1.0% Aeon Credit Service Co., Ltd. (Japan) 4,800 454,206 FirstRand Ltd. (South Africa) 97,416 284,762 ------------ 738,968 ------------ 20,042,801 ------------ ENERGY-14.2% INTERNATIONAL-6.5% China Petroleum & Chemical Corp. (Sinopec) (China) 614,000 305,963 ENI S.p.A (Italy) 28,000 782,386 LUKOIL (ADR) (Russia) 18,506 1,101,107 Norsk Hydro ASA (Norway) 9,408 968,045 Petroleo Brasilerio, SA (ADR) (Brazil) 15,400 991,298 Total, SA (France) 3,109 784,009 ------------ 4,932,808 ------------ OIL SERVICE-7.7% GlobalSantaFe Corp. (Cayman Islands) 12,000 577,800 Nabors Industries Ltd. (Bermuda)(a) 24,500 1,855,875 Schlumberger Ltd. (Netherlands) 21,100 2,049,865 Smedvig ASA (Norway) 45,000 1,310,979 ------------ 5,794,519 ------------ 10,727,327 ------------ HEALTH CARE-11.5% DRUGS-8.7% Gedeon Richter Rt. (Hungary) 1,400 251,670 GlaxoSmithKline Plc (United Kingdom) 15,447 389,951 Hikma Pharmaceuticals Plc (United Kingdom) (a) 45,463 316,590 Novartis AG (Switzerland) 29,482 1,546,331 Roche Holding AG (Switzerland) 13,029 1,953,570 Sanofi-Aventis, SA (France) 12,927 1,131,724 Takeda Pharmaceutical Co., Ltd. (Japan) 8,100 438,890 Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 12,100 520,421 ------------ 6,549,147 ------------ MEDICAL PRODUCTS-2.8% Alcon, Inc. (Switzerland) 6,778 878,429 Nobel Biocare Holding AG (Switzerland) 2,435 536,019 Smith & Nephew Plc (United Kingdom) 38,618 355,245 Synthes, Inc. (Switzerland) 2,869 322,889 ------------ 2,092,582 ------------ 8,641,729 ------------ 7 INTERNATIONAL PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- CONSUMER SERVICES-11.1% ADVERTISING-1.1% WPP Group Plc (United Kingdom) 73,900 $ 799,497 ------------ BROADCASTING & CABLE-0.5% Grupo Televisa S.A. (ADR) (Mexico) 4,200 338,100 ------------ CELLULAR COMMUNICATIONS-3.1% America Movil, SA de CV (ADR) (Mexico) 10,600 310,156 Mobile TeleSystems (ADR) (Russia) 5,800 203,000 NTT DoCoMo, Inc. (Japan) 180 274,124 Orascom Telecom Holding SAE (GDR) (Egypt) 4,148 217,948 Turkcell Iletisim Hizmetleri AS (Turkcell) (ADR) (Turkey) 12,300 188,928 Vodafone Group Plc (United Kingdom) 543,343 1,169,238 ------------ 2,363,394 ------------ ENTERTAINMENT & LEISURE-1.6% Carnival Plc (United Kingdom) 8,604 488,727 Greek Organisation of Football Prognostics, SA (Greece) 13,662 471,039 NAMCO BANDAI Holdings, Inc. (Japan) 15,900 232,430 ------------ 1,192,196 ------------ PRINTING & PUBLISHING-0.7% Naspers Ltd. (South Africa) 30,613 542,915 ------------ RESTAURANTS & LODGING-1.0% Accor, SA (France) 13,065 718,458 ------------ RETAIL - GENERAL MERCHANDISE-2.2% Billabong International Ltd. (Australia) 24,100 256,159 GUS Plc (United Kingdom) 18,337 325,685 Luxottica Group SpA (Italy) 28,830 732,486 Next Plc (United Kingdom) 14,442 380,359 ------------ 1,694,689 ------------ MISCELLANEOUS-0.9% First Choice Holidays Plc (United Kingdom) 88,829 381,943 Li & Fung Ltd. (Hong Kong) 164,000 315,559 ------------ 697,502 ------------ 8,346,751 ------------ TECHNOLOGY-8.8% COMMUNICATION EQUIPMENT-1.2% Nokia Corp. (Finland) 27,315 500,933 Telefonaktiebolaget LM Ericsson (Sweden) 120,848 416,380 ------------ 917,313 ------------ COMPUTER PERIPHERALS-0.2% LG.Philips LCD Co., Ltd. (South Korea) (a) 3,000 125,602 ------------ COMPUTER SERVICES-1.1% CapGemini, SA (France)(a) 9,250 372,286 Infosys Technologies Ltd. (ADR) (India) 6,100 493,246 ------------ 865,532 ------------ ELECTRONIC COMPONENTS-0.3% LG.Philips LCD Co., Ltd. (ADR) (South Korea)(a) 10,000 214,600 ------------ INTERNET INFRASTRUCTURE-0.5% Fastweb (Italy)(a) 8,916 407,416 ------------ SEMICONDUCTOR CAPITAL EQUIPMENT-0.3% ASML Holding NV (Netherlands) (a) 9,337 187,139 ------------ SEMICONDUCTOR COMPONENTS-1.0% Samsung Electronics Co., Ltd. (South Korea) 551 354,491 Taiwan Semiconductor Manufacturing Co., Ltd. Merrill Lynch International & Co. warrants, expiring 11/22/10 (Taiwan) 221,388 421,852 ------------ 776,343 ------------ SOFTWARE-1.3% LogicaCMG Plc (United Kingdom) 51,143 156,010 SAP AG (Germany) 4,516 813,823 ------------ 969,833 ------------ MISCELLANEOUS-2.9% Canon, Inc. (Japan) 13,000 763,102 HOYA Corp. (Japan) 13,900 499,618 Keyence Corp. (Japan) 2,200 625,646 Tokyo Electron Ltd. (Japan) 4,800 301,502 ------------ 2,189,868 ------------ 6,653,646 ------------ 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- CONSUMER STAPLES-6.4% BEVERAGES-1.7% Pernod Ricard, SA (France) 2,299 $ 401,660 SABMiller Plc (United Kingdom) 46,585 848,859 ------------ 1,250,519 ------------ FOOD-2.1% Groupe Danone (France) 3,013 316,300 Nestle, SA (Switzerland) 4,168 1,244,726 ------------ 1,561,026 ------------ RETAIL - FOOD & DRUG-1.1% Tesco Plc (United Kingdom) 146,829 836,919 ------------ TOBACCO-0.6% Altadis, SA (Spain) 10,450 473,633 ------------ MISCELLANEOUS-0.9% Punch Taverns Plc (United Kingdom) 47,509 694,187 ------------ 4,816,284 ------------ CONSUMER MANUFACTURING-5.3% AUTO & RELATED-2.3% Denso Corp. (Japan) 12,300 425,834 Toyota Motor Corp. (Japan) 25,000 1,306,103 ------------ 1,731,937 ------------ BUILDING & RELATED-3.0% CRH Plc (Ireland) 36,946 1,085,343 Rinker Group Ltd. (Australia) 35,185 420,974 Vinci, SA (France) 9,198 792,232 ------------ 2,298,549 ------------ 4,030,486 ------------ CAPITAL GOODS-4.2% ELECTRICAL EQUIPMENT-2.5% Atlas Copco AB (Sweden) 43,046 958,861 AU Optronics Corp. (Taiwan) 71,210 106,214 Sumitomo Electric Industries Ltd. (Japan) 27,800 422,263 Yamada Denki Co., Ltd. (Japan) 3,500 437,539 ------------ 1,924,877 ------------ MACHINERY-1.3% Hitachi Construction Machinery Co., Ltd. (Japan) 19,400 453,409 KOMATSU Ltd. (Japan) 32,000 528,976 ------------ 982,385 ------------ MISCELLANEOUS-0.4% Nitto Denko Corp. (Japan) 3,700 288,276 ------------ 3,195,538 ------------ BASIC INDUSTRY-4.0% CHEMICALS-0.8% Hitachi Chemical Co., Ltd. (Japan) 22,800 602,480 ------------ MINING & METALS-3.2% BHP Billiton Plc (United Kingdom) 40,980 670,677 China Shenhua Energy Co., Ltd. (Hong Kong) (a) 606,500 668,019 Companhia Vale do Rio Doce (ADR) (Brazil) 3,600 148,104 Rio Tinto Plc (United Kingdom) 20,700 946,005 ------------ 2,432,805 ------------ 3,035,285 ------------ UTILITIES-2.7% ELECTRIC & GAS UTILITY-0.8% Datang International Power Generation Co., Ltd. (Hong Kong) 794,800 583,688 ------------ TELEPHONE UTILITY-1.9% Deutsche Telekom AG (Germany) 26,237 436,190 France Telecom, SA (France) 16,719 415,389 Telecom Italia SpA (Italy) 75,136 219,070 Telefonica, SA (Spain) 25,596 384,744 ------------ 1,455,393 ------------ 2,039,081 ------------ AEROSPACE & DEFENSE-1.5% AEROSPACE-1.5% BAE Systems Plc (United Kingdom) 169,079 1,111,417 ------------ TRANSPORTATION-1.1% RAILROAD-1.1% East Japan Railway Co. (Japan) 124 851,203 ------------ MULTI-INDUSTRY COMPANIES-1.1% Mitsubishi Corp. (Japan) 15,600 344,428 Mitsui & Co., Ltd. (Japan) 39,000 501,098 ------------ 845,526 ------------ Total Common Stocks & Other Investments (cost $57,382,263) 74,337,074 ------------ 9 INTERNATIONAL PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ U.S. $ VALUE - ------------------------------------------------------------------------------- TOTAL INVESTMENTS-98.4% (cost $57,382,263) $ 74,337,074 Other assets less liabilities-1.6% 1,241,944 ------------ NET ASSETS-100% $ 75,579,018 ============ (a) Non-income producing security. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt See Notes to Financial Statements. 10 INTERNATIONAL PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $57,382,263) $ 74,337,074 Cash 159,647 Foreign cash, at value (cost $1,211,550) 1,216,338 Dividends receivable 140,232 ------------ Total assets 75,853,291 ------------ LIABILITIES Payable for capital stock redeemed 118,563 Advisory fee payable 48,770 Distribution fee payable 2,310 Transfer agent fee payable 56 Accrued expenses 104,574 ------------ Total liabilities 274,273 ------------ NET ASSETS $ 75,579,018 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 4,182 Additional paid-in capital 64,545,620 Undistributed net investment income 276,088 Accumulated net realized loss on investment and foreign currency transactions (6,205,743) Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 16,958,871 ------------ $ 75,579,018 ============ CLASS A SHARES Net assets $ 65,496,125 ============ Shares of capital stock outstanding 3,619,678 ============ Net asset value per share $ 18.09 ============ CLASS B SHARES Net assets $ 10,082,893 ============ Shares of capital stock outstanding 562,142 ============ Net asset value per share $ 17.94 ============ See Notes to Financial Statements. 11 INTERNATIONAL PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $103,116) $ 1,293,473 Interest 40,629 ------------ Total investment income 1,334,102 ------------ EXPENSES Advisory fee 508,574 Distribution fee -- Class B 20,835 Custodian 216,367 Administrative 75,250 Audit 41,750 Printing 22,874 Legal 4,253 Directors' fees 1,000 Transfer agency 794 Miscellaneous 14,206 ------------ Total expenses 905,903 ------------ Net investment income 428,199 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 8,452,787 Foreign currency transactions (146,150) Net change in unrealized appreciation/depreciation of: Investments 3,598,125 Foreign currency denominated assets and liabilities (8,895) ------------ Net gain on investment and foreign currency transactions 11,895,867 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 12,324,066 ============ See Notes to Financial Statements. 12 INTERNATIONAL PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============ ============ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 428,199 $ 355,791 Net realized gain on investment and foreign currency transactions 8,306,637 7,545,795 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities 3,589,230 1,986,623 Contribution from Adviser -0- 32,057 ------------ ------------ Net increase in net assets from operations 12,324,066 9,920,266 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A (294,913) (146,839) Class B (29,392) (9,710) CAPITAL STOCK TRANSACTIONS Net decrease (1,826,950) (548,275) ------------ ------------ Total increase 10,172,811 9,215,442 NET ASSETS Beginning of period 65,406,207 56,190,765 ------------ ------------ End of period (including undistributed net investment income of $276,088 and $318,344, respectively) $ 75,579,018 $ 65,406,207 ============ ============ See Notes to Financial Statements. 13 INTERNATIONAL PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein International Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to obtain a total return on its assets from long-term growth of capital principally through a broad portfolio of marketable securities of established non-U.S. companies (i.e., companies incorporated outside the U.S.), companies participating in foreign economies with prospects for growth, and foreign government securities. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 15 INTERNATIONAL PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $286,001, none of which was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. During 2004, the Adviser reimbursed the Portfolio $32,057 for trading losses incurred due to a trading entry error. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 61,257,597 $ 63,290,420 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost $ 57,480,091 ============= Gross unrealized appreciation $ 17,154,550 Gross unrealized depreciation (297,567) ------------- Net unrealized appreciation $ 16,856,983 ============= 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 17 INTERNATIONAL PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 402,864 591,525 $ 6,471,208 $ 7,887,871 Shares issued in reinvestment of dividends 19,492 11,243 294,913 146,839 Shares redeemed (624,734) (887,738) (10,035,872) (11,894,787) ----------- ----------- ------------- ------------- Net decrease (202,378) (284,970) $ (3,269,751) $ (3,860,077) =========== =========== ============= ============= CLASS B Shares sold 263,445 329,435 $ 4,216,301 $ 4,365,653 Shares issued in reinvestment of dividends 1,958 749 29,392 9,711 Shares redeemed (169,734) (77,673) (2,802,892) (1,063,562) ----------- ----------- ------------- ------------- Net increase 95,669 252,511 $ 1,442,801 $ 3,311,802 =========== =========== ============= ============= NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Concentration of Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 324,305 $ 156,549 -------------- -------------- Total taxable distributions 324,305 156,549 -------------- -------------- Total distributions paid $ 324,305 $ 156,549 ============== ============== 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 295,347 Accumulated capital and other losses (6,127,174)(a) Unrealized appreciation/(depreciation) 16,861,043(b) -------------- Total accumulated earnings/(deficit) $ 11,029,216 ============== (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $6,107,915 of which $4,623,526 will expire in the year 2010 and $1,484,389 will expire in the year 2011. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Based on certain provisions in the Internal Revenue Code, various limitations regarding the future utilization of these carryforwards, brought forward as a result of the Portfolio's merger with Brinson Series Trust Global Equity Portfolio, may apply. During the fiscal year, the Portfolio utilized capital loss carryforwards of $8,430,131. Net foreign currency losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred until January 1, 2006, post-October foreign currency losses of $19,259. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to foreign currency transactions, resulted in a net decrease in undistributed net investment income and a corresponding decrease in accumulated net realized loss on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. 19 INTERNATIONAL PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. 21 INTERNATIONAL PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $15.26 $13.01 $9.90 $11.69 $16.01 INCOME FROM INVESTMENT OPERATIONS Net investment income (a) .11 .08(b) .02 -0-(b) .03(b) Net realized and unrealized gain (loss) on investment and foreign currency transactions 2.80 2.20 3.11 (1.78) (3.55) Contribution from Adviser -0- .01 -0- -0- -0- Net increase (decrease) in net asset value from operations 2.91 2.29 3.13 (1.78) (3.52) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.08) (.04) (.02) (.01) -0- Distributions from net realized gain on investment transactions -0- -0- -0- -0- (.78) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (.02) Total dividends and distributions (.08) (.04) (.02) (.01) (.80) Net asset value, end of period $18.09 $15.26 $13.01 $9.90 $11.69 TOTAL RETURN Total investment return based on net asset value (c) 19.16% 17.62% 31.59% (15.28)% (22.35)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $65,496 $58,341 $53,425 $46,478 $64,036 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.30% 1.33% 1.80% 1.36% .95% Expenses, before waivers and reimbursements 1.30% 1.50% 1.80% 1.66% 1.44% Net investment income .67% .63%(b) .22% .04%(b) .23%(b) Portfolio turnover rate 93% 128% 96% 70% 56%
See footnote summary on page 23. 22 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B ----------------------------------------------------------------- OCTOBER 26, YEAR ENDED DECEMBER 31, 2001(d) TO -------------------------------------------------- DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $15.15 $12.93 $9.87 $11.68 $11.31 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (a) .06 .05(b) (.02) (.03)(b) (.02)(b) Net realized and unrealized gain (loss) on investment and foreign currency transactions 2.79 2.20 3.09 (1.78) .39 Contribution from Adviser -0- -0- -0- -0- -0- Net increase (decrease) in net asset value from operations 2.85 2.25 3.07 (1.81) .37 LESS: DIVIDENDS Dividends from net investment income (.06) (.03) (.01) -0- -0- Net asset value, end of period $17.94 $15.15 $12.93 $9.87 $11.68 TOTAL RETURN Total investment return based on net asset value (c) 18.85% 17.41% 31.11% (15.50)% 3.27% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $10,083 $7,065 $2,766 $467 $413 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.56% 1.56% 2.05% 1.63% 1.20%(e) Expenses, before waivers and reimbursements 1.56% 1.73% 2.05% 1.92% 2.26%(e) Net investment income (loss) .39% .35%(b) (.17)% (.25)%(b) (.88)%(b)(e) Portfolio turnover rate 93% 128% 96% 70% 56%
(a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (d) Commencement of distribution. (e) Annualized. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN INTERNATIONAL PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein International Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein International Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 24 INTERNATIONAL PORTFOLIO RESULTS OF SHAREHOLDER MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein International Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.A. Diversification 4,000,318 125,143 74,584 0 3.B. Issuing Senior 3,954,414 151,634 93,997 0 Securities and Borrowing Money 3.C. Underwriting 3,970,101 126,232 103,712 0 Securities 3.D. Concentration of 3,985,674 144,896 69,476 0 Investments 3.E. Real Estate and Companies 4,015,598 122,677 61,771 0 that Deal in Real Estate 3.F. Commodities, Commodity 3,966,010 173,539 60,496 0 Contracts and Futures Contracts 3.G. Loans 3,962,952 173,133 63,961 0 3.I. Exercising Control 4,008,834 118,643 72,569 0 3.J. Other Investment 3,980,254 148,794 70,998 0 Companies 3.L. Purchases of Securities 3,906,790 223,253 70,003 0 on Margin 3.M. Short Sales 3,931,590 196,845 71,610 0
25 INTERNATIONAL PORTFOLIO RESULTS OF SHAREHOLDER MEETING (UNAUDITED) (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.N. Pledging, Hypothecating, 3,961,939 149,289 88,817 0 Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or Restricted 3,974,931 147,293 77,822 0 Securities 3.T. Securities of Issuers in which 3,931,625 196,143 72,277 0 Officers, Directors, or Partners Have an Interest 3.V. Purchasing Voting or Other 3,960,797 153,868 85,380 0 Securities of Issuers 3.W. Repurchase Agreements 3,964,701 162,172 73,173 0 4.B. The reclassification as non- 3,960,159 165,822 74,065 0 fundamental and with changes to the Portfolio's investment objective.
26 INTERNATIONAL PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer HIROMITSU AGATA(2), Vice President ISABEL BUCCELLATI(2), Vice President WILLIAM JOHNSTON(2), Vice President VALLI NITHTHYANANTHAN(2), Vice President MICHELE PATRI(2), Vice President THOMAS A. SCHMITT(2), Vice President ATSUSHI YAMAMOTO(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Adviser's International Research Growth sector analyst-managers with oversight by the Adviser's International Research Growth Oversight Group. Mr. Hiromitsu Agata, Ms. Isabel Buccellati, Mr. William Johnston, Ms. Valli Niththyananthan, Mr. Michele Patri, Mr. Thomas Schmitt and Mr. Atsushi Yamamoto are the sector analyst-managers with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 27 INTERNATIONAL PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC responsible Spring Lake, NJ 07762 for mutual fund administration. Prior to joining 10/23/29 ACMC in 1984, he was Chief Financial Officer of (1990) Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
28 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Fund Attn: Philip L. Kirstein Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, the George Lucas Penthouse 10 Texas, from 2003 to present, and President since Educational Foundation; San Francisco, CA 94104-3402 company acquired in 2005, and name changed and Chairman of the 10/10/41 from Dupont Photomasks. Prior to the company's Board of the (2005) sale in 2005, he was Chairman and CEO. He has Smithsonian's National also been Principal of Turner Venture Associates Museum of Natural History since 1993.
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 29 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INTERNATIONAL PORTFOLIO OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATEOFBIRTH HELD WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004.Prior thereto, he was Of Counsel to Kirkpatrick &Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Hiromitsu Agata Vice President Senior Vice President of Alliance Capital Asset 11/5/62 Management ("ACAM")**, with which he has been associated since prior to 2001. Isabel Buccellati Vice President Vice President of ACL**, with which she has been 11/6/68 associated since prior to 2001. William Johnston Vice President Senior Vice President of Alliance Capital Limited 2/24/61 ("ACL")**, with which he has been associated since prior to 2001. Valli Niththyananthan Vice President Senior Vice President of ACL**, with which she has 4/21/74 been associated since prior to 2001. Michele Patri Vice President Vice President of ACL** and a Non-US Developed 6/10/63 Analyst since April, 2001. Prior thereto, he was a portfolio manager at Citigroup Asset Manager in London since prior to 2001. Thomas A. Schmitt Vice President Senior Vice President of ACMC**, with which he has 7/13/57 been associated since prior to 2001. Atsushi Yamamoto Vice President Senior Vice President of ACAM**, with which he has 12/24/66 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Senior Vice President of Alliance Global Investor 10/4/1950 Chief Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/1951 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ACAM, ACL, AGIS, ABIRM and SCB&Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800)227-4618 for a free prospectus or SAI. 30 INTERNATIONAL PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein International Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 31 INTERNATIONAL PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised methodology. The directors noted that the revised methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 10 to 6 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 21 to 9 funds (depending on the year) in its Lipper category selected by Lipper (the 33 INTERNATIONAL PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ "Performance Universe") for periods ended September 30, 2005 over the1-, 3-, 5- and 10-year periods, and as compared to the Morgan Stanley Capital International Europe, Australasia and Far East Index (Net) (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-, 3-, 5- and 10-year and since inception periods (December 1992 inception). The directors noted that in the Performance Group and Performance Universe comparisons the Portfolio was in the 1st quintile in the 1-year period, 2nd quintile in the 3-year and 5-year periods and 4th quintile in the 10-year period (adjusted to 5th quintile in the Performance Group comparison for the 10-year period by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles). The comparative information showed that the Portfolio outperformed the Index in the YTD, 1- and 3-year periods and underperformed the Index in the 5- and 10-year and since inception periods. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund, and materially lower than the fee rate schedule in place for another fund managed by the Adviser that invests in international equities. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be materially lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was significantly lower than the Expense Group median. The directors noted that in the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 12 basis points and that the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement of 87 basis points was materially lower than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was somewhat higher than the Expense Group median and materially higher than the Expense Universe median. The directors noted that the Portfolio's relatively small size (less than $75 million as of September 30, 2005) caused the administrative expense reimbursement, which does not vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 35 INTERNATIONAL PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein International Research Growth Portfolio (the "Fund")(2), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(3) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- International 75 bp on 1st $2.5 billion International Research 65 bp on next $2.5 billion Growth Portfolio 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- International Research Growth Portfolio $69,000 0.12% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Prior to February 1, 2006, the Fund was known as AllianceBernstein International Portfolio. (3) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- International Research Growth Portfolio Class A 1.50% December 31 Class B 1.73% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- International Research $71.3 International Large Cap 0.640% Growth Portfolio Growth Schedule 80 bp on 1st $25m 60 bp on next $25m 50 bp on next $50m 40 bp on the balance Minimum account size $25m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser manages the Sanford C. Bernstein Fund, Inc., an open-end management investment company. The Sanford C. Bernstein International Portfolio, whose investment style is similar to the Fund, has the following advisory fee schedule in place: FUND SCB PORTFOLIO FEE SCHEDULE - ------------------------------------------------------------------------------- International Research SCB International 0.925% on first $1 billion Growth Portfolio Portfolio 0.85% on next $3 billion 0.80% on next $2 billion 0.75% on next $2 billion 0.65% on the balance 37 INTERNATIONAL PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: FUND ACITM MUTUAL FUND(4) FEE - ------------------------------------------------------------------------------- International Research International Blend (Sumitomo)(5) 0.30% Growth Portfolio The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: FUND FEE SCHEDULE - ------------------------------------------------------------------------------- International Research Client # 1(6) 0.60% on the first $1 billion Growth Portfolio 0.55% on the next $500 million 0.50% on the next $500 million 0.45% on the next $500 million 0.40% on the balance Client # 2 0.50% on the first $50 million 0.40% on the balance Client # 3 0.50% Client # 4 0.30% It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. In addition, to the extent that certain of these sub-advisory relationships are with affiliates of the Adviser, the fee schedules may not reflect arms-length bargaining or negotiations. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(7) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- International Research 0.750 0.992 1/10 Growth Portfolio (4) The name in parenthesis is the distributor of the fund. (5) The ACITM fund is not a retail fund. (6) This is the fee schedule of a fund managed by an affiliate of the Adviser. (7) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. 38 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(8) and Lipper Expense Universe(9). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO(%)(10) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- International Research 1.327 1.108 17/21 1.237 8/10 Growth Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ----------------------------------------------------------------------- International Research Growth Portfolio $12,389 (8) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (9) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (10) Most recent fiscal year end Class A share total expense ratio. 39 INTERNATIONAL PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------- International Research Growth Portfolio $13,316 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(11) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. Although the Fund did not effect any brokerage transaction and pay commissions to the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), during the Fund's recent fiscal year, the potential for such events exist. The Adviser represented that SCB's profitability from any business conducted with the Fund would be comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. (11) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 40 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(12) relative to its Lipper Performance Group(13) and Lipper Performance Universe(14) for the period ended September 30, 2005. INTERNATIONAL RESEARCH GROWTH PORTFOLIO GROUP UNIVERSE - --------------------------------------------------------------------------- 1 year 2/10 4/21 3 year 3/10 6/21 5 year 4/10 6/19 10 year 5/6 6/9 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(15) versus its benchmark(16). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- SINCE FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION - ------------------------------------------------------------------------------- International Research 29.23 25.25 1.39 5.40 6.80 Growth Portfolio MSCI EAFE Index (Net) 25.79 24.61 3.16 5.83 8.08 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (12) The performance rankings are for the Class A shares of the Fund. (13) The Lipper Performance Group is identical to the Lipper Expense Group. (14) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (15) The performance returns are for the Class A shares of the Fund. (16) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 41 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN LARGE CAP GROWTH PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. LARGE CAP GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 10, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Large Cap Growth Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. Prior to May 2, 2005, the Portfolio was named AllianceBernstein Premier Growth Portfolio. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks growth of capital by pursuing aggressive investment policies. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. Since investments will be made based on their potential for capital appreciation, current income will be incidental to the objective of growth of capital. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Russell 1000 Growth Index, in addition to the broad market as measured by the Standard & Poor's (S&P) 500 Stock Index, for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio significantly outperformed both its primary benchmark, the Russell 1000 Growth Index, and the broad market, as represented by the S&P 500 Stock Index. All of the Portfolio's excess return was attributable to stock selection which is the foundation of the Portfolio's management team's (the "Team's") investment process and the source of the Portfolio's long-term premium to the market. The Portfolio's strong team of U.S. equity analysts continues to identify companies that significantly exceed consensus earnings expectations, what the Team considers the most reliable catalyst for successful growth investing. Strong stock selection was broad-based during the annual reporting period. Eight stocks contributed 85 basis points or more relative to the Russell 1000 Growth Index and only one stock had a negative contribution of 85 basis points or more. Specifically, the Portfolio gained approximately 4% relative to the benchmark in the technology sector due entirely to better stock selection. The Portfolio outperformed the benchmark by over 3% in the health care sector, also entirely due to stock selection. MARKET REVIEW AND INVESTMENT STRATEGY The fundamentals of the U.S. economy and corporate profitability were at odds with the performance of the equity markets in 2005 and 2004. Based upon consensus estimates, 2005 earnings for the S&P 500 Stock Index companies will be up almost 14% year-over-year, yet the Index was up less than 5%. In 2004, earnings growth was 20%, but the Index gained only 11%. After two consecutive years of price-to-earnings multiple compression, the Index closed the year at 16.4 times estimated 2005 earnings, its lowest price-to-earnings ratio in 10 years. Gross domestic product (GDP) growth fell off significantly to 1.1% in the fourth quarter of 2005. Historically, growth stocks have tended to outperform value stocks during periods of decelerating economic growth. That may be the case in the coming months, since the premium for growth stocks relative to the broad market is as low as it has been in 25 years. It remains to be seen whether growth's outperformance over the past three quarters is any indication that the market is in the early innings of a growth cycle. 1 LARGE CAP GROWTH PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE NEITHER THE UNMANAGED RUSSELL 1000 GROWTH INDEX NOR THE UNMANAGED STANDARD & POOR'S (S&P) 500 STOCK INDEX REFLECTS FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Russell 1000 Growth Index contains those securities in the Russell 1000 Index with a greater-than-average growth orientation. The unmanaged Russell 1000 Index is comprised of 1000 of the largest capitalized companies that are traded in the United States. The S&P 500 Stock Index is comprised of 500 U.S. companies and is a common measure of the performance of the overall U.S. stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Large Cap Growth Portfolio. A WORD ABOUT RISK A limited percentage of the Portfolio's assets will be invested in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. The Portfolio concentrates its investments in a limited number of issues and an investment in the Portfolio is therefore subject to greater risk and volatility than investments in a more diversified portfolio. Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 LARGE CAP GROWTH PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------------- AllianceBernstein Large Cap Growth Portfolio Class A 15.15% -2.34% 9.07% - -------------------------------------------------------------------------------------- AllianceBernstein Large Cap Growth Portfolio Class B 14.89% -2.59% -2.92%* - -------------------------------------------------------------------------------------- Russell 1000 Growth Index 5.26% -3.58% 6.73% - -------------------------------------------------------------------------------------- S&P 500 Stock Index 4.91% 0.54% 9.07% - --------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class B shares on 7/14/99. ALLIANCEBERNSTEIN LARGE CAP GROWTH PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95 - 12/31/05 ALLIANCEBERNSTEIN LARGE CAP GROWTH PORTFOLIO CLASS A: $23,828 RUSSELL 1000 GROWTH INDEX: $19,182 S&P 500 STOCK INDEX: $23,834 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein Large Cap Growth Russell 1000 S&P 500 Portfolio Class A Growth Index Stock Index - ------------------------------------------------------------------------------- 12/31/95 $ 10,000 $ 10,000 $ 10,000 12/31/96 $ 12,270 $ 12,312 $ 12,295 12/31/97 $ 16,425 $ 16,066 $ 16,395 12/31/98 $ 24,304 $ 22,285 $ 21,084 12/31/99 $ 32,158 $ 29,675 $ 25,519 12/31/00 $ 26,827 $ 23,022 $ 23,196 12/31/01 $ 22,210 $ 18,321 $ 20,441 12/31/02 $ 15,405 $ 13,213 $ 15,925 12/31/03 $ 19,051 $ 17,144 $ 20,491 12/31/04 $ 20,693 $ 18,224 $ 22,718 12/31/05 $ 23,828 $ 19,182 $ 23,834 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Large Cap Growth Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmark, the Russell 1000 Growth Index, and the broad market, as represented by the S&P 500 Stock Index. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 LARGE CAP GROWTH PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED LARGE CAP GROWTH PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,155.90 $4.40 0.81% Hypothetical (5% return before expenses) $1,000 $1,021.12 $4.13 0.81% CLASS B Actual $1,000 $1,154.85 $5.76 1.06% Hypothetical (5% return before expenses) $1,000 $1,019.86 $5.40 1.06%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 LARGE CAP GROWTH PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Google, Inc. Cl. A $ 57,499,596 4.6% QUALCOMM, Inc. 52,579,140 4.2 Apple Computer, Inc. 50,488,347 4.1 Yahoo!, Inc. 47,932,812 3.8 The Procter & Gamble Co. 47,166,412 3.8 Genetech, Inc. 47,045,500 3.8 eBay, Inc. 42,964,550 3.5 Target Corp. 42,161,990 3.4 Halliburton Co. 42,145,192 3.4 WellPoint, Inc. 40,437,572 3.2 -------------- ----- $ 470,421,111 37.8% SECTOR DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF SECTOR U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Technology $ 376,678,690 30.3% Health Care 279,410,333 22.5 Consumer Services 171,075,200 13.7 Finance 140,934,213 11.3 Energy 93,708,147 7.5 Consumer Staples 68,295,160 5.5 Capital Goods 45,554,870 3.7 Aerospace & Defense 22,849,072 1.8 Consumer Manufacturing 16,362,168 1.3 Multi-Industry Companies 5,658,030 0.5 -------------- ----- Total Investments* 1,220,525,883 98.1 Cash and receivables, net of liabilities 22,906,634 1.9 -------------- ----- Net Assets $1,243,432,517 100.0% COUNTRY DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF COUNTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- United States $1,038,521,688 83.5% Bermuda 70,860,454 5.7 Switzerland 41,728,330 3.4 Israel 40,343,380 3.2 Cayman Islands 21,756,346 1.7 Other** 7,315,685 0.6 -------------- ----- Total Investments* 1,220,525,883 98.1 Cash and receivables, net of liabilities 22,906,634 1.9 -------------- ----- Net Assets $1,243,432,517 100.0% * Excludes short-term investments. ** The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Netherlands and Mexico. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 LARGE CAP GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- COMMON STOCKS-98.1% TECHNOLOGY-30.3% COMMUNICATION EQUIPMENT-9.1% Corning, Inc. (a) 1,393,000 $ 27,386,380 Juniper Networks, Inc. (a) 1,493,900 33,313,970 QUALCOMM, Inc. 1,220,500 52,579,140 -------------- 113,279,490 -------------- COMPUTER HARDWARE/STORAGE-4.1% Apple Computer, Inc. (a) 702,300 50,488,347 -------------- COMPUTER PERIPHERALS-1.5% Network Appliance, Inc. (a) 709,100 19,145,700 -------------- INTERNET MEDIA-8.5% Google, Inc. Cl.A (a) 138,600 57,499,596 Yahoo!, Inc. (a) 1,223,400 47,932,812 -------------- 105,432,408 -------------- SEMI-CONDUCTOR COMPONENTS-7.1% Broadcom Corp. Cl.A (a) 784,200 36,975,030 Marvell Technology Group Ltd. (Bermuda) (a) 665,600 37,333,504 Texas Instruments, Inc. 437,300 14,024,211 -------------- 88,332,745 -------------- 376,678,690 -------------- HEALTH CARE-22.5% BIOTECHNOLOGY-6.5% Affymetrix, Inc. (a) 193,700 9,249,175 Amgen, Inc. (a) 150,100 11,836,886 Genentech, Inc. (a) 508,600 47,045,500 Gilead Sciences, Inc. (a) 226,900 11,941,747 -------------- 80,073,308 -------------- DRUGS-3.2% Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 938,000 40,343,380 -------------- MEDICAL PRODUCTS-5.1% Alcon, Inc. (Switzerland) 225,800 29,263,680 St. Jude Medical, Inc. (a) 568,685 28,547,987 Zimmer Holdings, Inc. (a) 90,000 6,069,600 -------------- 63,881,267 -------------- MEDICAL SERVICES-7.7% Caremark Rx, Inc. (a) 294,400 15,246,976 UnitedHealth Group, Inc. 634,500 39,427,830 WellPoint, Inc. (a) 506,800 40,437,572 -------------- 95,112,378 -------------- 279,410,333 -------------- CONSUMER SERVICES-13.7% ADVERTISING-0.7% Getty Images, Inc. (a) 59,200 5,284,784 Lamar Advertising Co. (a) 79,000 3,645,060 -------------- 8,929,844 -------------- BROADCASTING & CABLE-1.2% The E.W. Scripps Co. Cl. A 313,400 15,049,468 -------------- CELLULAR COMMUNICATIONS-0.2% America Movil S.A. de C.V. (ADR) (Mexico) 87,000 2,545,620 -------------- RESTAURANT & LODGING-0.1% Starbucks Corp. (a) 41,000 1,230,410 -------------- RETAIL-GENERAL MERCHANDISE-9.9% eBay, Inc. (a) 993,400 42,964,550 Lowe's Cos., Inc. 578,400 38,556,144 Target Corp. 767,000 42,161,990 -------------- 123,682,684 -------------- MISCELLANEOUS-1.6% Electronic Arts, Inc. (a) 375,400 19,637,174 -------------- 171,075,200 -------------- FINANCE-11.3% BANKING-MONEY CENTER-1.0% UBS AG (Switzerland) 131,000 12,464,650 -------------- BANKING-REGIONAL-0.5% Northern Trust Corp. 111,700 5,788,294 -------------- BROKERAGE & MONEY MANAGEMENT-5.2% E*Trade Financial Corp. (a) 163,100 3,402,266 Franklin Resources, Inc. 255,300 24,000,753 Legg Mason, Inc. 104,600 12,519,574 Merrill Lynch & Co., Inc. 53,400 3,616,782 The Goldman Sachs Group, Inc. 166,900 21,314,799 -------------- 64,854,174 -------------- INSURANCE-4.6% ACE Ltd. (Cayman Islands) 213,400 11,404,096 American International Group, Inc. 436,492 29,781,849 The Progressive Corp. 142,500 16,641,150 -------------- 57,827,095 -------------- 140,934,213 -------------- ENERGY-7.5% DOMESTIC PRODUCERS-0.2% Noble Energy, Inc. 72,300 2,913,690 -------------- OIL SERVICE-7.3% GlobalSantaFe Corp. (Cayman Islands) 215,000 10,352,250 Halliburton Co. 680,200 42,145,192 Nabors Industries Ltd. (Bermuda) (a) 442,600 33,526,950 6 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- Schlumberger Ltd. (Netherlands) 49,100 $ 4,770,065 -------------- 90,794,457 -------------- 93,708,147 -------------- CONSUMER STAPLES-5.5% HOUSEHOLD PRODUCTS-3.8% The Procter & Gamble Co. 814,900 47,166,412 -------------- RETAIL-FOOD & DRUG-1.7% Walgreen Co. 213,000 9,427,380 Whole Foods Market, Inc. 151,200 11,701,368 -------------- 21,128,748 -------------- 68,295,160 -------------- CAPITAL GOODS-3.7% ELECTRICAL EQUIPMENT-0.6% Emerson Electric Co. 99,900 7,462,530 -------------- MISCELLANEOUS-3.1% General Electric Co. 1,086,800 38,092,340 -------------- 45,554,870 -------------- AEROSPACE AND DEFENSE-1.8% AEROSPACE-1.8% Boeing Co. 325,300 22,849,072 -------------- CONSUMER MANUFACTURING-1.3% BUILDING & RELATED-1.3% Pulte Homes, Inc. 361,700 14,236,512 The Sherwin-Williams Co. 46,800 2,125,656 -------------- 16,362,168 -------------- MULTI-INDUSTRY COMPANIES-0.5% Textron, Inc. 73,500 5,658,030 -------------- Total Common Stocks (cost $888,474,459) 1,220,525,883 -------------- SHORT-TERM INVESTMENT-0.6% TIME DEPOSIT-0.6% The Bank of New York 3.25%, 1/03/06 (cost $6,935,000) $ 6,935 6,935,000 -------------- TOTAL INVESTMENTS-98.7% (cost $895,409,459) 1,227,460,883 Other assets less liabilities-1.3% 15,971,634 -------------- NET ASSETS-100% $1,243,432,517 ============== (a) Non-income producing security. Glossary: ADR - American Depositary Receipt See Notes to Financial Statements. 7 LARGE CAP GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $895,409,459) $1,227,460,883 Cash 155 Receivable for capital stock sold 17,088,604 Receivable for investment securities sold 2,590,887 Dividends and interest receivable 649,506 -------------- Total assets 1,247,790,035 -------------- LIABILITIES Payable for capital stock redeemed 2,349,701 Payable for investment securities purchased 848,615 Advisory fee payable 799,143 Distribution fee payable 135,132 Transfer agent fee payable 57 Accrued expenses 224,870 -------------- Total liabilities 4,357,518 -------------- NET ASSETS $1,243,432,517 ============== COMPOSITION OF NET ASSETS Capital stock, at par $ 46,457 Additional paid-in capital 1,623,189,192 Accumulated net realized loss on investment transactions (711,854,556) Net unrealized appreciation of investments 332,051,424 -------------- $1,243,432,517 ============== CLASS A SHARES Net assets $ 618,980,143 ============== Shares of capital stock outstanding 22,934,144 ============== Net asset value per share $ 26.99 ============== CLASS B SHARES Net assets $ 624,452,374 ============== Shares of capital stock outstanding 23,522,856 ============== Net asset value per share $ 26.55 ============== See Notes to Financial Statements. 8 LARGE CAP GROWTH PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $84,326) $ 6,116,100 Interest 176,693 ------------ Total investment income 6,292,793 ------------ EXPENSES Advisory fee 8,781,605 Distribution fee -- Class B 1,446,059 Printing 302,466 Custodian 210,761 Administrative 75,250 Legal 47,750 Audit 41,750 Directors' fees 1,000 Transfer agency 794 Miscellaneous 64,347 ------------ Total expenses 10,971,782 ------------ Net investment loss (4,678,989) ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions 104,348,252 Net change in unrealized appreciation/depreciation of investments 60,172,521 ------------ Net gain on investment transactions 164,520,773 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $159,841,784 ============ See Notes to Financial Statements. 9 LARGE CAP GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============== ============== INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment loss $ (4,678,989) $ (3,272,959) Net realized gain on investment transactions 104,348,252 112,065,843 Net change in unrealized appreciation/ depreciation of investments 60,172,521 (11,444,905) -------------- -------------- Net increase in net assets from operations 159,841,784 97,347,979 CAPITAL STOCK TRANSACTIONS Net decrease (176,003,150) (449,453,220) -------------- -------------- Total decrease (16,161,366) (352,105,241) NET ASSETS Beginning of period 1,259,593,883 1,611,699,124 -------------- -------------- End of period (including undistributed net investment income of $0 and $44,513, respectively) $1,243,432,517 $1,259,593,883 ============== ============== See Notes to Financial Statements. 10 LARGE CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Large Cap Growth Portfolio (the "Portfolio"), formerly AllianceBernstein Premier Growth Portfolio, is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek growth of capital by pursuing aggressive investment policies. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 11 LARGE CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Porfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 12 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $1,203,563, of which $29,959 and $0, respectively, was paid to Sanford C. Bernstein &Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 632,351,139 $ 823,828,265 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost $ 901,864,011 ============= Gross unrealized appreciation $ 327,565,748 Gross unrealized depreciation (1,968,876) ------------- Net unrealized appreciation $ 325,596,872 ============= 13 LARGE CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 1,512,339 541,796 $ 38,903,047 $ 11,866,276 Shares redeemed (6,589,775) (15,060,638) (156,255,897) (326,511,199) ----------- ----------- ------------- ------------- Net decrease (5,077,436) (14,518,842) $(117,352,850) $(314,644,923) =========== =========== ============= ============= CLASS B Shares sold 2,569,510 3,994,801 $ 61,795,376 $ 86,087,736 Shares redeemed (5,144,396) (10,419,161) (120,445,676) (220,896,033) ----------- ----------- ------------- ------------- Net decrease (2,574,886) (6,424,360) $ (58,650,300) $(134,808,297) =========== =========== ============= ============= NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: COMPONENTS OF ACCUMULATED EARNINGS (DEFICIT) As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Accumulated capital and other losses $(705,400,004)(a) Unrealized appreciation/(depreciation) 325,596,872(b) ------------- Total accumulated earnings/(deficit) $(379,803,132) ============= (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $705,400,004 of which $60,068,417 will expire in the year 2009, $478,225,244 will expire in the year 2010 and $167,106,343 will expire in the year 2011. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $102,165,650. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to net operating losses, resulted in a net decrease in accumulated net investment loss, and decrease in additional paid in capital. These reclassifications had no effect on net assets. 15 LARGE CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. 17 LARGE CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. 18 LARGE CAP GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $23.44 $21.58 $17.45 $25.16 $32.05 INCOME FROM INVESTMENT OPERATIONS Net investment loss (a) (.07) (.03)(b) (.05)(b) (.08) (.06) Net realized and unrealized gain (loss) on investment transactions 3.62 1.89 4.18 (7.63) (5.31) Net increase (decrease) in net asset value from operations 3.55 1.86 4.13 (7.71) (5.37) LESS: DISTRIBUTIONS Distributions from net realized gain on investment transactions -0- -0- -0- -0- (1.38) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (.14) Total distributions -0- -0- -0- -0- (1.52) Net asset value, end of period $26.99 $23.44 $21.58 $17.45 $25.16 TOTAL RETURN Total investment return based on net asset value (c) 15.15% 8.62% 23.67% (30.64)% (17.21)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $618,980 $656,544 $917,935 $869,130 $1,586,575 Ratio to average net assets of: Expenses, net of waivers and reimbursements .81% .81% 1.04% 1.05% 1.04% Expenses, before waivers and reimbursements .81% .98% 1.05% 1.05% 1.04% Net investment loss (.28)% (.13)%(b) (.24)%(b) (.41)% (.21)% Portfolio turnover rate 54% 73% 79% 109% 49%
See footnote summary on page 20. 19 LARGE CAP GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $23.11 $21.33 $17.29 $25.00 $31.93 INCOME FROM INVESTMENT OPERATIONS Net investment loss (a) (.12) (.08)(b) (.09)(b) (.13) (.12) Net realized and unrealized gain (loss) on investment transactions 3.56 1.86 4.13 (7.58) (5.29) Net increase (decrease) in net asset value from operations 3.44 1.78 4.04 (7.71) (5.41) LESS: DISTRIBUTIONS Distributions from net realized gain on investment transactions -0- -0- -0- -0- (1.38) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (.14) Total distributions -0- -0- -0- -0- (1.52) Net asset value, end of period $26.55 $23.11 $21.33 $17.29 $25.00 TOTAL RETURN Total investment return based on net asset value (c) 14.89% 8.34% 23.37% (30.84)% (17.40)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $624,453 $603,050 $693,764 $493,937 $572,266 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.06% 1.06% 1.29% 1.31% 1.29% Expenses, before waivers and reimbursements 1.06% 1.24% 1.30% 1.31% 1.29% Net investment loss (.53)% (.38)%(b) (.49)%(b) (.64)% (.47)% Portfolio turnover rate 54% 73% 79% 109% 49%
(a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND INC. ALLIANCEBERNSTEIN LARGE CAP GROWTH PORTFOLIO We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Large Cap Growth Portfolio, formerly AllianceBernstein Premier Growth Portfolio, of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Large Cap Growth Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 21 LARGE CAP GROWTH PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Large Cap Growth Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.A. Diversification 42,318,218 1,487,267 2,068,785 0 3.B. Issuing Senior Securities 41,830,760 1,955,714 2,087,796 0 and Borrowing Money 3.C. Underwriting Securities 42,240,435 1,515,464 2,118,371 0 3.D. Concentration of Investments 42,354,347 1,522,684 1,997,239 0 3.E. Real Estate and Companies 42,269,907 1,597,681 2,006,682 0 that Deal in Real Estate 3.F. Commodities, Commodity 41,977,113 1,921,128 1,976,029 0 Contracts and Futures Contracts 3.G. Loans 42,002,644 1,881,246 1,990,381 0 3.I. Exercising Control 42,462,918 1,347,170 2,064,182 0 3.M. Short Sales 42,012,466 1,913,445 1,948,359 0 3.N. Pledging, Hypothecating, 41,775,248 2,115,900 1,983,122 0 Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or Restricted Securities 41,882,164 1,891,713 2,100,394 0
22 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.R. Requirement to Invest in Specific 42,238,993 1,567,061 2,068,216 0 Investments 3.T. Securities of Issuers in which 41,812,887 1,963,941 2,097,442 0 Officers, Directors, or Partners Have an Interest 3.U. Option Transactions 41,992,314 1,852,466 2,029,490 0 3.V. Purchasing Voting or Other Securities of Issuers 42,058,324 1,668,617 2,147,329 0 3.W. Repurchase Agreements 42,099,171 1,614,777 2,160,321 0 4.B. The reclassification as 42,145,026 1,653,993 2,075,251 0 non-fundamental and with changes to the Portfolio's investment objective.
23 LARGE CAP GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer THOMAS J. BARDONG, Vice President DAVID P. HANDKE, JR.(2), Vice President SYED J. HASNAIN(2), Vice President DANIEL NORDBY, Vice President JAMES G. REILLY(2), Vice President MICHAEL J. REILLY(2), Vice President (SCOTT) PATRICK WALLACE(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Large Cap Growth Investment Team. Mr. James Reilly, Mr. David Handke, Mr. Michael Reilly, Mr. Syed Hasnain and Mr. Scott Wallace are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 24 LARGE CAP GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, Inc.; 1345 Avenue of the Americas Capital Management Corporation ("ACMC") SCB, Inc. New York, NY 10105 since 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered invest- Greenwich, CT 06830 ment adviser, with which he had been associ- Chairman of the Board ated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and 106 None 500 SE Mizner Blvd. Chief Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; Chair- 11/7/30 man and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of Spring Lake, NJ 07762 ACMC responsible for mutual fund 10/23/29 administration. Prior to joining ACMC in (1990) 1984, he was Chief Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
25 LARGE CAP GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) John H. Dobkin, # Consultant. Formerly President of Save 106 None P.O. Box 12 Venice, Inc. (preservation organization) Annandale, NY 12504 from 2001-2002, Senior Advisor from 2/19/42 June 1999-June 2000 and President (1992) of Historic Hudson Valley (historic preservation) from December 1989- May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., and c/o Alliance Capital managing partner of Lexington Capital, The Merger Fund Management L.P. LLC (investment advisory firm) from 1345 Avenue of the Americas December 1997 until December 2003. New York, NY 10105 Prior thereto, Chairman and CEO of Attn: Philip L. Kirstein Prudential Mutual Fund Management 1/26/44 from 1987 to 1993. (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation (semi- P.O. Box 128 (semi-conductors) and of SRC Computers Inc., conductors); Cirrus Logic Glenbrook, NV 89413 with which he has been associated since Corporation (semi- 3/7/36 prior to 2001. He is also President of the conductors); Novellus (2005) Arbor Company (private family investments). Corporation (semi- conductors equipment); Micro Component Technology (semi- conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, the George Lucas Penthouse 10 Texas, from 2003 to present, and President Educational Foundation; San Francisco, CA 94104-3402 since company acquired in 2005, and name and Chairman of the Board 10/10/41 changed from DuPont Photomasks. Prior to of the Smithsonian's National (2005) the company's sale in 2005, he was Chairman Museum of Natural History and CEO. He has also been Principal of Turner Venture Associates since 1993.
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 26 LARGE CAP GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
PRINCIPAL NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officerof the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. David P. Handke, Jr. Vice President Senior Vice President of ACMC**, with which he has 8/12/49 been associated since prior to 2001. Syed J. Hasnain Vice President Senior Vice President of ACMC**, with which he has 8/1/64 been associated since prior to 2001. Daniel Nordby Vice President Senior Vice President of ACMC**, with which he has 4/27/44 been associated since 2001. James G. Reilly Vice President Executive Vice President of ACMC**, with which he 7/2/61 has been associated since prior to 2001. Michael J. Reilly Vice President Senior Vice President of ACMC**, with which he has 6/3/64 been associated since prior to 2001. (Scott) Patrick Wallace Vice President Senior Vice President of ACMC**, with which he has 10/11/64 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 27 LARGE CAP GROWTH PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Large Cap Growth Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 28 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific prof- 29 LARGE CAP GROWTH PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ itability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 to 11 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 65 to 23 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Russell 1000 Growth Index (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3-, 5- and 10-year and since inception periods (June 1992 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 2nd quintile in the 1-year period, 4th quintile in the 3-year period, 3rd quintile in the 5-year period and 1st quintile in the 10-year period (adjusted to 2nd quintile in the 10-year period by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles), and in the Performance Universe 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ comparison the Portfolio was in the 1st quintile in the 1-year period, 3rd quintile in the 3- and 5-year periods and 2nd quintile in the 10-year period. The comparative information showed that the Portfolio underperformed the Index in the 3-year period and outperformed the Index in all other periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was materially higher than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 1 basis point. The directors also noted that the Portfolio's total expense ratio was materially higher than the Expense Group median and somewhat lower than the Expense Universe median. The directors noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. 31 LARGE CAP GROWTH PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 32 LARGE CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Large Cap Growth Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Growth 75 bp on 1st $2.5 billion Large Cap Growth Portfolio 65 bp on next $2.5 billion 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Large Cap Growth Portfolio $69,000 0.01% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 33 LARGE CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Large Cap Growth Portfolio Class A 0.98% December 31 Class B 1.24% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- Large Cap Growth $1,164.6 Large Cap Growth Schedule 0.278% Portfolio 80 bp on 1st $25m 50 bp on next $25m 40 bp on next $50m 30 bp on next $100m 25 bp on the balance Minimum account size $10 m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: ASSET CLASS FEE(3) - ---------------------------------------------------------- Equity Growth 0.80% (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: FUND ACITM MUTUAL FUND(4) FEE - ------------------------------------------------------------------------------- Large Cap Growth Alliance American Premier Growth 0.95% Portfolio (Sakura/Mitsui/Fuji Bank/Nikko) Alliance American Premier Growth 0.70% Institutional (Nomura) The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: FUND FEE SCHEDULE - ------------------------------------------------------------------------------- Large Cap Growth Portfolio Client #1 0.40% Client #2 0.60% on first $500 million 0.50% thereafter Client #3(5) 0.60% on first $1 billion 0.55% on the next $500 million 0.50% on the next $500 million 0.45% on the next $500 million 0.40% thereafter Client #4 0.35% on first $50 million 0.30% on next $100 million 0.25% thereafter Client #5 0.40% on first $300 million 0.37% on next $300 million 0.35% on next $300 million 0.32% on next $600 million 0.25% thereafter It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. In addition, to the extent that certain of these sub-advisory relationships are with affiliates of the Adviser, the fee schedules may not reflect arms-length bargaining or negotiations. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. (4) The name in parenthesis is the distributor of the fund. (5) This is the fee schedule of a fund managed by an affiliate of the Adviser. 35 LARGE CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(6) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Large Cap Growth Portfolio 0.750 0.640 9/13 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(7) and Lipper Expense Universe(8). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO(%)(9) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- Large Cap Growth 0.803 0.850 23/65 0.690 8/13 Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. (6) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (7) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (8) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (9) Most recent fiscal year end Class A share total expense ratio. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - -------------------------------------------------------------------- Large Cap Growth Portfolio $1,554,412 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - -------------------------------------------------------------------- Large Cap Growth Portfolio $806,265 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(10) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. (10) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 37 LARGE CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(11) relative to its Lipper Performance Group(12) and Lipper Performance Universe(13) for the period ended September 30, 2005. LARGE CAP GROWTH PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------ 1 year 5/13 11/65 3 year 10/13 37/64 5 year 6/11 27/52 10 year 3/11 6/23 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(14) versus its benchmark(15). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- SINCE FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION - ------------------------------------------------------------------------------- LARGE CAP GROWTH 18.88 14.14 -6.47 8.48 11.06 PORTFOLIO Russell 1000 11.60 14.74 -8.64 6.89 8.68 Growth Index CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (11) The performance rankings are for the Class A shares of the Fund. (12) The Lipper Performance Group is identical to the Lipper Expense Group. (13) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (14) The performance returns are for the Class A shares of the Fund. (15) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 38 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. December 31, 2005 ANNUAL REPORT > ALLIANCEBERNSTEIN SMALL CAP GROWTH PORTFOLIO - --------------------------- INVESTMENT PRODUCTS OFFERED > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ SMALL CAP GROWTH PORTFOLIO LETTER TO INVESTORS February 10, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Small Cap Growth Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES Until February 1, 2006, the Portfolio's investment objective was growth of capital by pursuing aggressive investment policies. Current income is incidental to the Portfolio's objective. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. While it currently emphasizes the equity securities of small-capitalization companies, it may invest in any type of security issued by any company in any industry with the potential for capital appreciation. The Portfolio may also pursue investment opportunities outside of the United States. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Russell 2000 Growth Index, for the one- and five-year periods ended December 31, 2005 and since the Portfolio's Class A shares inception on August 5, 1996. Although the Portfolio generated solid, positive returns during 2005, absolute gains failed to match robust double digit gains enjoyed during the prior two years. All sectors of the Portfolio, with the exception of the technology sector, generated positive returns for the 12-month period. Buoyed by strong oil and natural gas prices, energy shares were by far the strongest performers, posting a gain in excess of 50%. The Portfolio's Class A shares generated strong relative returns during the period, outperforming the Russell 2000 Growth Index by more than 100 basis points. The Portfolio's relative returns benefited from favorable sector allocations, which derived largely from the decision to overweight energy stocks throughout the period. Stock selection in the aggregate was negative, as underperformance within the technology and health care sectors more than offset favorable stock selection in the industrial, finance and consumer/commercial services sectors. MARKET REVIEW AND INVESTMENT STRATEGY U.S. equities moved modestly higher during 2005 as continued healthy earnings growth more than offset a compression in valuations related to a rise in short-term interest to more normalized levels. In a reversal of trends experienced over much of the past several years, small-cap growth stocks trailed both the broader markets, as represented by the Standard & Poor's (S&P) 500 Stock Index, as well as the Russell 1000 Growth Index of large cap growth stocks. All sectors, with the exception of the technology sector, finished the period in positive territory. Energy stocks were once again the standout performers with a gain in excess of 50%. Sector allocations, which are a derivative of the Portfolio's management team's (the "Team's") bottom-up stock selection process, showed some notable changes over the past year. Health care, which started the year more than 500 basis points under, finished up less than 100 basis points underweight as the Team added several health care services and device companies to the Portfolio's holdings. The Portfolio also experienced a significant increase in its consumer/commercial services holdings, as the Portfolio's underweight in consumer-related names was narrowed. Funding for these increases resulted from reductions in the industrials and financial services sectors. As of December 31, 2005, the Portfolio's largest overweights were consumer/commercial services and energy. Industrials and financial services were significantly underweight. Consistent with the Team's investment philosophy, the Portfolio's holdings, in the aggregate, incorporate faster expected earnings growth and significantly stronger earnings revision trends than the universe of small-cap growth stocks overall. Despite these favorable attributes, the Portfolio currently trades at a discount to its expected growth rate, and at only a modest premium to the Russell 2000 Growth Index. 1 SMALL CAP GROWTH PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED RUSSELL 2000 GROWTH INDEX DOES NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Index contains those securities in the Russell 2000 Index with a greater-than-average growth orientation. The unmanaged Russell 2000 Index is a capitalization-weighted index that includes 2,000 of the smallest stocks representing approximately 10% of the U.S. equity market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Small Cap Growth Portfolio. A WORD ABOUT RISK The Portfolio concentrates its investments in the stocks of small-capitalization companies, which tend to be more volatile than large-cap companies. Small-cap stocks may have additional risks because these companies tend to have limited product lines, markets or financial resources. The Portfolio invests in foreign securities. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments. In addition, because the Portfolio will invest in foreign currency denominated securities, fluctuations in the value of the Portfolio's investments may be magnified by changes in foreign exchange rates. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (HISTORICAL PERFORMANCE CONTINUED ON NEXT PAGE) 2 SMALL CAP GROWTH PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ RETURNS ---------------------------------- THE PORTFOLIO VS. ITS BENCHMARK SINCE PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS INCEPTION* - ------------------------------------------------------------------------------- AllianceBernstein Small Cap Growth Portfolio Class A 5.24% 1.34% 3.77% AllianceBernstein Small Cap Growth Portfolio Class B 4.86% 1.09% -0.57% Russell 2000 Growth Index 4.15% 2.28% 4.78% * Since inception of the Portfolio's Class A shares on 8/5/96 and Class B shares on 8/10/00. The since inception return for the benchmark is from the Portfolio's Class A shares inception date. ALLIANCEBERNSTEIN SMALL CAP GROWTH PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 8/5/96*-12/31/05 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL] Russell 2000 Growth Index: $15,516 AllianceBernstein Small Cap Growth Portfolio Class A: $14,161 AllianceBernstein Small Cap Growth Russell 2000 Portfolio Class A Growth Index - ------------------------------------------------------------------------------- 8/5/96* 10000 10000 12/31/96 10640 10921 12/31/97 12619 12335 12/31/98 12052 12487 12/31/99 14111 17867 12/31/00 13252 13860 12/31/01 11562 12581 12/31/02 7889 8774 12/31/03 11746 13032 12/31/04 13456 14897 12/31/05 14161 15516 * Since inception of the Portfolio's Class A shares on 8/5/96. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Small Cap Growth Portfolio Class A shares (from 8/5/96* to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 SMALL CAP GROWTH PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. BEGINNING ENDING ANNUALIZED SMALL CAP ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID EXPENSE GROWTH PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* RATIO* - ------------------------------------------------------------------------------- CLASS A Actual $1,000 $1,099.55 $6.35 1.20% Hypothetical (5% return before expenses) $1,000 $1,019.16 $6.11 1.20% CLASS B Actual $1,000 $1,097.09 $7.66 1.45% Hypothetical (5% return before expenses) $1,000 $1,017.90 $7.38 1.45% * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 SMALL CAP GROWTH PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ U.S. PERCENT OF COMPANY $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Resources Connection, Inc. $1,344,696 1.9% Digitas, Inc. 1,342,144 1.9 Electronics for Imaging, Inc. 1,285,263 1.8 Carter's, Inc. 1,277,045 1.8 Hexcel Corp. 1,259,890 1.7 Psychiatric Solutions, Inc. 1,257,036 1.7 WellCare Health Plans, Inc. 1,207,894 1.7 Protein Design Labs, Inc. 1,202,166 1.7 Intergrated Device Technologies, Inc. 1,170,384 1.6 Laureate Education, Inc. 1,124,764 1.5 - ------------------------------------------------------------------------------- $12,471,282 17.3% SECTOR DIVERSIFICATION December 31, 2005 U.S. PERCENT OF SECTOR $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Consumer Services $18,698,190 26.0% Technology 18,016,323 25.1 Health Care 13,288,465 18.5 Energy 7,434,138 10.3 Finance 4,402,257 6.1 Capital Goods 4,318,352 6.0 Basic Industry 2,301,159 3.2 Transportation 1,615,193 2.2 Multi-Industry Companies 854,496 1.2 Consumer Staples 556,508 0.8 Consumer Manufacturing 26,128 0.0 - ------------------------------------------------------------------------------- Total Investments* 71,511,209 99.4 Cash and receivables, net of liabilities 408,482 0.6 - ------------------------------------------------------------------------------- Net Assets $71,919,691 100.0% * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 SMALL CAP GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- COMMON STOCKS-99.4% CONSUMER SERVICES-26.0% ADVERTISING-3.4% Administaff, Inc. 25,900 $1,089,095 Digitas, Inc. (a) 107,200 1,342,144 ------------ 2,431,239 ------------ APPAREL-1.8% Carter's, Inc. (a) 21,700 1,277,045 ------------ BROADCASTING & CABLE-1.1% Entravision Communications Corp. Cl.A (a) 114,100 812,392 ------------ ENTERTAINMENT/ LEISURE-2.8% Sunterra Corp. (a) 63,700 905,814 THQ, Inc. (a) 45,350 1,081,598 ------------ 1,987,412 ------------ PRINTING & PUBLISHING-1.3% VistaPrint Ltd. (Bermuda) (a) 41,800 951,117 ------------ RESTAURANT & LODGING-1.3% Orient-Express Hotels Ltd. 29,900 942,448 ------------ RETAIL - GENERAL MERCHANDISE-2.0% Coldwater Creek, Inc. (a) 14,600 445,738 MarineMax, Inc. (a) 31,900 1,007,083 ------------ 1,452,821 ------------ MISCELLANEOUS-12.3% Bright Horizons Family Solutions, Inc. (a) 27,400 1,015,170 CRA International, Inc. (a) 4,600 219,374 Huron Consulting Group, Inc. (a) 31,447 754,414 Insight Enterprises, Inc. (a) 48,700 955,007 Laureate Education, Inc. (a) 21,420 1,124,764 Life Time Fitness, Inc. (a) 28,700 1,093,183 MSC Industrial Direct Co., Inc. Cl.A 20,500 824,510 Nutri/System, Inc. (a) 13,800 497,076 Resources Connection, Inc. (a) 51,600 1,344,696 Strayer Education, Inc. 10,200 955,740 ZipRealty, Inc. (a) 7,100 59,782 ------------ 8,843,716 ------------ 18,698,190 ------------ TECHNOLOGY-25.1% COMPUTER HARDWARE/ STORAGE-1.1% Avocent Corp. (a) 27,800 $755,882 COMPUTER SERVICES-4.3% Anteon International Corp. (a) 19,700 1,070,695 Euronet Worldwide, Inc. (a) 39,200 1,089,760 Global Cash Access, Inc. (a) 43,600 636,124 VASCO Data Security International, Inc. (a) 32,700 322,422 ------------ 3,119,001 ------------ CONTRACT MANUFACTURING-1.1% Semtech Corp. (a) 42,300 772,398 ------------ SEMI-CONDUCTOR COMPONENTS-7.2% Advanced Analogic Technologies, Inc. (a) 37,300 516,605 Entegris, Inc. (a) 74,100 698,022 Integrated Device Technologies, Inc. (a) 88,800 1,170,384 Microsemi Corp. (a) 40,000 1,106,400 ON Semiconductor Corp. (a) 111,400 616,042 Sirf Technology Holdings, Inc. (a) 20,500 610,900 Vimicro International Corp. (ADR) (China) (a) 44,400 434,232 ------------ 5,152,585 ------------ SOFTWARE-8.8% Audible, Inc. (a) 47,100 604,764 Bottomline Technologies, Inc. (a) 23,870 263,047 DealerTrack Holdings, Inc. (a) 38,600 809,828 Electronics for Imaging, Inc. (a) 48,300 1,285,263 FileNET Corp. (a) 30,800 796,180 Informatica Corp. (a) 77,300 927,600 Quest Software, Inc. (a) 68,500 999,415 VeriFone Holdings, Inc. (a) 24,700 624,910 ------------ 6,311,007 ------------ MISCELLANEOUS-2.6% Exar Corp. (a) 35,900 449,468 Micros Systems, Inc. (a) 18,700 903,584 Wind River Systems, Inc. (a) 37,400 552,398 ------------ 1,905,450 ------------ 18,016,323 ------------ 6 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- HEALTH CARE-18.5% BIOTECHNOLOGY-6.4% Abgenix, Inc. (a) 20,500 $440,955 Coley Pharmaceutical Group, Inc. (a) 10,100 153,116 Cubist Pharmaceuticals, Inc. (a) 16,400 348,500 CV Therapeutics, Inc. (a) 7,900 195,367 Meridian Bioscience, Inc. 21,200 426,968 Momenta Pharmaceuticals, Inc. (a) 8,100 178,524 Nektar Therapeutics (a) 12,500 205,750 Neopharm, Inc. (a) 38,800 418,652 Protein Design Labs, Inc. (a) 42,300 1,202,166 Senomyx, Inc. (a) 36,400 441,168 Telik, Inc. (a) 22,700 385,673 Zymogenetics, Inc. (a) 11,000 187,110 ------------ 4,583,949 ------------ MEDICAL PRODUCTS-5.3% Abaxis, Inc. (a) 45,100 743,248 Animas Corp. (a) 33,600 811,440 ArthroCare Corp. (a) 17,300 729,022 OraSure Technologies, Inc. (a) 53,900 475,398 Renovis, Inc. (a) 15,800 241,740 Ventana Medical Systems, Inc. (a) 18,500 783,475 ------------ 3,784,323 ------------ MEDICAL SERVICES-5.6% Psychiatric Solutions, Inc. (a) 21,400 1,257,036 Stericycle, Inc. (a) 14,690 864,947 United Surgical Partners International, Inc. (a) 22,200 713,730 WellCare Health Plans, Inc. (a) 29,569 1,207,894 ------------ 4,043,607 ------------ MISCELLANEOUS-1.2% IRIS International, Inc. (a) 40,100 876,586 ------------ 13,288,465 ------------ ENERGY-10.3% OIL SERVICE-8.6% Bill Barrett Corp. (a) 18,900 729,729 CARBO Ceramics, Inc. 3,700 209,124 Core Laboratories NV (Netherlands) (a) 19,084 712,978 Dril-Quip, Inc. (a) 13,400 632,480 FMC Technologies, Inc. (a) 17,300 742,516 Helmerich & Payne, Inc. 11,500 711,965 Range Resources Corp. 26,900 708,546 Superior Well Services, Inc. (a) 15,300 363,528 Tesco Corp. (Canada) (a) 10,900 201,650 W-H Energy Services, Inc. (a) 20,600 681,448 Whiting Petroleum Corp. (a) 12,400 496,000 ------------ 6,189,964 ------------ PIPELINES-0.9% Hydril Co. (a) 10,800 $676,080 ------------ MISCELLANEOUS-0.8% Brigham Exploration Co. (a) 47,900 568,094 ------------ 7,434,138 ------------ FINANCE-6.1% BANKING - MONEY CENTER-0.6% Community Bancorp (a) 13,000 410,930 ------------ BROKERAGE & MONEY MANAGEMENT-3.5% Affiliated Managers Group, Inc. (a) 9,500 762,375 Greenhill & Co., Inc. 18,300 1,027,728 optionsXpress Holdings, Inc. 29,400 721,770 ------------ 2,511,873 ------------ INSURANCE-0.7% Primus Guaranty Ltd. (Bermuda) (a) 42,230 551,102 ------------ MISCELLANEOUS-1.3% Morningstar, Inc. (a) 26,800 928,352 ------------ 4,402,257 ------------ CAPITAL GOODS-6.0% ELECTRICAL EQUIPMENT-1.6% Engineered Support Systems, Inc. 10,887 453,335 Essex Corp. (a) 42,900 731,445 ------------ 1,184,780 ------------ MACHINERY-2.4% Actuant Corp. Cl.A 17,700 987,659 Oshkosh Truck Corp. 16,200 722,358 ------------ 1,710,017 ------------ MISCELLANEOUS-2.0% IDEX Corp. 18,270 751,080 Simpson Manufacturing Co., Inc. 18,500 672,475 ------------ 1,423,555 ------------ 4,318,352 ------------ BASIC INDUSTRY-3.2% CHEMICALS-1.8% Hexcel Corp. (a) 69,800 1,259,890 MINING & METALS-1.4% Allegheny Technologies, Inc. 28,860 1,041,269 ------------ 2,301,159 ------------ TRANSPORTATION-2.2% AIR FREIGHT-1.1% UTI Worldwide, Inc. (British Virgin Islands) 8,800 816,992 7 SMALL CAP GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- SHIPPING-1.1% Kirby Corp. (a) 15,300 $798,201 ------------ 1,615,193 ------------ MULTI-INDUSTRY COMPANIES-1.2% Chemed Corp. 17,200 854,496 ------------ CONSUMER STAPLES-0.8% FOOD-0.8% Hain Celestial Group, Inc. (a) 26,300 556,508 ------------ CONSUMER MANUFACTURING-0.0% MISCELLANEOUS-0.0% Astec Industries, Inc. (a) 800 26,128 ------------ Total Common Stocks (cost $56,594,244) 71,511,209 PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------- SHORT-TERM INVESTMENT-0.9% TIME DEPOSIT-0.9% The Bank of New York 3.25%, 1/03/06 (cost $641,000) $641 $641,000 ------------ TOTAL INVESTMENTS-100.3% (cost $57,235,244) 72,152,209 Other assets less liabilities-(0.3%) (232,518) ------------ NET ASSETS-100% $71,919,691 ------------ (a) Non-income producing security. See Notes to Financial Statements. 8 SMALL CAP GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $57,235,244) $72,152,209 Cash 34,084 Receivable for investment securities sold 197,379 Receivable for capital stock sold 6,487 Interest receivable 116 Total assets 72,390,275 LIABILITIES Payable for investment securities purchased 275,159 Advisory fee payable 46,322 Payable for capital stock redeemed 23,626 Distribution fee payable 4,790 Transfer agent fee payable 57 Accrued expenses 120,630 Total liabilities 470,584 NET ASSETS $71,919,691 COMPOSITION OF NET ASSETS Capital stock, at par . $5,893 Additional paid-in capital 118,692,361 Accumulated net realized loss on investment transactions (61,695,528) Net unrealized appreciation of investments 14,916,965 $71,919,691 CLASS A SHARES Net assets $49,453,153 Shares of capital stock outstanding 4,035,283 Net asset value per share . $12.26 CLASS B SHARES Net assets $22,466,538 Shares of capital stock outstanding 1,858,293 Net asset value per share $12.09 See Notes to Financial Statements. 9 SMALL CAP GROWTH PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $708) $157,342 Interest 25,820 Total investment income 183,162 EXPENSES Advisory fee 557,481 Distribution fee--Class B 53,234 Custodian 152,846 Administrative 75,250 Audit 41,750 Printing 29,444 Legal 4,742 Directors' fees 1,000 Transfer agency 794 Miscellaneous 12,089 Total expenses 928,630 Net investment loss (745,468) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions 8,362,243 Net change in unrealized appreciation/depreciation of investments (4,759,908) Net gain on investment transactions 3,602,335 NET INCREASE IN NET ASSETS FROM OPERATIONS . $2,856,867 See Notes to Financial Statements. 10 SMALL CAP GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 - ------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment loss $(745,468) $(781,074) Net realized gain on investment transactions 8,362,243 10,953,121 Net change in unrealized appreciation/depreciation of investments (4,759,908) 550,533 Net increase in net assets from operations 2,856,867 10,722,580 CAPITAL STOCK TRANSACTIONS Net decrease (17,046,301) (1,538,906) Total increase (decrease) (14,189,434) 9,183,674 NET ASSETS Beginning of period 86,109,125 76,925,451 End of period (including accumulated net investment loss of $0 and $0, respectively) $71,919,691 $86,109,125 See Notes to Financial Statements. 11 SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Small Cap Growth Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek growth of capital by pursuing aggressive investment policies. Current income is incidental to the Portfolio's objective. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 12 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain and loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holdings of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's avarage daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. 13 SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $221,770, none of which was paid to Sanford C. Bernstein &Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ----------- ----------- Investment securities (excluding U.S. government securities) $66,483,881 $83,643,655 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost $58,673,326 Gross unrealized appreciation $14,786,100 Gross unrealized depreciation (1,307,217) Net unrealized appreciation $13,478,883 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. 14 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss in the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 15 SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- Shares sold . 403,901 802,498 $4,558,183 $8,496,602 Shares redeemed (1,659,295) (1,518,067) (18,857,380) (15,698,678) Net decrease (1,255,394) (715,569) $(14,299,197) $(7,202,076) CLASS B Shares sold . 649,285 975,376 $7,335,767 $10,075,709 Shares redeemed (911,889) (426,003) (10,082,871) (4,412,539) Net increase (decrease) (262,604) 549,373 $(2,747,104) $5,663,170 NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: COMPONENTS OF ACCUMULATED EARNINGS (DEFICIT) As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Accumulated capital and other losses $(60,257,446)(a) Unrealized appreciation/(depreciation) 13,478,883(b) Total accumulated earnings/(deficit) $(46,778,563) (a) On December 31, 2005, the Portfolio had a net capital loss carrryforward of $60,257,446 of which $14,934,208 expires in the year 2009, and $45,323,238 expires in the year 2010. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Based on certain provisions in the Internal Revenue Code, various limitations regarding the future utilization of these carryforwards, brought forward as a result of the Portfolio's merger with Brinson Series Trust Small Cap Growth Portfolio, may apply. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $8,549,451. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to net operating losses, resulted in a decrease in accumulated net investment losses and a decrease in additional paid in capital. The reclassification had no effect on net assets. 16 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE J:LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. 17 SMALL CAP GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the HINDO Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to 18 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. 19 SMALL CAP GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A ----------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $11.65 $10.17 $6.83 $10.01 $11.84 INCOME FROM INVESTMENT OPERATIONS Net investment loss (a) (.11) (.10)(b) (.09) (.07)(b) (.07)(b) Net realized and unrealized gain (loss) on investment transactions. 72 1.58 3.43 (3.11) (1.41) Net increase (decrease) in net asset value from operations. 61 1.48 3.34 (3.18) (1.48) LESS: DISTRIBUTIONS Distributions from net realized gain on investment transactions -0- -0- -0- -0- (.26) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (.09) Total distributions -0- -0- -0- -0- (.35) Net asset value, end of period $12.26 $11.65 $10.17 $6.83 $10.01 TOTAL RETURN Total investment return based on net asset value (c) 5.24% 14.55% 48.90% (31.77)% (12.75)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $49,453 $61,661 $61,079 $86,093 $184,223 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.18% 1.14% 1.36% 1.11% .95% Expenses, before waivers and reimbursements 1.18% 1.30% 1.36% 1.25% 1.16% Net investment loss (.93)% (.93)%(b) (1.10)% (.86)%(b) (.70)%(b) Portfolio turnover rate 90% 92% 129% 111% 113%
See footnote summary on page 21. 20 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B ----------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $11.53 $10.08 $6.78 $9.98 $11.82 INCOME FROM INVESTMENT OPERATIONS Net investment loss (a) (.13) (.12)(b) (.11) (.09)(b) (.09)(b) Net realized and unrealized gain (loss) on investment transactions .69 1.57 3.41 (3.11) (1.40) Net increase (decrease) in net asset value from operations .56 1.45 3.30 (3.20) (1.49) LESS: DISTRIBUTIONS Distributions from net realized gain on investment transactions -0- -0- -0- -0- (.26) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (.09) Total distributions -0- -0- -0- -0- (.35) Net asset value, end of period $12.09 $11.53 $10.08 $6.78 $9.98 TOTAL RETURN Total investment return based on net asset value (c) 4.86% 14.39% 48.67% (32.06)% (12.86)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $22,467 $24,448 $15,846 $5,101 $6,835 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.43% 1.40% 1.61% 1.37% 1.20% Expenses, before waivers and reimbursements 1.43% 1.56% 1.61% 1.51% 1.43% Net investment loss (1.18)% (1.19)%(b) (1.37)% (1.10)%(b) (.98)%(b) Portfolio turnover rate 90% 92% 129% 111% 113%
(a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN SMALL CAP GROWTH PORTFOLIO We have audited the accompanying statement of assets and liabilities of the AllianceBernstein SmallCap Growth Portfolio, formerly Alliance Quasar Portfolio, of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein SmallCap Growth Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 22 SMALL CAP GROWTH PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc.- AllianceBernstein Small Cap Growth Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY - ------------------------------------------------------------------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D. VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES - ------------------------------------------------------------------------------- 329,393,925 7,649,880 14,187,089 0 3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES - ------------------------------------------------------------------------------------------------- 3.A. Diversification 5,885,960 76,652 32,498 0 3.B. Issuing Senior Securities and Borrowing Money 5,826,207 121,935 46,968 0 3.C. Underwriting Securities 5,868,747 86,242 40,121 0 3.D. Concentration of Investments 5,874,816 71,015 49,278 0 3.E. Real Estate and Companies that Deal in Real Estate 5,872,962 72,870 49,278 0 3.F. Commodities, Commodity Contracts and Futures Contracts 5,853,190 90,872 51,048 0 3.G. Loans 5,874,906 70,059 50,145 0 3.H. Joint Securities Trading Accounts 5,873,447 72,385 49,278 0 3.I. Exercising Control 5,877,839 68,979 48,291 0 3.L. Purchases of Securities on Margin 5,858,448 96,548 40,114 0 3.M. Short Sales 5,747,168 83,623 164,318 0 3.N. Pledging, Hypothecating, Mortgaging, or Otherwise Encumbering Assets 5,744,823 199,896 50,391 0 4.B. The reclassification as non-fundamental and with changes to the Portfolio's investment objective. 5,859,099 81,992 54,018 0
23 SMALL CAP GROWTH PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President And Independent Compliance Officer Bruce K. Aronow(2), Vice President Thomas J. Bardong, Vice President N. Kumar Kirpalani(2), Vice President Samantha S. Lau(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer And Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank Of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein investment research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young Llp 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel Llp One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Small Cap Growth Investment Team. Mr. Bruce Aronow, Ms. Samantha Lau and Mr. Kumar Kirpalani are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 24 SMALL CAP GROWTH PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, 1345 Avenue of the Americas Management Corporation ("ACMC") since Inc.; SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. Prior 10/23/29 to joining ACMC in 1984, he was Chief Financial (1990) Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
25 SMALL CAP GROWTH PORTFOLIO MANAGEMENT OF THE FUND (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and The Merger Management L.P. (investment advisory firm) from December 1997 Fund 1345 Avenue of the Americas until December 2003. Prior thereto, Chairman New York, NY 10105 and CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President Lucas Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/1941 changed from DuPont Photomasks. Prior to Chairman of the (2005) the company's sale in 2005, he was Chairman Board of the and CEO. He has also been Principal of Turner Smithsonian's Venture Associates since 1993. National Museum of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 26 SMALL CAP GROWTH PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S)PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUNDDURING PAST 5 YEARS - ----------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Bruce K. Aronow Vice President Senior Vice President of ACMC**, with which he has 7/2/66 been associated since 2001. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. N. Kumar Kirpalani Vice President Vice President of ACMC**, with which he has been 1/29/54 associated since prior to 2001. Samantha S. Lau Vice President Senior Vice President of ACMC**, with which she has 10/15/72 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The adddress for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 27 SMALL CAP GROWTH PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Small Cap Growth Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 28 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. 29 SMALL CAP GROWTH PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 14 to 13 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 38 to 34 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3- and 5-year periods, and as compared to the Russell 2000 Growth Index (the "Index") for periods ended September 30, 2005 over the year to date, 1, 3- and 5-year and since inception periods (August 1996 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 4th quintile in the 1-year period and 3rd quintile in the 3- and 5-year periods, and in the Performance Universe comparison the Portfolio was in the 4th quintile in the 1-year period, 2nd quintile in the 3-year period 30 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ and 3rd quintile in the 5-year period. The comparative information showed that the Portfolio underperformed the Index in all periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be higher than that in the Portfolio's Advisory Agreement, even after taking account of the nine basis point expense ratio impact of the administrative expense reimbursement provision in such agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information provided by the Adviser that indicated that the Adviser sub-advises a registered investment company that has investment strategies similar to the Portfolio at a lower fee rate than that paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was somewhat lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 9 basis points and that as a result the Adviser's total compensation from the Portfolio pursuant to the Advisory Agreement was somewhat higher than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was somewhat higher than the Expense Group median and materially higher than the Expense Universe median. The directors noted that the Portfolio's relatively modest size (approximately $72 million as of September 30, 2005) caused the administrative expense reimbursement, which 31 SMALL CAP GROWTH PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ does not vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 32 SMALL CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Small Cap Growth Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Growth 75 bp on 1st $2.5 billion Small Cap Growth Portfolio 65 bp on next $2.5 billion 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Small Cap Growth Portfolio $69,000 0.09% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 33 SMALL CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Small Cap Growth Portfolio Class A 1.30% December 31 Class B 1.56% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund.
NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------------------ Small Cap Growth Portfolio $71.8 Small Cap Growth 0.954% Schedule 100 bp on 1st $50m 85 bp on next $50m 75 bp on the balance Minimum account size $10 m
The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fee for the following sub-advisory relationship: FUND FEE SCHEDULE - ------------------------------------------------------------------------------- Small Cap Growth Portfolio Client # 1 0.65% on first $25 million 0.60% on next $75 million 0.55% thereafter 34 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(3) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Small Cap Growth Portfolio 0.750 0.800 2/14 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(4) and Lipper Expense Universe(5). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below:
LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO (%)(6) MEDIAN (%) RANK MEDIAN (%) RANK - ------------------------------------------------------------------------------------------- Small Cap Growth Portfolio 1.137 1.002 30/38 1.048 12/14
Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. (3) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (4) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (5) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (6) Most recent fiscal year end Class A share total expense ratio. 35 SMALL CAP GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ------------------------------------------------------------------------------- Small Cap Growth Portfolio $46,884 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------------- Small Cap Growth Portfolio $145,511 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(7) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. (7) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 36 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3 and 5 year performance rankings of the Fund(8) relative to its Lipper Performance Group(9) and Lipper Performance Universe(10) for the period ended September 30, 2005. SMALL CAP GROWTH PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 9/14 30/38 3 year 7/14 12/38 5 year 6/13 15/34 Set forth below are the 1, 3, 5 year and since inception performance returns of the Fund (in bold)(11) versus its benchmark(12). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- FUND 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION - ------------------------------------------------------------------------------- SMALL CAP GROWTH PORTFOLIO 15.85 21.82 -2.81 3.48 Russell 2000 Growth Index 17.97 23.23 -2.54 4.37 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (8) The performance rankings are for the Class A shares of the Fund. (9) The Lipper Performance Group is identical to the Lipper Expense Group. (10) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (11) The performance returns are for the Class A shares of the Fund. (12) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 37 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. DECEMBER 31, 2005 ANNUAL REPORT > ALLIANCEBERNSTEIN GLOBAL TECHNOLOGY PORTFOLIO - --------------------------- INVESTMENT PRODUCTS OFFERED > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ GLOBAL TECHNOLOGY PORTFOLIO LETTER TO INVESTORS February 10, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Global Technology Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. Prior to December 15, 2004, the Portfolio's name was AllianceBernstein Technology Portfolio. INVESTMENT OBJECTIVE AND POLICIES Until February 1, 2006, the Portfolio's investment objective was growth of capital. Current income is incidental to the Portfolio's objective. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. The Portfolio invests principally in securities of companies that use technology extensively in the development of new or improved products or processes. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its new benchmarks, the Morgan Stanley Capital International (MSCI) World Information Technology Index and the MSCI World Index, for the one- and five-year periods ended December 31, 2005, and since inception of the Portfolio's Class A shares on January 11, 1996. Performance is also shown for the Portfolio's old benchmarks, the NASDAQ Composite Index and the Standard & Poor's (S&P) 500 Stock Index. The Portfolio's benchmarks were changed because the new benchmarks more closely match the Portfolio's new global investment style. For the annual reporting period ended December 31, 2005, the Portfolio achieved positive performance, although it underperformed the MSCI World Information Technology Index benchmark by nearly one full point. The Portfolio also underperformed the broader market, as reflected by the MSCI World Index, as technology stocks broadly underperformed the overall markets worldwide. The Portfolio's relative underperformance compared to the MSCI World Information Technology Index came primarily from poor stock selection during the period, although positive industry allocation decisions partly offset the underperformance. In particular, performance was helped by strong stock picking among semiconductor companies and cellular operators. This contribution, however, was more than offset by poor stock selection among software, computer services and communication equipment names. MARKET REVIEW AND INVESTMENT STRATEGY During the 12-month period ended December 31, 2005, global technology stocks lagged the broader market, as energy-related, basic industry, financial and health care stocks generated strong positive returns on solid earnings growth. Within the technology sector, Internet, semiconductor and component and computer services stocks outperformed, while contract manufacturers, hardware/storage and software underperformed. During the year, the Portfolio's holdings in the electronic, Internet, cellular and hardware/storage segments were increased, while software, media and communication equipment positions were reduced. Also, some semiconductor component positions were trimmed in favor of adding to semiconductor capital equipment exposures. As of December 31, 2005, the Portfolio's largest overweights were in the Internet and cellular services segments, with the largest underweights among hardware/storage and communication equipment names. 1 GLOBAL TECHNOLOGY PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INFORMATION TECHNOLOGY INDEX, THE UNMANAGED MSCI WORLD INDEX, THE UNMANAGED NASDAQ COMPOSITE INDEX AND THE UNMANAGED S&P 500 STOCK INDEX DO NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The MSCI World Information Technology Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance in the information technology sector as defined by GICS. The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. The NASDAQ Composite Index is market-value weighted and includes over 5,000 companies. The S&P 500 Stock Index is comprised of 500 U.S. companies and is a common measure of the performance of the overall U.S. stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Global Technology Portfolio. A WORD ABOUT RISK The Portfolio concentrates its investments in technology-related stocks and may therefore be subject to greater risks and volatility than a fund with a more diversified portfolio. Technology stocks, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall stock market. The Portfolio can invest in foreign securities. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments. In addition, because the Portfolio will invest in foreign currency denominated securities, fluctuations in the value of the Portfolio's investments may be magnified by changes in foreign exchange rates. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (HISTORICAL PERFORMANCE CONTINUED ON NEXT PAGE) 2 GLOBAL TECHNOLOGY PORTFOLIO HISTORICAL PERFORMANCE (CONTINUED FROM PREVIOUS PAGE) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ RETURNS ---------------------------------------- THE PORTFOLIO VS. ITS BENCHMARKS SINCE PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS INCEPTION* - ------------------------------------------------------------------------------- AllianceBernstein Global Technology Portfolio Class A 3.86% -7.21% 6.22% AllianceBernstein Global Technology Portfolio Class B 3.65% -7.44% -4.32% MSCI World Information Technology Index 4.81% -7.19% 7.91% MSCI World Index 9.49% 2.18% 7.04% NASDAQ Composite Index 1.37% -2.25% 7.68% S&P 500 Stock Index 4.91% 0.54% 9.33% * Since inception of the Portfolio's Class A shares on 1/11/96 and Class B shares on 9/22/99. The since inception returns for the benchmarks are from the Portfolio's Class A share inception date. The since inception return for the NASDAQ Composite Index is from the closest month-end to the Portfolio's Class A share inception date which is 12/31/95. ALLIANCEBERNSTEIN GLOBAL TECHNOLOGY PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 1/11/96*-12/31/05 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL] S&P 500 STOCK INDEX: $24,342 MSCI WORLD INFORMATION TECHNOLOGY INDEX: $21,415 NASDAQ COMPOSITE: $20,961 MSCI WORLD INDEX: $19,738 ALLIANCEBERNSTEIN GLOBAL TECHNOLOGY PORTFOLIO CLASS A: $18,259
AllianceBernstein MSCI World Global Technology MSCI World Information S&P 500 NASDAQ Portfolio Class A Index Technology Index+ Stock Index Composite+ - ---------------------------------------------------------------------------------------- 1/11/96* $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 12/31/96 $ 11,040 $ 11,348 $ 12,858 $ 12,557 $ 12,271 12/31/97 $ 11,754 $ 13,136 $ 15,829 $ 16,745 $ 14,926 12/31/98 $ 19,252 $ 16,334 $ 26,684 $ 21,534 $ 20,842 12/31/99 $ 33,828 $ 20,406 $ 53,373 $ 26,062 $ 38,680 12/31/00 $ 26,548 $ 17,716 $ 31,106 $ 23,691 $ 23,483 12/31/01 $ 19,850 $ 14,736 $ 21,911 $ 20,876 $ 18,540 12/31/02 $ 11,571 $ 11,805 $ 13,445 $ 16,265 $ 12,694 12/31/03 $ 16,683 $ 15,714 $ 19,938 $ 20,928 $ 19,042 12/31/04 $ 17,580 $ 18,027 $ 20,433 $ 23,203 $ 20,678 12/31/05 $ 18,259 $ 19,738 $ 21,415 $ 24,342 $ 20,961
* SINCE INCEPTION OF THE PORTFOLIO'S CLASS A SHARES ON 1/11/96. + THE SINCE INCEPTION RETURN FOR THE MSCI WORLD INFORMATION TECHNOLOGY INDEX AND THE NASDAQ COMPOSITE IS FROM THE CLOSEST MONTH-END TO THE PORTFOLIO'S INCEPTION DATE, WHICH IS 12/31/95. THIS CHART ILLUSTRATES THE TOTAL VALUE OF AN ASSUMED $10,000 INVESTMENT IN ALLIANCEBERNSTEIN GLOBAL TECHNOLOGY PORTFOLIO CLASS A SHARES (FROM 1/11/96* TO 12/31/05) AS COMPARED TO THE PERFORMANCE OF THE PORTFOLIO'S NEW BENCHMARKS, THE MSCI WORLD INFORMATION TECHNOLOGY INDEX AND THE MSCI WORLD INDEX, ALONG WITH ITS OLD BENCHMARKS, THE NASDAQ COMPOSITE INDEX AND THE S&P 500 STOCK INDEX. THE CHART ASSUMES THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 GLOBAL TECHNOLOGY PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. BEGINNING ENDING ANNUALIZED GLOBAL TECHNOLOGY ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID EXPENSE PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* RATIO* - ------------------------------------------------------------------------------- CLASS A Actual $1,000 $1,099.86 $4.92 0.93% Hypothetical (5% return before expenses) $1,000 $1,020.52 $4.74 0.93% CLASS B Actual $1,000 $1,098.38 $6.24 1.18% Hypothetical (5% return before expenses) $1,000 $1,019.26 $6.01 1.18% * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 GLOBAL TECHNOLOGY PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Microsoft Corp. $ 17,279,919 7.0% Google, Inc. Cl. A 16,428,455 6.6 International Business Machines Corp. (IBM) 13,110,899 5.3 QUALCOMM, Inc. 12,006,395 4.8 Yahoo!, Inc. 10,382,700 4.2 EMC Corp. 8,465,688 3.5 America Movil, S.A. de C.V. Series (ADR) (Mexico) 8,441,510 3.4 Marvell Technology Group Ltd. (Bermuda) 8,149,877 3.3 Broadcom Corp. Cl. A 7,996,640 3.2 Apple Computer, Inc. 7,490,938 3.0 - ------------------------------------------------------------------------------- $109,753,021 44.3% SECTOR DIVERSIFICATION December 31, 2005 PERCENT OF SECTOR U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Technology $219,890,231 88.7% Consumer Services 16,085,379 6.5 Utilities 3,776,859 1.5 Capital Goods 2,583,845 1.1 Total Investments* 242,336,314 97.8 Cash and receivables, net of liabilities 5,519,710 2.2 Net Assets $247,856,024 100.0% COUNTRY DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF COUNTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- United States $163,695,359 66.1% Japan 15,593,050 6.3 Bermuda 10,716,420 4.3 Mexico 8,441,510 3.4 Germany 6,974,583 2.8 France 6,864,741 2.8 India 5,729,094 2.3 Taiwan 5,481,191 2.2 South Korea 4,684,244 1.9 Finland 3,828,710 1.5 Other* 10,327,412 4.2 Total Investments** 242,336,314 97.8 Cash and receivables, net of liabilities 5,519,710 2.2 Net Assets $247,856,024 100.0% * Excludes short-term investments. ** The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1.1% weightings in the following countries: Italy, Netherlands, Peoples Republic of China, Russia and Sweden. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 GLOBAL TECHNOLOGY PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------- COMMON STOCKS & OTHER INVESTMENTS-97.8% TECHNOLOGY-88.7% COMMUNICATION EQUIPMENT-13.7% Corning, Inc. (a) 147,300 $ 2,895,918 Juniper Networks, Inc. (a) 294,250 6,561,775 Motorola, Inc. 268,800 6,072,192 Nokia Oyj (Finland) 208,773 3,828,710 QUALCOMM, Inc. 278,700 12,006,395 Telefonaktiebolaget LM Ericsson (Sweden) 755,059 2,601,542 ------------ 33,966,532 COMMUNICATIONS SERVICES - 0.9% Neustar, Inc. Cl. A (a) 76,500 2,332,485 COMPUTER HARDWARE/STORAGE/ PERIPHERALS-12.5% Apple Computer, Inc. (a) 104,200 7,490,938 EMC Corp. (a) 621,563 8,465,688 International Business Machines Corp. (IBM) 159,500 13,110,899 QLogic Corp. (a) 60,400 1,963,604 ------------ 31,031,129 COMPUTER SERVICES-6.5% Accenture Ltd. Cl. A (Bermuda) 88,900 2,566,543 Alliance Data Systems Corp. (a) 35,600 1,267,360 Cap Gemini, SA (France) (a) 68,644 2,762,723 Fiserv, Inc. (a) 89,125 3,856,439 Infosys Technologies Ltd. (ADR) (India) 68,100 5,506,566 Patni Computer Systems Ltd. (ADR) (India) (a) 9,600 222,528 ------------ 16,182,159 CONTRACT MANUFACTURING-1.2% HON HAI Precision Industry Co., Ltd. (Citigroup Global Markets), warrants expiring 1/17/07 (Taiwan) (a)(b) 532,834 2,922,062 ELECTRONIC COMPONENTS-0.5% LG. Philips LCD Co., Ltd. (ADR) (South Korea) (a) 56,800 1,218,928 INTERNET-11.8% Fastweb (Italy) (a) 52,018 2,376,957 Google, Inc. Cl. A (a) 39,600 16,428,455 Yahoo!, Inc. (a) 265,000 10,382,700 ------------ 29,188,112 SEMI CONDUCTOR CAPITAL EQUIPMENT-3.9% Applied Materials, Inc. 202,000 3,623,880 ASML Holding N.V. (Netherlands) (a) 135,010 2,705,968 KLA-Tencor Corp. 64,500 3,181,785 ------------ 9,511,633 SEMI CONDUCTOR COMPONENTS-14.0% Advanced Micro Devices, Inc. (a) 47,200 1,444,320 Broadcom Corp. Cl. A (a) 169,600 7,996,640 Intel Corp. 192,700 4,809,792 Marvell Technology Group Ltd. (Bermuda) (a) 145,300 8,149,877 Samsung Electronics Co., Ltd. (GDR) (South Korea) (b) 10,631 3,465,316 SiRF Technology Holdings, Inc. (a) 47,100 1,403,580 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (Taiwan) 258,237 2,559,129 Texas Instruments, Inc. 153,700 4,929,159 ------------ 34,757,813 SOFTWARE-18.3% Activision, Inc. (a) 115,866 1,591,999 Autodesk, Inc. 127,000 5,454,650 Business Objects, SA (ADR) (France) (a) 12,000 484,920 Business Objects, SA (France) 89,348 3,617,098 Citrix Systems, Inc. (a) 94,200 2,711,076 McAfee, Inc. (a) 60,000 1,627,800 Microsoft Corp. 660,800 17,279,919 NAVTEQ Corp. (a) 23,700 1,039,719 Oracle Corp. (a) 260,750 3,183,758 Salesforce.com, Inc. (a) 45,700 1,464,685 SAP AG (ADR) (Germany) 154,750 6,974,583 ------------ 45,430,207 MISCELLANEOUS-5.4% Canon, Inc. (Japan) 117,500 6,897,265 Hoya Corp. (Japan) 179,500 6,451,906 ------------ 13,349,171 ------------ 219,890,231 CONSUMER SERVICES-6.5% ADVERTISING-0.6% aQuantive, Inc. (a) 61,400 1,549,736 BROADCASTING & CABLE-1.2% Time Warner, Inc. 168,500 2,938,640 6 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------- CELLULAR COMMUNICATIONS-3.9% America Movil, S.A. de C.V. Series L (ADR) (Mexico) 288,500 $ 8,441,510 OAO Vimpel-Communications (ADR) (Russia) (a) 29,100 1,287,093 ------------ 9,728,603 RETAIL-GENERAL MERCHANDISE-0.8% eBay, Inc. (a) 43,200 1,868,400 ------------ 16,085,379 UTILITIES-1.5% TELEPHONE UTILITY-1.5% China Telecom Corp., Ltd. (People's Republic of China) 3,698,000 1,355,852 Sprint Corp. 103,639 2,421,007 ------------ 3,776,859 CAPITAL GOODS-1.1% ELECTRICAL EQUIPMENT-0.2% iRobot Corp. (a) 10,200 339,966 MISCELLANEOUS-0.9% NITTO DENKO Corp. (Japan) 28,800 2,243,879 ------------ 2,583,845 Total Common Stocks & Other Investments (cost $196,870,549) 242,336,314 SHORT-TERM INVESTMENT-1.6% TIME DEPOSIT-1.6% The Bank of New York 3.25%, 1/03/06 (cost $4,000,000) $ 4,000 4,000,000 TOTAL INVESTMENTS-99.4% (cost $200,870,549) 246,336,314 Other assets less liabilities-0.6% 1,519,710 NET ASSETS-100% $247,856,024 (a) Non-income producing security. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security is considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the market value of this security amounted to $3,465,316 or 1.4% of net assets. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt See Notes to Financial Statements. 7 GLOBAL TECHNOLOGY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $200,870,549) $ 246,336,314 Cash 253,053 Foreign cash, at value (cost $2,020,177) 1,968,793 Dividends and interest receivable 264,284 Receivable for capital stock sold 72,874 Total assets 248,895,318 LIABILITIES Payable for capital stock redeemed 751,494 Advisory fee payable 161,503 Distribution fee payable 32,035 Transfer agent fee payable 53 Accrued expenses 94,209 Total liabilities 1,039,294 NET ASSETS $ 247,856,024 COMPOSITION OF NET ASSETS Capital stock, at par $ 15,761 Additional paid-in capital 483,534,998 Accumulated net investment loss (35,703) Accumulated net realized loss on investment and foreign currency transactions (281,073,138) Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 45,414,106 $ 247,856,024 CLASS A SHARES Net assets $ 99,780,629 Shares of capital stock outstanding 6,289,614 Net asset value per share $ 15.86 CLASS B SHARES Net assets $ 148,075,395 Shares of capital stock outstanding 9,471,557 Net asset value per share $ 15.63 See Notes to Financial Statements. 8 GLOBAL TECHNOLOGY PORTFOLIO STATEMENT OF OPERATIONS Year ended December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $109,717) $ 1,335,611 Interest 136,245 Total investment income 1,471,856 EXPENSES Advisory fee 1,840,660 Distribution fee--Class B 360,305 Custodian 162,350 Printing 83,543 Administrative 75,250 Audit 41,750 Legal 10,340 Directors' fees 1,000 Transfer agency 794 Miscellaneous 42,313 Total expenses 2,618,305 Net investment loss (1,146,449) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 31,590,981 Foreign currency transactions (224,915) Net change in unrealized appreciation/depreciation of: Investments (23,471,018) Foreign currency denominated assets and liabilities (51,659) Net gain on investment and foreign currency transactions 7,843,389 NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,696,940 See Notes to Financial Statements. 9 GLOBAL TECHNOLOGY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment loss $ (1,146,449) $ (1,051,924) Net realized gain on investment and foreign currency transactions 31,366,066 23,383,403 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities (23,522,677) (11,132,030) Net increase in net assets from operations 6,696,940 11,199,449 CAPITAL STOCK TRANSACTIONS Net decrease (40,707,523) (46,778,798) Total decrease (34,010,583) (35,579,349) NET ASSETS Beginning of period 281,866,607 317,445,956 End of period (including accumulated net investment loss and undistributed net investment income of ($35,703) and $49,783, respectively) $ 247,856,024 $ 281,866,607 See Notes to Financial Statements. 10 GLOBAL TECHNOLOGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Global Technology Portfolio (the "Portfolio"), formerly AllianceBernstein Technology Portfolio, is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek growth of capital. Current income is incidental to the Portfolio's objective. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 11 GLOBAL TECHNOLOGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Porfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. 12 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $762,452, of which $27,598 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ------------ ------------ Investment securities (excluding U.S. government securities) $253,033,497 $275,309,479 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost $ 202,122,384 Gross unrealized appreciation $ 45,793,184 Gross unrealized depreciation (1,579,254) Net unrealized appreciation $ 44,213,930 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. 13 GLOBAL TECHNOLOGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Goverment securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 14 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE F: CAPITAL STOCK There are 1,000,000,000 share of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 751,250 1,182,455 $ 10,960,123 $ 17,321,633 Shares redeemed (2,135,549) (2,487,001) (31,171,724) (35,151,097) Net decrease (1,384,299) (1,304,546) $ (20,211,601) $ (17,829,464) CLASS B Shares sold 1,461,398 3,127,554 $ 21,513,107 $ 45,109,667 Shares redeemed (2,912,902) (5,255,261) (42,009,029) (74,059,001) Net decrease (1,451,504) (2,127,707) $ (20,495,922) $ (28,949,334) NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: COMPONENTS OF ACCUMULATED EARNINGS (DEFICIT) As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Accumulated capital and other losses $ (279,857,006)(a) Unrealized appreciation/(depreciation) 44,162,271(b) Total accumulated earnings/(deficit) $ (235,694,735) (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $279,821,303 of which $86,279,696 expires in the year 2009, $172,308,210 expires in the year 2010, and $21,233,397 expires in the year 2011. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $26,434,489. Net capital losses and net foreign currency losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred to January 1, 2006, post October foreign currency losses of $35,703. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent differences, primarily due to tax treatment of foreign currency gains and net operating losses, resulted in a decrease in accumulated net investment loss, a decrease in accumulated net realized loss on investment and foreign currency transactions, and a decrease in additional paid-in capital. These reclassifications had no effect on net assets. 15 GLOBAL TECHNOLOGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement , please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled HINDO, ET AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND, ET AL. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the HINDO Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 17 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled THE ATTORNEY GENERAL OF THE STATE OF WEST VIRGINIA V. AIM ADVISORS, INC., ET AL. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the HINDO Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled AUCOIN, ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. 17 GLOBAL TECHNOLOGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. 18 GLOBAL TECHNOLOGY PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A ----------------------------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $15.27 $14.49 $10.05 $17.24 $24.95 INCOME FROM INVESTMENT OPERATIONS Net investment loss (a) (.05) (.03)(b) (.11) (.13) (.12) Net realized and unrealized gain (loss) on investment transactions .64 .81 4.55 (7.06) (5.92) Net increase (decrease) in net asset value from operations .59 .78 4.44 (7.19) (6.04) LESS: DISTRIBUTIONS Distributions from net realized gain on investment transactions -0- -0- -0- -0- (.11) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (1.56) Total distributions -0- -0- -0- -0- (1.67) Net asset value, end of period $15.86 $15.27 $14.49 $10.05 $17.24 TOTAL RETURN Total investment return based on net asset value (c) 3.86% 5.38% 44.18% (41.71)% (25.23)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $99,781 $117,145 $130,127 $93,369 $235,252 Ratio to average net assets of: Expenses, net of waivers and reimbursements .92% .88% 1.11% 1.20% 1.08% Expenses, before waivers and reimbursements .92% 1.06% 1.11% 1.20% 1.08% Net investment loss (.32)% (.22)%(b) (.86)% (1.01)% (.64)% Portfolio turnover rate 98% 86% 90% 68% 40%
See footnote summary on page 20. 19 GLOBAL TECHNOLOGY PORTFOLIO FINANCIAL HIGHLIGHTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B ----------------------------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $15.08 $14.35 $9.98 $17.15 $24.90 INCOME FROM INVESTMENT OPERATIONS Net investment loss (a) (.08) (.07)(b) (.14) (.16) (.17) Net realized and unrealized gain (loss) on investment transactions .63 .80 4.51 (7.01) (5.91) Net increase (decrease) in net asset value from operations .55 .73 4.37 (7.17) (6.08) LESS: DISTRIBUTIONS Distributions from net realized gain on investment transactions -0- -0- -0- -0- (.11) Distributions in excess of net realized gain on investment transactions -0- -0- -0- -0- (1.56) Total distributions -0- -0- -0- -0- (1.67) Net asset value, end of period $15.63 $15.08 $14.35 $9.98 $17.15 TOTAL RETURN Total investment return based on net asset value (c) 3.65% 5.09% 43.79% (41.81)% (25.45)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $148,075 $164,721 $187,319 $99,528 $179,076 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.17% 1.13% 1.37% 1.46% 1.33% Expenses, before waivers and reimbursements 1.17% 1.31% 1.37% 1.46% 1.33% Net investment loss (.57)% (.47)%(b) (1.11)% (1.27)% (.92)% Portfolio turnover rate 98% 86% 90% 68% 40%
(a) Based on average shares outstanding. (b) Net of expenses reimbursed or waived 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN GLOBAL TECHNOLOGY PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Global Technology Portfolio, formerly AllianceBernstein Technology Portfolio, of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Global Technology Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. New York, New York February 6, 2006 /s/ Ernst & Young LLP 21 GLOBAL TECHNOLOGY PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Global Technology Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY - ------------------------------------------------------------------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D. VOTED VOTED BROKER FOR AGAINST ABSTAINED NON-VOTES - ------------------------------------------------------------------------------- 329,393,925 7,649,880 14,187,089 0 3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding: VOTED VOTED BROKER FOR AGAINST ABSTAINED NON-VOTES - ------------------------------------------------------------------------------- 3.A. Diversification 12,967,870 450,384 429,566 0 3.B. Issuing Senior 12,825,915 562,399 459,507 0 Securities and Borrowing Money 3.C. Underwriting 12,982 825 415,856 449,140 0 Securities 3.D. Concentration 13,025,327 402,169 420,324 0 of Investments 3.E. Real Estate 13,029,860 403,944 414,017 0 and Companies that Deal in Real Estate 3.F. Commodities, 12,880,991 526,416 440,413 0 Commodity Contracts and Futures Contracts 3.G. Loans 12,830,297 576,870 440,653 0 3.H. Joint Securities 12,874,399 517,852 455,569 0 Trading Accounts 3.I. Exercising Control 13,054,554 332,393 460,873 0 3.J. Other Investment 12,895,371 514,211 438,238 0 Companies 3.K. Oil, Gas, and 13,010,889 395,127 441,804 0 Other Types of Minerals or Mineral Leases 3.L. Purchases of 12,708,006 670,323 469,491 0 Securities on Margin 22 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ VOTED VOTED BROKER FOR AGAINST ABSTAINED NON-VOTES - ------------------------------------------------------------------------------- 3.M. Short Sales 12,854,906 497,489 495,425 0 3.N. Pledging, 12,761,472 607,896 478,452 0 Hypothecating, Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or 12,796,811 558,625 492,384 0 Restricted Securities 3.Q. Unseasoned 12,755,623 574,287 517,910 0 Companies 3.T. Securities 12,743,384 607,936 496,501 0 of Issuers in which Officers, Directors, or Partners Have an Interest 3.U. Option Transactions 12,777,674 552,118 518,028 0 4.A. The reclassification 12,936,793 461,593 449,434 0 of theof the Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective. 4.B. The reclassification 12,921,075 411,349 515,396 0 as non-fundamental and with changes to the Portfolio's investment objective. 23 GLOBAL TECHNOLOGY PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), CHAIRMAN MARC O. MAYER, PRESIDENT RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, SENIOR VICE PRESIDENT AND INDEPENDENT COMPLIANCE OFFICER THOMAS J. BARDONG, VICE PRESIDENT JANET A. WALSH(2), VICE PRESIDENT EMILIE D. WRAPP, SECRETARY MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER THOMAS R. MANLEY, CONTROLLER CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The day-to-day management of and investment decisions for the Portfolio's portfolio are made by Ms. Janet Walsh, a member of the Adviser's Global Technology Research Team. 24 GLOBAL TECHNOLOGY PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, Inc.; 1345 Avenue of the Americas Capital Management Corporation SCB, Inc. New York, NY 10105 ("ACMC") since 2001 and Chairman 10/2/57 of the Board of AllianceBernstein (2005) InvestmentResearch and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been CHAIRMAN OF THE BOARD associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
25 GLOBAL TECHNOLOGY PORTFOLIO MANAGEMENT OF THE FUND (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. 106 Asia Pacific Fund, Inc., c/o Alliance Capital Formerly managing partner of and The Merger Fund Management L.P. Lexington Capital, LLC (investment 1345 Avenue of the Americas advisory firm) from December 1997 New York, NY 10105 until December 2003. Prior thereto, Attn: Philip L. Kirstein Chairman and CEO of Prudential 1/26/44 Mutual Fund Management from (2005) 1987 to 1993. D. James Guzy, # Chairman of the Board of PLX 106 Intel Corporation (semi- P.O. Box 128 Technology (semi-conductors) and of conductors); Cirrus Glenbrook, NV 89413 SRC Computers Inc., with which he Logic Corporation (semi- 3/7/36 has been associated since prior to conductors); (2005) 2001. He is also President of the Arbor Novellus Corporation Company (private family investments). (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan Photomasks, Inc.; 220 Montgomery Street (semi-conductor manufacturing services), the George Lucas Penthouse 10 Austin, Texas, from 2003 to present, and Educational Foundation; San Francisco, CA 94104-3402 President since company acquired in 2005, and Chairman of the 10/10/41 and name changed from DuPont Photomasks. Board of the (2005) Prior to the company's sale in 2005, he was Smithsonian's National Chairman and CEO. He has also been Principal Museum of Natural of Turner Venture Associates since 1993. History
* 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. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. 26 GLOBAL TECHNOLOGY PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF RTH HELD WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and See biography above. 10/2/57 Chief Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Janet A. Walsh Vice President Senior Vice President of ACMC**, with which she has 2/2/62 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel 11/13/55 and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 27 GLOBAL TECHNOLOGY PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT IN THIS DISCLOSURE, THE TERM "FUND" REFERS TO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC., AND THE TERM "PORTFOLIO" REFERS TO ALLIANCEBERNSTEIN GLOBAL TECHNOLOGY PORTFOLIO. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 28 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 29 GLOBAL TECHNOLOGY PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 8 to 7 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 40 to 23 funds (depending on the year) in its Lipper category selected by Lipper (the "Per- 30 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ formance Universe") for periods ended September 30, 2005 over the 1-, 3- and 5-year periods, and as compared to the Morgan Stanley Capital International World Information Technology Index (Net) (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-, 3- and 5-year periods. The directors noted that in the Performance Group comparison the Portfolio was in the 3rd quintile in the 1-year period (adjusted to the 4th quintile by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles), 5th quintile in the 3-year period and 1st quintile in the 5-year period, and in the Performance Universe comparison the Portfolio was in the 4th quintile in the 1- and 3-year periods and 3rd quintile in the 5-year period (adjusted to the 4th quintile in the 5-year period by the Senior Officer). The comparative information showed that the Portfolio outperformed the Index in the 1- and 5-year periods and underperformed the Index in the YTD and 3-year periods. No performance information was available for the Index in the since inception period (January 1996 inception). Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund except that the Portfolio's fee rate is a monthly fee based on average daily net assets whereas the Corresponding Fund's fee rate is a quarterly fee based on net asset value at the end of each quarter. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., equity securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was the same as the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 2 basis points and that as a result the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement was slightly higher than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was slightly higher than the Expense Group median and the same as the Expense Universe median. The directors concluded that the Portfolio's expense ratio was satisfactory. 31 GLOBAL TECHNOLOGY PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 32 GLOBAL TECHNOLOGY PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Global Technology Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Specialty 75 bp on 1st $2.5 billion Global Technology 65 bp on next $2.5 billion Portfolio 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Global Technology Portfolio $69,000 0.02% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 33 GLOBAL TECHNOLOGY PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Global Technology Portfolio Class A 1.06% December 31 Class B 1.31% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has almost the same advisory fee schedule as the Fund.(3) The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: ASSET CLASS FEE - ------------------------------------------------------------------------------- International Technology 1.20% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. (3) The advisory fee breakpoints of the Fund and the AllianceBernstein Global Technology Fund, Inc. (the other AllianceBernstein Mutual Fund) are the same. However, the advisory fees of the AllianceBernstein Global Technology Fund, Inc. are paid on a quarterly basis and are based on the fund's net assets at the end of each quarter, in contrast to the Fund, whose advisory fees are paid on a monthly basis and are based on the Fund's average daily net assets. 34 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Global Technology Portfolio 0.750 0.750 3/8 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe6. Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO (%)(7) MEDIAN (%) RANK MEDIAN (%) RANK - ------------------------------------------------------------------------------- Global Technology Portfolio 0.882 0.884 19/39 0.851 6/8 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice (4) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 35 GLOBAL TECHNOLOGY PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12b-1 FEE RECEIVED - ------------------------------------------------------------------------------- Global Technology Portfolio $427,447 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------------- Global Technology Portfolio $643,193 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 36 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, and 5 year performance rankings of the Fund(9) relative to its Lipper Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. GLOBAL TECHNOLOGY PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 5/8 29/40 3 year 7/8 26/40 5 year 1/7 14/23 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(12) versus its benchmark(13). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- FUND 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION - ------------------------------------------------------------------------------- Global Technology Portfolio 14.31 19.84 -13.86 5.88 MSCI World IT Index (Net) 13.53 22.05 -14.41 n/a Goldman Sachs Technology Composite Index 13.83 24.39 -15.24 n/a CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 37 [LOGO] ALLIANCEBERNSTEIN(R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. ---------------------------- Annual Report December 31, 2005 ---------------------------- > AllianceBernstein Worldwide Privatization Portfolio Investment Products Offered ----------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ----------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. WORLDWIDE PRIVATIZATION PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Worldwide Privatization Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. On February 1, 2006, the Portfolio's name changed to International Growth Portfolio. INVESTMENT OBJECTIVE AND POLICIES Until February 1, 2006, the Portfolio's investment objective was long-term capital appreciation. As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. The Portfolio invests principally in equity securities of companies that are undergoing, or have undergone, privatization. The Portfolio also invests in securities of companies Alliance believes will benefit from privatizations. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its new benchmark, the Morgan Stanley Capital International (MSCI) All Country World (minus the U.S.) Index, for the one-, five- and 10-year periods ended December 31, 2005. Performance is also shown for the Portfolio's old benchmark, the MSCI World (minus the U.S.) Index. The Portfolio's benchmark was changed because the new benchmark more closely matches the Portfolio's investment style. For the annual reporting period ended December 31, 2005, the Portfolio outperformed its new benchmark. This outperformance was due to a combination of positive returns from both stock selection and from asset allocation. Looking first at stock selection, developed market stocks had an overall constructive impact on the Portfolio's investment result. The positive contribution was made from the Portfolio's European holdings being partially offset by a moderately negative impact from Japanese positions. Emerging market stock selection was also positive, as stocks from both Latin America and East Europe, Middle East and Africa (EMEA) made significant contributions to relative investment return. Looking at asset allocation, the Portfolio's relative overweight position in emerging market equities continued to have a major positive impact on the Portfolio's relative returns. However, relative underweight positions in Canadian and Japanese stocks did detract from the Portfolio's overall investment result during the review period. MARKET REVIEW AND INVESTMENT STRATEGY During the 12-month period ended December 31, 2005, international equity markets posted impressive performance. Global economic and corporate-profit growth remained strong, while inflation remained at benign levels despite a steep rise in both energy and commodity prices. Vigorous expansion in the U.S. economy, combined with the continued strength in Chinese growth, proved the main engines that supported the healthy global economic outlook. Investors were pleased with the prospect of a sustained economic rebound in Japan after a period of erratic economic growth. Indeed, renewed interest in the Japanese equity market resulted in strong relative performance during the reporting period. The European region posted relatively slower economic growth and generally witnessed positive, although relatively subdued, equity market returns. The emerging markets maintained their leadership relative to the developed markets. The Latin American and EMEA regions enjoyed particularly strong relative performance, as investors were impressed with their solid macroeconomic fundamentals and policy; both regions were also beneficiaries of the strength in commodity prices and general declining interest rate expectations. The emerging Asian region also boasted strong performance, with Korea being a notably buoyant market following strong improvement in economic and corporate earnings trends. At the sector level, the sectors that performed relatively strongly included energy and basic industry. This was due to the respective strength in oil and commodity prices and the capital goods sector following positive order trends underpinned by the robust global economy. Sectors that lagged included utilities, consumer staples, consumer discretionary and health care. Despite a rising trend in U.S. interest rates, international equity markets were supported by both global liquidity levels, which remained generally high, and continued investor appetite for risk. A rise in merger and acquisition activity also proved a positive catalyst for the equity markets during the reporting period. The Portfolio's overall investment strategy remains intact. The Portfolio's management team continued to select international stocks based on its highest conviction in-house research recommendations. The Portfolio remains well diversified with strong representation in both developed and emerging markets and in a wide array of economic sectors. 1 WORLDWIDE PRIVATIZATION PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE Neither the unmanaged Morgan Stanley Capital International (MSCI) World (minus the U.S.) Index nor the unmanaged MSCI All Country World (minus the U.S.) Index reflects fees and expenses associated with the active management of a mutual fund portfolio. The MSCI World (minus the U.S.) Index is a market capitalization-weighted index that measures the performance of stock markets in 22 countries outside the United States. The MSCI All Country World (minus the U.S.) Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the U.S. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Worldwide Privatization Portfolio. A WORD ABOUT RISK Substantially all of the Portfolio's assets will be invested in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. - -------------------------------------------------------------------------------- (Historical Performance continued on next page) 2 WORLDWIDE PRIVATIZATION PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND - --------------------------------------------------------------------------------
Returns THE PORTFOLIO VS. ITS BENCHMARK -------------------------- PERIODS ENDED DECEMBER 31, 2005 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- AllianceBernstein Worldwide Privatization Portfolio Class A 20.84% 11.29% 11.75% - -------------------------------------------------------------------------------- AllianceBernstein Worldwide Privatization Portfolio Class B 20.55% 11.11% 6.05%* - -------------------------------------------------------------------------------- MSCI All Country World (minus the U.S.) Index 16.62% 6.27% n/a - -------------------------------------------------------------------------------- MSCI World (minus the U.S.) Index 14.47% 4.92% 6.22% - --------------------------------------------------------------------------------
n/a: not applicable. * Since inception of the Portfolio's Class B shares on 7/3/00. ALLIANCEBERNSTEIN WORLDWIDE PRIVATIZATION PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95 - 12/31/05 AllianceBernstein Worldwide Privatization Portfolio Class A: $30,375 MSCI All Country World (ex-U.S.) Index*: $19,502 MSCI World(ex-U.S.)Index: $18,290 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL]
AllianceBernstein MSCI World MSCI All Country Worldwide Privatization (Ex-U.S.) World (Ex-U.S.) Portfolio Class A Index Index* - ------------------------------------------------------------------------------- 12/31/95 $10,000 $10,000 $10,000 12/31/96 $11,851 $10,687 $10,687 12/31/97 $13,125 $10,930 $10,930 12/31/98 $14,546 $12,980 $12,980 12/31/99 $23,104 $16,605 $16,605 12/31/00 $17,792 $14,385 $14,385 12/31/01 $14,716 $11,307 $11,547 12/31/02 $14,100 $ 9,520 $ 9,821 12/31/03 $20,227 $13,273 $13,830 12/31/04 $25,136 $15,978 $16,722 12/31/05 $30,375 $18,290 $19,502
* Data is not available for the MSCI All Country World (ex-U.S.) Index until 12/31/01. Returns listed for this Index from 12/31/95 to 12/31/00 are for the MSCI World (ex-U.S.) Index. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Worldwide Privatization Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's new benchmark, the MSCI All Country World (minus the U.S.) Index and its old benchmark, the MSCI World (minus the U.S.) Index. The chart assumes the reinvestment of dividends and capital gains. - -------------------------------------------------------------------------------- See Historical Performance and Benchmark disclosures on previous page. 3 WORLDWIDE PRIVATIZATION PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Account Value Account Value Expenses Paid Annualized Worldwide Privitization Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - --------------------------------- ------------- ----------------- -------------- -------------- CLASS A Actual .......................... $ 1,000 $ 1,182.75 $ 7.81 1.42% Hypothetical (5% return before expenses) ................... $ 1,000 $ 1,018.05 $ 7.22 1.42% CLASS B Actual .......................... $ 1,000 $ 1,181.42 $ 9.18 1.67% Hypothetical (5% return before expenses) ................... $ 1,000 $ 1,016.79 $ 8.49 1.67%
- -------------------------------------------------------------------------------- * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 WORLDWIDE PRIVATIZATION PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Kookmin Bank (Common & ADR) $ 2,423,731 2.9% Nomura Holdings, Inc. 1,957,699 2.4 BAE Systems Plc 1,864,835 2.2 Mitsubishi Tokyo Financial Group, Inc. 1,838,396 2.2 America Movil, SA de CV(ADR) 1,577,113 1.9 ING Groep NV 1,530,763 1.8 East Japan Railway Co. 1,489,605 1.8 Petroleo Brasilero, SA (ADR) 1,416,139 1.7 Banco Bibao Vizcaya Argentaria, SA 1,324,643 1.6 Eni S.p.A 1,281,436 1.5 ------------ ---- $ 16,704,360 20.0% - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION DECEMBER 31, 2005 - -------------------------------------------------------------------------------- SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Finance $ 22,876,282 27.4% Consumer Services 11,135,629 13.3 Utilities 9,332,720 11.2 Energy 8,516,011 10.2 Technology 7,037,920 8.4 Consumer Staples 4,421,912 5.3 Health Care 4,187,968 5.0 Basic Industry 3,765,223 4.5 Consumer Manufacturing 3,618,609 4.3 Transportation 2,754,088 3.3 Aerospace & Defense 1,864,835 2.2 Capital Goods 626,156 0.7 ------------ ----- Total Investments* 80,137,353 95.8 Cash and receivables, net of liabilities 3,515,232 4.2 ------------ ----- Net Assets $ 83,652,585 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Excludes short-term investments. Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 WORLDWIDE PRIVATIZATION PORTFOLIO COUNTRY DIVERSIFICATION December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COUNTRY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Japan $ 11,310,009 13.5% United Kingdom 8,685,483 10.4 France 8,478,638 10.1 Brazil 4,355,921 5.2 Peoples Republic of China 3,243,709 3.9 Spain 3,226,737 3.9 South Korea 3,225,064 3.9 Taiwan 2,865,362 3.4 Mexico 2,752,779 3.3 Russia 2,712,057 3.2 Italy 2,679,753 3.2 South Africa 2,669,266 3.2 Switzerland 2,589,592 3.1 Germany 2,292,973 2.7 Turkey 1,900,623 2.3 India 1,741,383 2.1 Netherlands 1,700,273 2.0 Ireland 1,445,603 1.7 Norway 1,340,664 1.6 Hong Kong 1,266,792 1.5 Finland 1,231,132 1.5 Thailand 1,018,794 1.2 Singapore 1,015,416 1.2 Greece 1,006,345 1.2 Israel 964,896 1.2 Australia 884,597 1.1 Other* 3,533,492 4.2 ------------ ---- Total Investments** 80,137,353 95.8 Cash and receivables, net of liabilities 3,515,232 4.2 ------------ ---- Net Assets $ 83,652,585 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Egypt, Hungary, Indonesia, Luxembourg, Malaysia, Peru and Poland. ** Excludes short-term investments. 6 WORLDWIDE PRIVATIZATION PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - ------------------------------------------------------------------------------- COMMON & PREFERRED STOCKS - 95.8% FINANCE - 27.4% BANKING - MONEY CENTER - 11.5% Allied Irish Banks Plc (Ireland) ............................... 34,848 $ 745,417 Banco Bilbao Vizcaya Argentaria, SA (Spain) .................. 74,194 1,324,643 Bank Hapoalim Ltd. (Israel) ................ 209,200 964,896 BNP Paribas, SA (France) ................... 13,446 1,086,199 DBS Group Holdings Ltd. (Singapore) ............................. 31,172 308,840 Icici Bank Ltd. (India) .................... 23,433 303,437 Kookmin Bank (ADR) (South Korea) ........................... 16,735 1,250,272 Kookmin Bank (South Korea) (a) ....................... 15,570 1,173,459 Mitsubishi Tokyo Financial Group, Inc. (Japan) ..................... 135 1,838,396 OTP Bank Rt. (Hungary) ..................... 20,054 655,579 ------------- 9,651,138 ------------- BANKING - REGIONAL - 4.5% China Construction Bank (Peoples Republic of China) (a) (b) .......................... 2,858,000 995,222 DNB NOR ASA (Norway) ....................... 42,500 452,466 Deutsche Postbank AG (Germany) ............................... 5,905 342,414 Grupo Financiero Banorte, SA de CV CI. B (Mexico) .................... 108,000 223,669 Siam Commercial Bank Plc (Thailand) .............................. 283,100 358,835 Turkiye Is Bankasi (Turkey) ................ 145,688 1,253,734 Turkiye Vakiflar Bankasi Tao (Turkey) (a) ............................ 16,800 88,945 ------------- 3,715,285 ------------- BROKERAGE & MONEY MANAGEMENT - 2.3% Nomura Holdings, Inc. (Japan) ................................. 101,700 1,957,699 ------------- INSURANCE - 4.1% Cathay Financial Holding Co., Ltd. (Taiwan) ................................ 99,000 178,992 Cathay Financial Holding Co., Ltd. (GDR) (Taiwan) ..................... 31,259 566,304 ING Groep NV (Netherlands) ................. 44,127 1,530,763 Prudential Plc (United Kingdom) ........................ 62,777 594,617 Swiss Reinsurance (Switzerland) ........................... 7,622 556,968 ------------- 3,427,644 ------------- Company Shares U.S. $ Value - ------------------------------------------------------------------------------- REAL ESTATE - OTHER - 1.5% The Link REIT (Hong Kong) (a) ......................... 435,000 $ 824,708 Urbi, Desarrollos Urbanos, SA de C.V. (Mexico) (a) ................. 56,200 388,497 ------------- 1,213,205 ------------- MISCELLANEOUS - 3.5% Aeon Credit Service Co., Ltd. (Japan) ................................. 3,400 321,730 FirstRand Ltd. (South Africa) .............. 311,068 909,299 Industrial Development Bank of India (India) ........................ 208,280 451,014 Itausa-Investimentos Itau, SA pfd. (Brazil) (a) ....................... 388,432 1,229,268 ------------- 2,911,311 ------------- 22,876,282 ------------- CONSUMER SERVICES - 13.3% ADVERTISING - 0.5% WPP Group Plc (United Kingdom) ........................ 40,147 434,336 ------------- AIRLINES - 0.3% Singapore Airlines Ltd. (Singapore) ............................. 39,000 290,034 ------------- BROADCASTING & CABLE - 1.6% Grupo Televisa, SA (ADR) (Mexico) ................................ 7,000 563,500 SES Global (Luxembourg) .................... 45,492 782,229 ------------- 1,345,729 ------------- CELLULAR COMMUNICATIONS - 5.7% 02 Plc (United Kingdom) .................... 299,311 1,017,809 America Movil, SA de CV Series L (ADR) (Mexico) ................. 53,900 1,577,113 Mobile TeleSystems (ADR) (Russia) ................................ 5,500 192,500 NTT DoCoMo, Inc. (Japan) ................... 321 488,853 Orascom Telecom Holding SAE (GDR) (Egypt) ....................... 4,288 225,304 Turkcell Iletisim Hizmet AS (Turkey) ................................ 92,485 557,944 Vodafone Group Plc (United Kingdom) ........................ 311,917 671,224 ------------- 4,730,747 ------------- ENTERTAINMENT & LEISURE - 1.7% Greek Organization of Football Prognosics (Greece) ..................... 29,188 1,006,345 Namco Bandai Holdings, Inc. (Japan) ................................. 26,150 382,267 ------------- 1,388,612 ------------- 7 WORLDWIDE PRIVATIZATION PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - ------------------------------------------------------------------------------- PRINTING & PUBLISHING - 0.7% Naspers Ltd. (South Africa) ................ 33,929 $ 601,724 ------------- RESTAURANTS & LODGING - 1.0% Accor, SA (France) ......................... 15,322 842,573 ------------- RETAIL - GENERAL MERCHANDISE - 1.3% Luxottica Group SpA (Italy) ................ 16,757 425,747 Next Plc (United Kingdom) .................. 24,382 642,149 ------------- 1,067,896 ------------- MISCELLANEOUS - 0.5% Capita Group Plc (United Kingdom) ........................ 60,518 433,978 ------------- 11,135,629 ------------- UTILITIES - 11.2% ELECTRIC & GAS UTILITY - 3.9% Centrica Plc (United Kingdom) ........................ 125,753 550,967 CPFL Energia, SA (ADR) (Brazil) ................................ 6,600 230,010 Electric Power Development Co., Ltd. (Japan) ....................... 15,700 539,069 Electricite de France (France) (a) ............................ 10,705 405,301 Gaz de France (France) ..................... 6,826 199,505 National Grid Plc (United Kingdom) ........................ 91,477 894,357 Red Electrica de Espana (Spain) ................................. 14,282 442,764 ------------- 3,261,973 ------------- TELEPHONE UTILITY - 5.8% China Telecommunication Corp. (Peoples Republic of China) ............................... 1,606,000 588,831 Deutsche Telekom AG (Germany) ............................... 22,027 366,199 Egyptian Co. for Mobile Services (Egypt) ........................ 11,918 416,079 France Telecom, SA (ADR) (France) ................................ 37,418 929,662 KT Freetel Co., Ltd. (South Korea) ........................... 12,630 305,607 MTN Group Ltd. (South Africa) .......................... 66,459 652,660 Singapore Telecommunications Ltd. (Singapore) ........................ 266,000 416,542 Telekom Malaysia Berhad (Malaysia) .............................. 164,500 415,774 Telekomunikasi Indonesia (Indonesia) ............................. 668,000 398,487 Uralsvyazinform (ADR) (Russia) ................................ 47,100 341,946 ------------- 4,831,787 ------------- Company Shares U.S. $ Value - ------------------------------------------------------------------------------- MISCELLANEOUS - 1.5% Veolia Environnement (France) ................................ 27,393 $ 1,238,960 ------------- 9,332,720 ------------- ENERGY - 10.2% INTERNATIONAL - 7.8% BP p.l.c. (United Kingdom) ................. 51,030 546,394 China Petrolium & Chemical Corp. (Peoples Republic of China) ............................... 1,328,000 661,757 Eni S.p.A (Italy) .......................... 45,860 1,281,436 Lukoil Holdings (ADR) (Russia) ................................ 8,648 514,556 Norsk Hydro ASA (Norway) ................... 8,632 888,198 Petroleo Brasilerio, SA (ADR) (Brazil) (a) ............................ 22,000 1,416,139 Total, SA (France) ......................... 4,827 1,217,243 ------------- 6,525,723 ------------- OIL SERVICE - 2.4% Fortum Oyj (Finland) ....................... 27,791 521,096 Hindustan Petroleum Co., Ltd. (India) ................................. 49,835 363,682 Polski Koncern Naftowy Orlen, SA (Poland) ............................. 23,083 445,551 PTT Public Co., Ltd. (Thailand) .............................. 119,800 659,959 ------------- 1,990,288 ------------- 8,516,011 ------------- TECHNOLOGY - 8.4% COMMUNICATION EQUIPMENT - 0.9% AO VimpelCom (ADR) (Russia)(a) ............................. 17,900 791,717 ------------- COMMUNICATION SERVICES - 0.5% AFK Sistema (GDR) (Russia) (b) ............................ 16,374 394,613 ------------- COMPUTER SERVICES - 0.4% Indra Sistemas, SA (Spain) ................. 19,301 377,406 ------------- ELECTRONIC COMPONENTS - 0.6% LG. Philips LCD Co., Ltd. (ADR) (South Korea) (a) ................. 23,100 495,726 ------------- INTERNET INFRASTRUCTURE - 1.2% Fastweb (Italy) (a) ........................ 21,284 972,570 ------------- 8 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS - 1.9% Advanced Semiconductor Engineering, Inc. (Taiwan) ................................ 483,919 $ 442,095 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (Taiwan) .......................... 28,087 278,342 Taiwan Semiconductor Manufacturing Co. (Taiwan) ................................ 442,503 843,126 ------------- 1,563,563 ------------- SOFTWARE - 1.7% SAP AG (Germany) ........................... 2,927 527,471 TietoEnator Oyj (Finland) .................. 19,428 710,036 TomTom NV (Netherlands)(a) ................. 4,936 169,510 ------------- 1,407,017 ------------- MISCELLANEOUS - 1.2% Hoya Corp. (Japan) ......................... 13,600 488,835 Tokyo Electron Ltd. (Japan) ................ 8,700 546,473 ------------- 1,035,308 ------------- 7,037,920 ------------- CONSUMER STAPLES - 5.3% BEVERAGES - 0.6% Pernod-Ricard, SA (France) ................. 2,898 506,312 ------------- FOOD - 1.0% Nestle, SA (Switzerland) ................... 2,655 792,886 ------------- RETAIL - FOOD & DRUG - 0.9% Tesco Plc (United Kingdom) ................. 131,205 747,863 ------------- TOBACCO - 2.3% Altadis, SA (Spain) ........................ 20,062 909,285 Japan Tobacco, Inc. (Japan) ................ 70 1,023,482 ------------- 1,932,767 ------------- MISCELLANEOUS - 0.5% Yue Yuen Industrial Holdings (Hong Kong) ............................. 159,000 442,084 ------------- 4,421,912 ------------- HEALTH CARE - 5.0% DRUGS - 4.4% CSL Ltd. (Australia) ....................... 28,559 884,597 Gedeon Richter Rt. (Hungary) ............... 589 105,881 Novartis AG (Switzerland) .................. 16,950 889,028 Roche Holding AG (Switzerland) ........................... 2,339 350,710 Sanofi-Aventis (France) .................... 10,182 891,407 Shionogi & Co., Ltd. (Japan) ............... 40,000 562,355 ------------- 3,683,978 ------------- Company Shares U.S. $ Value - ------------------------------------------------------------------------------- MEDICAL SERVICES - 0.6% Corporacion Dermoestetica (Spain) (a) ............................. 16,420 $ 172,639 Rhon-Klinikum AG (Germany) ............................... 8,672 331,351 ------------- 503,990 ------------- 4,187,968 ------------- BASIC INDUSTRY - 4.5% MINING & METALS - 4.5% Anglogold Ashanti Ltd. (ADR) (South Africa) .......................... 10,249 505,583 China Shenhua Energy Co., Ltd. (Peoples Republic of China) (a) .............................. 906,000 997,899 China Steel Corp. (Taiwan) ................. 732,000 556,503 Companhia Vale do Rio Doce (ADR) (Brazil) .......................... 31,300 1,228,513 Mechel Steel Group OAO (ADR) (Russia) .......................... 11,500 277,955 Novolipetsk Steel (GDR) (Russia) (a) ............................... 13,900 198,770 ------------- 3,765,223 ------------- CONSUMER MANUFACTURING - 4.3% AUTO & RELATED - 2.1% Tata Motors Ltd. (India) ................... 42,962 623,250 Toyota Motor Corp. (Japan) ................. 21,700 1,133,697 ------------- 1,756,947 ------------- BUILDING & RELATED - 2.2% CRH Plc (Ireland) .......................... 23,803 700,186 Vinci, SA (France) ......................... 13,485 1,161,476 ------------- 1,861,662 ------------- 3,618,609 ------------- TRANSPORTATION - 3.3% RAILROAD - 2.1% All America Latina Logistica, SA (GDR) (Brazil) (b) ............................ 5,900 251,991 East Japan Railway Co. (Japan) ................................. 217 1,489,605 ------------- 1,741,596 ------------- SHIPPING - 0.3% Associated British Ports Holding Plc (United Kingdom) ........................ 28,420 286,954 MISCELLANEOUS - 0.9% Fraport AG (Germany) ....................... 13,647 725,538 ------------- 2,754,088 ------------- 9 WORLDWIDE PRIVATIZATION PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------------------- AEROSPACE & DEFENSE - 2.2% AEROSPACE - 2.2% BAE Systems Plc (United Kingdom) ........................ 283,696 $ 1,864,835 ------------- CAPITAL GOODS - 0.7% ELECTRICAL EQUIPMENT - 0.6% Yamada Denki Co., Ltd. (Japan) ................................. 4,300 537,548 ------------- ENGINEERING & CONSTRUCTION - 0.1% Explosivios, SA Cl. C (Peru) (c) .............................. 302,906 88,608 ------------- 626,156 ------------- Total Common & Preferred Stocks (cost $56,763,833) ...................... 80,137,353 ------------- Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT - 2.7% TIME DEPOSIT - 2.7% The Bank of New York 3.25%, 1/03/06 (cost $2,246,000) ....................... $ 2,246 $ 2,246,000 ------------- TOTAL INVESTMENTS - 98.5% (cost $59,009,833) ...................... 82,383,353 Other assets less liabilities - 1.5% ...................... 1,269,232 ------------- NET ASSETS - 100% .......................... $ 83,652,585 ============= - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $1,641,826 or 2.0% of net assets. (c) Illiquid security, valued at fair value. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt pfd. - Preferred Stock See Notes to Financial Statements. 10 WORLDWIDE PRIVATIZATION PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $59,009,833) ............................ $ 82,383,353 Cash .............................................................................. 680 Foreign cash, at value (cost $1,876,279) .......................................... 1,855,749 Receivable for foreign currency contracts ......................................... 125,085 Dividends and interest receivable ................................................. 124,208 Receivable for capital stock sold ................................................. 54,359 ------------- Total assets ...................................................................... 84,543,434 ------------- LIABILITIES Payable for investment securities purchased and foreign currency contracts ........ 545,334 Payable for capital stock redeemed ................................................ 175,579 Advisory fee payable .............................................................. 52,186 Foreign capital gain tax payable .................................................. 10,550 Distribution fee payable .......................................................... 5,284 Transfer agent fee payable ........................................................ 57 Accrued expenses .................................................................. 101,859 ------------- Total liabilities ................................................................. 890,849 ------------- NET ASSETS ............................................................................ $ 83,652,585 ============= COMPOSITION OF NET ASSETS Capital stock, at par ............................................................. $ 3,451 Additional paid-in capital ........................................................ 59,121,738 Undistributed net investment income ............................................... 615,680 Accumulated net realized gain on investment and foreign currency transactions ..... 569,481 Net unrealized appreciation of investments and foreign currency denominated assets and liabilities .......................................................... 23,342,235 ------------- $ 83,652,585 ============= Class A Shares Net assets ........................................................................ $ 58,437,638 ============= Shares of capital stock outstanding ............................................... 2,407,454 ============= Net asset value per share ......................................................... $ 24.27 ============= Class B Shares Net assets ........................................................................ $ 25,214,947 ============= Shares of capital stock outstanding ............................................... 1,043,704 ============= Net asset value per share ......................................................... $ 24.16 =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 WORLDWIDE PRIVATIZATION PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $185,247) ............................. $ 1,620,550 Interest .......................................................................... 42,960 ------------- Total investment income ........................................................... 1,663,510 ------------- EXPENSES Advisory fee ...................................................................... 482,777 Distribution fee -- Class B ....................................................... 48,653 Custodian ......................................................................... 222,204 Administrative .................................................................... 75,250 Printing .......................................................................... 50,651 Audit ............................................................................. 41,750 Legal ............................................................................. 3,954 Directors' fees ................................................................... 1,000 Transfer agency ................................................................... 794 Miscellaneous ..................................................................... 31,803 ------------- Total expenses .................................................................... 958,836 ------------- Net investment income ............................................................. 704,674 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions ........................................................ 4,988,352 Foreign currency transactions .................................................. (83,015) Net change in unrealized appreciation/depreciation of: Investments .................................................................... 7,405,441 Foreign currency denominated assets and liabilities ............................ (25,516) ------------- Net gain on investment and foreign currency transactions .......................... 12,285,262 ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS ............................................ $ 12,989,936 =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 WORLDWIDE PRIVATIZATION PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 2005 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ............................................................. $ 704,674 $ 265,989 Net realized gain on investment and foreign currency transactions ................. 4,905,337 3,873,526 Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities ............................. 7,379,925 6,357,878 ------------- ------------- Net increase in net assets from operations ........................................ 12,989,936 10,497,393 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A ........................................................................ (185,286) (80,328) Class B ........................................................................ (63,431) (10,540) CAPITAL STOCK TRANSACTIONS Net increase ...................................................................... 15,212,895 3,613,557 ------------- ------------- Total increase .................................................................... 27,954,114 14,020,082 NET ASSETS Beginning of period ............................................................... 55,698,471 41,678,389 ------------- ------------- End of period (including undistributed net investment income of $615,680 and $242,738, respectively) ........................................ $ 83,652,585 $ 55,698,471 ============= =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 WORLDWIDE PRIVATIZATION PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Worldwide Privatization Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term capital appreciation. See Note K, Subsequent Events. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 14 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, under the terms of an investment advisory agreement, the Portfolio paid the Adviser an advisory fee at an annual rate of 1% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. 15 WORLDWIDE PRIVATIZATION PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $191,068, none of which was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc. (AGIS), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12B-1 under the Investment Company Act of 1940. Under the Plan the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows:
Purchases Sales ------------- ------------- Investment securities (excluding U.S. government securities) ............... $ 41,832,066 $ 26,734,398 U.S. government securities ................................................. -0- -0-
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost ........................................................................................ $ 59,285,648 ============= Gross unrealized appreciation ............................................................... $ 23,633,715 Gross unrealized depreciation ............................................................... (536,010) ------------- Net unrealized appreciation ................................................................. $ 23,097,705 =============
1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. 16 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 17 WORLDWIDE PRIVATIZATION PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows:
----------------------------- ----------------------------- SHARES AMOUNT ----------------------------- ----------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ ------------ ------------ CLASS A Shares sold .................... 878,813 463,506 $ 19,401,201 $ 8,099,441 Shares issued in reinvestment of dividends ............... 9,159 4,857 185,286 80,327 Shares redeemed ................ (521,594) (534,726) (11,132,269) (9,095,169) ------------ ------------ ------------ ------------ Net increase (decrease) ........ 366,378 (66,363) $ 8,454,218 $ (915,401) ============ ============ ============ ============ CLASS B Shares sold .................... 492,423 412,639 $ 10,378,684 $ 7,077,333 Shares issued in reinvestment of dividends ............... 3,146 639 63,431 10,540 Shares redeemed ................ (172,820) (146,584) (3,683,438) (2,558,915) ------------ ------------ ------------ ------------ Net increase ................... 322,749 266,694 $ 6,758,677 $ 4,528,958 ============ ============ ============ ============
NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Concentration of Risk -- Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk -- In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ------------ ------------ Distributions paid from: Ordinary income ........................... $ 248,717 $ 90,868 ------------ ------------ Total taxable distributions ................... 248,717 90,868 ------------ ------------ Total distributions paid ...................... $ 248,717 $ 90,868 ============ ============ 18 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income .................. $ 856,676 Undistributed long term capital gain ........... 604,300 Unrealized appreciation/(depreciation) ......... 23,066,420(b) ------------ Total accumulated earnings/(deficit) ........... $ 24,527,396 ============ (a) During the current fiscal year, the Portfolio utilized capital loss carryforwards of $4,331,381. (b) The difference between book-basis and tax-basis unrealized appreciation/ (depreciation) is attributable primarily to the tax deferral of losses on wash sales, and the tax treatment of passive foreign investment companies. During the current fiscal year, permanent differences, primarily due to tax treatment of foreign currency gains and losses, resulted in a net decrease in undistributed net investment income and a net increase in accumulated net realized gain on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. 19 WORLDWIDE PRIVATIZATION PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. 20 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. NOTE K: SUBSEQUENT EVENTS As of February 1, 2006, the Portfolio's investment objective is long-term growth of capital. 21 WORLDWIDE PRIVATIZATION PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
---------------------------------------------------------------------- CLASS A ---------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------------------------------- 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period ................ $ 20.18 $ 16.28 $ 11.48 $ 12.18 $ 15.64 ---------- ---------- ---------- ---------- ---------- Income From Investment Operations Net investment income (a) ........................... .25 .11(b) .04 .07(b) .20(b) Net realized and unrealized gain (loss) on investment and foreign currency transactions ............... 3.94 3.83 4.91 (.56) (2.82) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value from operations ...................................... 4.19 3.94 4.95 (.49) (2.62) ---------- ---------- ---------- ---------- ---------- Less: Dividends and Distributions Dividends from net investment income ................ (.10) (.04) (.15) (.21) (.03) Distributions from net realized gain on investment transactions .................................... -0- -0- -0- -0- (.81) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ................... (.10) (.04) (.15) (.21) (.84) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ...................... $ 24.27 $ 20.18 $ 16.28 $ 11.48 $ 12.18 ========== ========== ========== ========== ========== Total Return Total investment return based on net asset value (c) 20.84% 24.27% 43.46% (4.19)% (17.29)% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........... $ 58,438 $ 41,198 $ 34,302 $ 27,136 $ 37,411 Ratio to average net assets of: Expenses, net of waivers and reimbursements ..... 1.41% 1.65% 2.17% 1.54% .95% Expenses, before waivers and reimbursements ..... 1.41% 1.81% 2.17% 1.98% 1.65% Net investment income ........................... 1.16% .65%(b) .34% .61%(b) 1.50%(b) Portfolio turnover rate ............................. 43% 60% 44% 46% 35%
- -------------------------------------------------------------------------------- See footnote summary on page 23. 22 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
---------------------------------------------------------------------- CLASS B ---------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------------------------------- 2005 2004 2003 2002 2001 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period ................ $ 20.11 $ 16.24 $ 11.47 $ 12.17 $ 15.62 ---------- ---------- ---------- ---------- ---------- Income From Investment Operations Net investment income (a) ........................... .21 .07(b) .02 .03(b) .10(b) Net realized and unrealized gain (loss) on investment and foreign currency transactions ............... 3.91 3.82 4.88 (.53) (2.71) ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value from operations ...................................... 4.12 3.89 4.90 (.50) (2.61) ---------- ---------- ---------- ---------- ---------- Less: Dividends and Distributions Dividends from net investment income ................ (.07) (.02) (.13) (.20) (.03) Distributions from net realized gain on investment transactions .................................... -0- -0- -0- -0- (.81) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ................... (.07) (.02) (.13) (.20) (.84) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ...................... $ 24.16 $ 20.11 $ 16.24 $ 11.47 $ 12.17 ========== ========== ========== ========== ========== Total Return Total investment return based on net asset value (c) 20.55% 23.97% 43.07% (4.26)% (17.28)% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........... $ 25,215 $ 14,501 $ 7,376 $ 3,609 $ 1,092 Ratio to average net assets of: Expenses, net of waivers and reimbursements ..... 1.66% 1.90% 2.41% 1.79% 1.19% Expenses, before waivers and reimbursements ..... 1.66% 2.06% 2.41% 2.23% 1.93% Net investment income ........................... .95% .41%(b) .13% .28%(b) .80%(b) Portfolio turnover rate ............................. 43% 60% 44% 46% 35%
- -------------------------------------------------------------------------------- (a) Based on average shares outstanding. (b) Net of expenses waived or 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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Worldwide Privatization Portfolio We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Worldwide Privatization Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Worldwide Privatization Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 24 WORLDWIDE PRIVATIZATION PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Worldwide Privatization Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority ------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------- ---------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------- ---------- ---------------- 3.A. Diversification 2,741,726 1,515 2,380 0 3.B. Issuing Senior Securities 2,741,726 1,515 2,380 0 and Borrowing Money 3.D. Concentration of Investments 2,741,726 1,515 2,380 0 3.E. Real Estate and Companies that 2,734,278 8,535 2,807 0 Deal in Real Estate 3.F. Commodities, Commodity Contracts 2,741,299 1,515 2,807 0 and Futures Contracts 3.G. Loans 2,741,299 1,515 2,807 0 3.H. Joint Securities Trading Accounts 2,741,299 1,942 2,380 0 3.I. Exercising Control 2,741,299 1,515 2,807 0 3.K. Oil, Gas, and Other Types of 2,741,299 1,942 2,380 0 Minerals or Mineral Leases 3.L. Purchases of Securities on Margin 2,734,278 8,963 2,380 0
25 WORLDWIDE PRIVATIZATION PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------- ---------- ---------------- 3.M. Short Sales 2,734,278 8,963 2,380 0 3.N. Pledging, Hypothecating, 2,734,278 8,535 2,807 0 Mortgaging, or Otherwise Encumbering Assets 3.S. 65% Investment Limitations 2,741,299 1,515 2,807 0 4.B. The reclassification as non- 2,741,299 1,515 2,807 0 fundamental and with changes to the Portfolio's investment objective
26 WORLDWIDE PRIVATIZATION PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Edward D. Baker III(2), Vice President Michael Levy(2), Vice President Jean Van de Walle, Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 - -------------------------------------------------------------------------------- (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Global Emerging Growth Investment Team. Mr. Edward Baker and Mr. Michael Levy are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 27 WORLDWIDE PRIVATIZATION PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, he 107 None P.O. Box 167 was Senior Vice President of ACMC responsible Spring Lake, NJ 07762 for mutual fund administration. Prior to joining 10/23/29 ACMC in 1984, he was Chief Financial Officer of (1990) Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
28 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly managing 106 Asia Pacific c/o Alliance Capital partner of Lexington Capital, LLC (investment Fund, Inc., and Management L.P. advisory firm) from December 1997 until December The Merger Fund 1345 Avenue of the Americas 2003. Prior thereto, Chairman and CEO of New York, NY 10105 Prudential Mutual Fund Management from 1987 to Attn: Philip L. Kirstein 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior to Cirrus Logic 3/7/36 2001. He is also President of the Arbor Company Corporation (2005) (private family investments). (semi-conductors); Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- conductor 106 Toppan Photomasks, Inc.; 220 Montgomery Street manufacturing services), Austin, Texas, from the George Lucas Penthouse 10 2003 to present, and President since company Educational Foundation; San Francisco, CA 94104-3402 acquired in 2005, and name changed from DuPont and Chairman of the Board 10/10/41 Photomasks. Prior to the company's sale in 2005, of the Smithsonian's (2005) he was Chairman and CEO. He has also been National Museum of Principal of Turner Venture Associates since Natural History 1993.
- -------------------------------------------------------------------------------- * 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 29 WORLDWIDE PRIVATIZATIONPORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Officer Information Certain information concerning the Fund's Officers is listed below.
PRINCIPAL NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------ Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Edward D. Baker III Vice President Senior Vice President and Chief Investment Officer of 2/4/51 Emerging Markets at ACMC**, with which he has been associated since prior to 2001. Michael Levy Vice President Senior Vice President of Alliance Capital Limited 3/27/70 ("ACL")**, with which he has been associated since prior to 2001. Jean Van de Walle Vice President Senior Vice President of ACMC**, with which he has 1/8/59 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global 10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM, ACL and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 30 WORLDWIDE PRIVATIZATION PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Worldwide Privatization Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 31 WORLDWIDE PRIVATIZATION PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 32 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 14 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the 33 WORLDWIDE PRIVATIZATION PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- "Performance Group") and as compared to a universe of 43 to 26 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Morgan Stanley Capital International World (minus the U.S.) Index (Net) (the "Index")for periods ended September 30, 2005 over the year to date, 1-, 3-, 5- and 10-year and since inception periods (September 1994 inception). The directors noted that in the Performance Group and Performance Universe comparisons the Portfolio was in the 1st quintile in all periods reviewed (the Senior Officer, who uses a different methodology than Lipper for assigning performance to quintiles, adjusted the Portfolio's Performance Group ranking in the 5-year period to 2nd quintile). The comparative information showed that the Portfolio outperformed the Index in all periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was highly satisfactory. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., equity securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was materially lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 16 basis points and that as a result the Adviser's total compensation from the Portfolio pursuant to the Advisory Agreement was the same as the Expense Group median. The directors also noted that the Portfolio's total expense ratio was significantly higher than the medians for the Expense Group and the Expense Universe. The directors noted that the Portfolio's relatively modest size (approximately $75 million as of September 30, 2005) caused the administrative expense reimbursement, which does not vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. 34 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 35 WORLDWIDE PRIVATIZATION PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein International Growth Portfolio (the "Fund")(2), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(3) Advisory Fee Based on % of Average Category Daily Net Assets Fund - -------------------------------------------------------------------------------- International 75 bp on 1st $2.5 billion International Growth Portfolio 65 bp on next $2.5 billion 60 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - -------------------------------------------------------------------------------- International Growth Portfolio $69,000 0.16% - -------------------------------------------------------------------------------- (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Prior to February 1, 2006, the Fund was known as AllianceBernstein Worldwide Privatization Portfolio. (3) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 36 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - -------------------------------------------------------------------------------- International Growth Portfolio Class A 1.81% December 31 Class B 2.06% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: Asset Class Fee(4) - -------------------------------------------------------------------------------- Global Growth 1.00% - -------------------------------------------------------------------------------- (4) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 37 WORLDWIDE PRIVATIZATION PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedules of the ACITM mutual funds with similar investment styles as the Fund are as follows: Fund ACITM Mutual Fund(5) Fee - -------------------------------------------------------------------------------- International Growth Portfolio Alliance Global Growth Opportunities 1.00% (Nikko/Chuo Mitsui) Alliance Global Growth 0.80% Opportunities (Shinsei)(6) Alliance Global Growth Opportunities 0.75% (Mitsui)(6) The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(7) Effective Lipper Management Group Fund Fee Median Rank - -------------------------------------------------------------------------------- International Growth Portfolio 0.750 0.911 2/14 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(8) and Lipper Expense Universe(9). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below:
Expense Lipper Lipper Lipper Lipper Ratio Universe Universe Group Group Fund (%)(10) Median (%) Rank Median (%) Rank - ---------------------------------------------------------------------------------- International Growth Portfolio 1.646 1.044 41/43 1.153 12/14
Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. - -------------------------------------------------------------------------------- (5) The name in parenthesis is the distributor of the fund. (6) The ACITM fund is not a retail fund. (7) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (8) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (9) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (10) Most recent fiscal year end Class A share total expense ratio. 38 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - -------------------------------------------------------------------------------- International Growth Portfolio $25,192 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - -------------------------------------------------------------------------------- International Growth Portfolio $241,007 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(11) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. Although the Fund did not effect any brokerage transaction and pay commissions to the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), during the Fund's recent fiscal year, the potential for such events exist. The Adviser represented that SCB's profitability from any business - -------------------------------------------------------------------------------- (11) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 39 WORLDWIDE PRIVATIZATION PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- conducted with the Fund would be comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(12) relative to its Lipper Performance Group(13) and Lipper Performance Universe(14) for the period ended September 30, 2005. International Growth Portfolio Group Universe - -------------------------------------------------------------------------------- 1 year 1/14 1/43 3 year 1/14 2/43 5 year 3/13 4/35 10 year 1/10 2/26 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(15) versus its benchmark(16). Periods Ending September 30, 2005 Annualized Performance - -------------------------------------------------------------------------------- Fund 1 Year 3 Year 5 Year 10 Year Since Inception - -------------------------------------------------------------------------------- International Growth Portfolio 35.72 31.89 8.69 11.40 11.39 MSCI World - USA Index (Net) 26.82 25.35 3.40 6.24 6.19 - -------------------------------------------------------------------------------- (12) The performance rankings are for the Class A shares of the Fund. (13) The Lipper Performance Group is identical to the Lipper Expense Group. (14) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (15) The performance returns are for the Class A shares of the Fund. (16) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 40 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 41 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN GLOBAL BOND PORTFOLIO ANNUAL REPORT Investment Products Offered - --------------------------- > Are Not FDIC Insured > May Lose Value > Are Not Bank Guaranteed - --------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. GLOBAL BOND PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Global Bond Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks a high level of return from a combination of current income and capital appreciation by investing in a globally diversified portfolio of high-quality debt securities denominated in the U.S. dollar and a range of foreign securities. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the S&P/Citigroup World Government Bond Index (unhedged) for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio underperformed its benchmark. The Portfolio's duration remained shorter than that of the benchmark as the Portfolio's management team (the "Team") expected interest rates to rise and negatively impact bond prices. For the year, the Portfolio benefited from its overweight to the Euro-area, consisting of 12 countries that use the euro as currency, but its allocation to the U.S. hurt relative performance. Within the Portfolio's U.S. allocation, the Portfolio's position in inflation-protected Treasuries helped performance, while allocations to U.S. investment-grade corporates detracted from performance. Although corporate profits remained at record levels and cash flows remained robust in 2005, corporate debt-holders faced increased event risk caused by shareholder-friendly activities--activities undertaken by companies such as share buybacks--in contrast to bondholder-friendly activities--such as debt repurchases or paying down debt. The Portfolio's Canadian holdings contributed positively to relative returns, outperforming U.S. governments. Canadian government bonds, hedged into U.S. dollars, returned 7.64% versus only 2.80% for U.S. Treasuries, according to Citigroup. MARKET REVIEW AND INVESTMENT STRATEGY The global economy exhibited solid growth throughout 2005, while bond yields in most regions increased during the year. Global government debt posted negative returns for the annual period, returning -6.88%, according to the S&P/Citigroup World Government Bond Index (unhedged). As rates increased and yield curves flattened in many regions during the year, investment opportunities and the reward for taking risk declined. U.S. yields rose as the U.S. Federal Reserve continued to tighten interest rates. With four rate increases of 25 basis points each in the second half of the year, the Fed funds rate ended the year at 4.25%. Nevertheless, long rates remained stubbornly low as foreign investors continued to buy U.S. assets. The yield curve flattened meaningfully. Despite higher official rates and higher energy costs, U.S. economic growth remained robust throughout the year. The flattening U.S. yield curve led the Team to seek opportunities in countries with steeper yield curves, such as Japan. Japan was one of the few nations whose yield curve remained steep as 2005 progressed. During 2005, the Japanese economy continued to benefit from stable currency rates, improvements in employment and wages, stable capital-expenditure growth, easing deflation and marked improvements in corporate profitability. At the other end of the spectrum, German yields held steady, despite improvements in business sentiment and the labor market. Overall, Euro-area economies benefited from a number of factors, including strong external demand and a stabilizing currency. By the end of the year, the economic recovery in Europe appeared more secure; accordingly, the European Central Bank began to lift official rates 25 basis points to 2.25%. Despite the strengthening of the Canadian dollar, Canada's economy expanded at approximately 3% in 2005, thanks largely to manufacturing and a rebound in energy exports. Given above-target headline inflation and solid growth, the Bank of Canada hiked official rates from 2.50% to 3.25% during the year, the highest point since 2003. During the reporting period, the Portfolio's investment strategy was maintained, namely investing in high-grade government issues of the major global economies. 1 GLOBAL BOND PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE THE UNMANAGED S&P/CITIGROUP WORLD GOVERNMENT BOND INDEX (UNHEDGED) DOES NOT REFLECT FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The Index represents performance of government bond markets in 14 countries. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Global Bond Portfolio. A WORD ABOUT RISK A majority of the Portfolio's assets will be invested in foreign fixed-income securities. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments. In addition, because the Portfolio will invest in foreign currency denominated securities, fluctuations in the value of the Portfolio's investments may be magnified by changes in foreign exchange rates. The Portfolio may at times use certain types of investment derivatives, such as futures contracts and options on futures contracts. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. Also, at the discretion of the Investment Manager, the Portfolio can invest up to 10% of its total assets in illiquid securities. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 GLOBAL BOND PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------------------------------------------------- AllianceBernstein Global Bond Portfolio Class A -7.65% 5.98% 4.48% - ------------------------------------------------------------------------------------------------- AllianceBernstein Global Bond Portfolio Class B -7.87% 5.72% 4.91%* - ------------------------------------------------------------------------------------------------- S&P/Citigroup World Government Bond Index (unhedged) -6.88% 6.92% 4.99% - -------------------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class B shares on 7/15/99. ALLIANCEBERNSTEIN GLOBAL BOND PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95-12/31/05 ALLIANCEBERNSTEIN GLOBAL BOND PORTFOLIO CLASS A: $15,496 S&P/CITIGROUP WORLD GOVERNMENT BOND INDEX (UNHEDGED): $16,266 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] S&P/Citigroup AllianceBernstein Global World Government Bond Portfolio Class A Bond Index (unhedged) - ------------------------------------------------------------------------------- 12/31/95 $ 10,000 $ 10,000 12/31/96 $ 10,621 $ 10,362 12/31/97 $ 10,692 $ 10,386 12/31/98 $ 12,202 $ 11,976 12/31/99 $ 11,456 $ 11,465 12/31/00 $ 11,590 $ 11,644 12/31/01 $ 11,559 $ 11,528 12/31/02 $ 13,514 $ 13,776 12/31/03 $ 15,306 $ 15,830 12/31/04 $ 16,780 $ 17,468 12/31/05 $ 15,496 $ 16,266 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Global Bond Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 GLOBAL BOND PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED GLOBAL BOND PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $967.52 $4.31 0.87% Hypothetical (5% return before expenses) $1,000 $1,020.82 $4.43 0.87% CLASS B Actual $1,000 $966.38 $5.55 1.12% Hypothetical (5% return before expenses) $1,000 $1,019.56 $5.70 1.12%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 GLOBAL BOND PORTFOLIO SECURITY TYPE BREAKDOWN DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF SECURITY TYPE U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Government Obligations $ 49,843,816 82.4% Corporate Obligations 7,301,204 12.1 ------------ ----- Total Investments* 57,145,020 94.5 Cash and receivables, net of liabilities 3,283,886 5.5 ------------ ----- Net Assets $ 60,428,906 100.0% ------------ ----- * Excludes short-term investments. 5 GLOBAL BOND PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT (000) U.S. $ VALUE - ------------------------------------------------------------------------------- LONG-TERM INVESTMENTS-94.5% AUSTRIA-5.1% GOVERNMENT OBLIGATION-5.1% Republic of Austria 3.80%, 10/20/13 (a) EUR 2,500 $ 3,076,438 ------------ BELGIUM-4.8% GOVERNMENT OBLIGATION-4.8% Kingdom of Belgium 4.25%, 9/28/14 (a) 2,300 2,920,388 ------------ DENMARK-2.0% GOVERNMENT OBLIGATION-2.0% Kingdom of Denmark 6.00%, 11/15/09 (a) DKK 6,960 1,224,211 ------------ FINLAND-4.9% GOVERNMENT OBLIGATION-4.9% Government of Finland 5.375%, 7/04/13 (a) EUR 2,175 2,944,267 ------------ FRANCE-4.1% GOVERNMENT OBLIGATION-4.1% Government of France 3.50%, 4/25/15 (a) 760 914,167 4.00%, 10/25/13 (a) 376 468,701 5.00%, 4/25/12 (a) 831 1,086,907 ------------ 2,469,775 ------------ GERMANY-15.3% BANKING-4.6% KFW Bankengruppe 1.85%, 9/20/10 JPY 245,000 2,180,156 Landwirtschaftliche Rentenbank 1.375%, 4/25/13 70,000 599,364 ------------ 2,779,520 ------------ GOVERNMENT OBLIGATION-10.7% Bundesobligation 2.50%, 10/08/10 (a) EUR 1,179 1,361,306 3.25%, 4/17/09 (a) 500 596,988 Deutschland Bundesrepublik 4.00%, 7/04/09 (a) 1,813 2,217,352 4.75%, 7/04/34 (a) 1,382 1,970,965 5.00%, 7/04/12 (a) 234 306,596 ------------ 6,453,207 ------------ 9,232,727 ------------ IRELAND-1.1% GOVERNMENT OBLIGATION-1.1% Republic of Ireland 4.25%, 10/18/07 (a) 565 685,040 ------------ JAPAN-18.9% GOVERNMENT OBLIGATIONS-18.9% Government of Japan 0.80%, 9/10/15 JPY 109,218 931,922 1.00%, 9/20/10-6/20/13 1,035,650 8,720,354 1.50%, 9/20/15 119,000 1,012,831 1.90%, 3/20/25 88,650 745,535 ------------ 11,410,642 ------------ MEXICO-1.6% BANKING-1.6% Inter-American Development Bank 9.50%, 6/16/15 (a) MXP 10,000 979,168 ------------ NETHERLANDS-5.6% GOVERNMENT OBLIGATION-5.6% Kingdom of Netherlands 3.75%, 7/15/09-7/15/14 (a) EUR 2,775 3,371,084 ------------ SPAIN-2.4% GOVERNMENT OBLIGATION-2.4% Kingdom of Spain 6.15%, 1/31/13 (a) 1,046 1,465,994 ------------ SWEDEN-3.6% GOVERNMENT OBLIGATION-3.6% Government of Sweden 6.50%, 5/05/08 (a) SEK 16,030 2,183,607 ------------ UNITED KINGDOM-1.6% BANKING-0.3% Scotland International Finance II BV 4.25%, 5/23/13 (b) USD 160 152,983 ------------ GOVERNMENT OBLIGATION-1.3% Government of United Kingdom 4.25%, 3/07/36 GBP 450 810,002 ------------ 962,985 ------------ UNITED STATES-5.6% FINANCIAL-3.9% Berkshire Hathaway, Inc. 4.20%, 12/15/10 USD 350 338,844 Citigroup, Inc. 4.625%, 8/03/10 107 105,518 Genworth Financial, Inc. 1.60%, 6/20/11 JPY 75,000 640,713 International Lease Finance Corp. 3.50%, 4/01/09 USD 350 333,152 Pershing Road Development Co. 4.81%, 9/01/26 (b) (c) 660 660,000 6 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT (000) U.S. $ VALUE - ------------------------------------------------------------------------------- SunTrust Bank Series CD 4.54%, 6/02/09 (c) USD 250 $ 250,371 ------------ 2,328,598 ------------ INDUSTRIAL-0.5% General Electric Co. 5.00%, 2/01/13 330 329,828 ------------ RETAIL-1.2% Wal-Mart Stores, Inc. 4.55%, 5/01/13 750 731,107 ------------ 3,389,533 ------------ U.S. GOVERNMENT AND GOVERNMENT SPONSORED AGENCY OBLIGATIONS-17.9% Federal National Mortgage Association 4.125%, 4/15/14 1,525 1,454,228 U.S. Treasury Notes 3.50%, 11/15/09 3,700 3,585,966 4.00%, 9/30/07-3/15/10 4,258 4,222,487 4.25%, 8/15/15 1,587 1,566,480 ------------ 10,829,161 ------------ Total Long-Term Investments (cost $57,134,912) 57,145,020 ------------ SHORT-TERM INVESTMENTS-3.1% CANADA-1.3% Canada Treasury Bill Zero Coupon, 8/10/06 CAD 900 757,651 ------------ UNITED STATES-1.8% U. S. Treasury Bill Zero Coupon, 1/19/06 USD 1,078 1,076,117 ------------ Total Short-Term Investments (cost $1,830,848) 1,833,768 ------------ TOTAL INVESTMENTS-97.6% (cost $58,965,760) 58,978,788 Other assets less liabilities-2.4% 1,450,118 ------------ NET ASSETS-100% $ 60,428,906 ============ FORWARD EXCHANGE CURRENCY CONTRACTS (SEE NOTE D)
U.S. $ CONTRACT VALUE ON U.S. $ UNREALIZED AMOUNT ORIGINATION CURRENT APPRECIATION (000) DATE VALUE (DEPRECIATION) - ----------------------------------------------------------------------------------------------------------- BUY CONTRACTS: British Pound, settling 2/27/06 1,562 $ 2,720,705 $ 2,686,801 $ (33,904) Canadian Dollar, settling 2/13/06 833 724,073 717,150 (6,923) Canadian Dollar, settling 2/13/06 504 431,000 434,357 3,357 Euro, settling 1/18/06 229 277,907 271,109 (6,798) Euro, settling 1/18/06 1,558 1,879,331 1,881,934 2,603 Japanese Yen, settling 2/22/06 273,193 2,361,398 2,330,608 (30,790) Japanese Yen, settling 2/22/06 131,030 1,126,514 1,117,822 (8,692) Norweigan Kroner, settling 1/31/06 841 125,770 124,825 (945) Swedish Krona, settling 2/24/06 10,936 1,379,429 1,381,784 2,355 SALE CONTRACTS: Canadian Dollar, settling 2/13/06 880 751,596 758,026 (6,430) Danish Krona, settling 1/31/06 2,682 438,489 426,240 12,249 Euro, settling 2/15/06 1,914 2,287,889 2,271,482 16,407 Mexican Peso, settling 2/21/06 5,333 482,852 498,733 (15,881) Mexican Peso, settling 3/22/06 5,333 491,480 497,440 (5,960) Swedish Krona, settling 2/24/06 25,100 3,177,839 3,171,419 6,420
7 GLOBAL BOND PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ (a) Positions, or portion thereof, with an aggregate market value of $27,773,179, have been segregated to collateralize forward exchange currency contracts. (b) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $812,983 or 1.3% of net assets. (c) Floating rate security. Stated interest rate was in effect at December 31, 2005. Currency Abbreviations: CAD - Canadian Dollar DKK - Danish Krona EUR - Euro GBP - British Pound JPY - Japanese Yen MXP - Mexican Peso SEK - Swedish Krona USD - United States Dollar See Notes to Financial Statements. 8 GLOBAL BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $58,965,760) $ 58,978,788 Cash 20,997 Foreign cash, at value (cost $768,491) 774,825 Unrealized appreciation of forward exchange currency contracts 43,391 Interest receivable 694,884 Receivable for capital stock sold 144,940 ------------ Total assets 60,657,825 ------------ LIABILITIES Unrealized depreciation of forward exchange currency contracts 116,323 Advisory fee payable 23,142 Payable for capital stock redeemed 2,826 Distribution fee payable 2,757 Transfer agent fee payable 53 Accrued expenses 83,818 ------------ Total liabilities 228,919 ------------ NET ASSETS $ 60,428,906 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 5,350 Additional paid-in capital 62,094,783 Distributions in excess of net investment income (737,135) Accumulated net realized loss on investment and foreign currency transactions (868,414) Net unrealized depreciation of investments and foreign currency denominated assets and liabilities (65,678) ------------ $ 60,428,906 ============ CLASS A SHARES Net assets $ 47,442,700 ============ Shares of capital stock outstanding 4,191,315 ============ Net asset value per share $ 11.32 ============ CLASS B SHARES Net assets $ 12,986,206 ============ Shares of capital stock outstanding 1,158,574 ============ Net asset value per share $ 11.21 ============ See Notes to Financial Statements. 9 GLOBAL BOND PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Interest (net of foreign taxes withheld of $31) $ 2,107,040 ------------ EXPENSES Advisory fee 299,554 Distribution fee -- Class B 34,646 Custodian 122,347 Administrative 75,250 Audit 41,750 Printing 25,842 Legal 4,423 Directors' fees 1,000 Transfer agency 794 Miscellaneous 6,874 ------------ Total expenses 612,480 ------------ Net investment income 1,494,560 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain on: Investment transactions 584,539 Foreign currency transactions 869,533 Net change in unrealized appreciation/depreciation of: Investments (8,045,854) Foreign currency denominated assets and liabilities (250,812) ------------ Net loss on investment and foreign currency Transactions (6,842,594) ------------ NET DECREASE IN NET ASSETS FROM OPERATIONS $ (5,348,034) ============ See Notes to Financial Statements. 10 GLOBAL BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============== ============== INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,494,560 $ 1,277,025 Net realized gain on investment and foreign currency transactions 1,454,072 4,865,008 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities (8,296,666) 42,149 -------------- -------------- Net increase (decrease) in net assets from operations (5,348,034) 6,184,182 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (4,802,045) (3,156,752) Class B (1,253,227) (714,608) Net realized gain on investment and foreign currency transactions Class A (612,506) (1,105,271) Class B (163,892) (258,556) CAPITAL STOCK TRANSACTIONS Net increase (decrease) 2,568,218 (964,959) -------------- -------------- Total decrease (9,611,486) (15,964) NET ASSETS Beginning of period 70,040,392 70,056,356 -------------- -------------- End of period (including distributions in excess of net investment income and undistributed net investment income of ($737,135) and $2,954,030, respectively) $ 60,428,906 $ 70,040,392 ============== ============== See Notes to Financial Statements. 11 GLOBAL BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Global Bond Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek a high level of return from a combination of current income and capital appreciation by investing in a globally diversified portfolio of high quality debt securities denominated in the U.S. dollar and a range of foreign currencies. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. 12 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 7. REPURCHASE AGREEMENTS It is the policy of the Portfolio that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, ..40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .65% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 13 GLOBAL BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 79,711,728 $ 80,658,176 U.S. government securities 13,666,615 17,103,597 The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost $ 58,970,140 ============= Gross unrealized appreciation $ 1,520,511 Gross unrealized depreciation (1,511,863) ------------- Net unrealized appreciation $ 8,648 ============= 1. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss in the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 15 GLOBAL BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE F CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 428,291 367,754 $ 5,453,556 $ 4,820,375 Shares issued in reinvestment of dividends and distributions 456,924 350,207 5,414,551 4,262,023 Shares redeemed (807,173) (949,280) (9,844,716) (12,372,797) ------------ ------------ -------------- -------------- Net increase (decrease) 78,042 (231,319) $ 1,023,391 $ (3,290,399) =========== =========== ============= ============= CLASS B Shares sold 218,798 328,716 $ 2,764,083 $ 4,248,238 Shares issued in reinvestment of dividends and distributions 120,606 80,560 1,417,119 973,164 Shares redeemed (217,005) (223,733) (2,636,375) (2,895,962) ------------ ------------ -------------- -------------- Net increase 122,399 185,543 $ 1,544,827 $ 2,325,440 =========== =========== ============= ============= NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Concentration of Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 6,174,320 $ 4,585,985 Net long-term capital gains 657,350 649,202 -------------- -------------- Total distributions paid $ 6,831,670 $ 5,235,187 ============== ============== As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 1,241,991 Undistributed long term capital gains 130,525 Accumulated capital and other losses (3,058,866)(a) Unrealized appreciation/(depreciation) 15,123(b) -------------- Total accumulated earnings/(deficit) $ (1,671,227) ============== (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $1,265,121, all of which expires in the year 2008. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Based on certain provisions in the Internal Revenue Code, various limitations regarding the future utilization of these carryforwards, brought forward as a result of the Fund's merger with Brinson Series Trust Strategic Income Portfolio, may apply. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $126,701. Net capital losses and foreign currency losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred until January 1, 2006, post-October capital losses of $99, 968 and foreign currency losses of $826,487. For the year ended December 31, 2005, the Portfolio deferred losses on straddles of $867,290. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of gains/losses on certain derivative instruments. During the current fiscal year, permanent differences, primarily due to the tax treatment of foreign currency gains and losses, resulted in a net decrease in undistributed net investment income and an increase in accumulated net realized loss on investment and foreign currency transactions. This reclassification had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. 17 GLOBAL BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 19 GLOBAL BOND PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001(a) ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $13.63 $13.50 $12.63 $10.93 $10.96 INCOME FROM INVESTMENT OPERATIONS Net investment income (b) .28 .25(c) .25 .25 .35 Net realized and unrealized gain (loss) on investment and foreign currency transactions (1.26) .93 1.40 1.58 (.38) Net increase (decrease) in net asset value from operations (.98) 1.18 1.65 1.83 (.03) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (1.18) (.78) (.78) (.13) -0- Distributions from net realized gain on investment transactions (.15) (.27) -0- -0- -0- Total dividends and distributions (1.33) (1.05) (.78) (.13) -0- Net asset value, end of period $11.32 $13.63 $13.50 $12.63 $10.93 TOTAL RETURN Total investment return based on net asset value (d) (7.65)% 9.63% 13.26% 16.91% (.27)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $47,443 $56,043 $58,658 $56,137 $48,221 Ratio to average net assets of: Expenses, net of waivers and reimbursements .87% .88% 1.15% 1.17% 1.07% Expenses, before waivers and reimbursements .87% 1.02% 1.15% 1.17% 1.07% Net investment income 2.30% 1.93%(c) 1.93% 2.18% 3.28% Portfolio turnover rate 148% 107% 197% 220% 101%
See footnote summary on page 21. 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001(a) ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $13.51 $13.40 $12.54 $10.86 $10.92 INCOME FROM INVESTMENT OPERATIONS Net investment income (b) .25 .22(c) .21 .22 .32 Net realized and unrealized gain (loss) on investment and foreign currency transactions (1.25) .91 1.41 1.57 (.38) Net increase (decrease) in net asset value from operations (1.00) 1.13 1.62 1.79 (.06) LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (1.15) (.75) (.76) (.11) -0- Distributions from net realized gain on investment transactions (.15) (.27) -0- -0- -0- Total dividends and distributions (1.30) (1.02) (.76) (.11) -0- Net asset value, end of period $11.21 $13.51 $13.40 $12.54 $10.86 TOTAL RETURN Total investment return based on net asset value (d) (7.87)% 9.33% 13.08% 16.59% (.55)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period, (000's omitted) $12,986 $13,997 $11,399 $8,507 $7,150 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.12% 1.13% 1.40% 1.42% 1.32% Expenses, before waivers and reimbursements 1.12% 1.27% 1.40% 1.42% 1.32% Net investment income 2.05% 1.72%(c) 1.66% 1.92% 3.00% Portfolio turnover rate 148% 107% 197% 220% 101%
(a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change to Class A and Class B shares was to decrease net investment income per share by $.04 and $.04, increase net realized and unrealized gain (loss) on investments per share by $.04 and $.04, and decrease the ratio of net investment income to average net assets from 3.67% to 3.28% and 3.39% to 3.00%, respectively. (b) Based on average shares outstanding. (c) Net of expenses waived or reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN GLOBAL BOND PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Global Bond Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Global Bond Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 22 GLOBAL BOND PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Global Bond Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's ProxyStatement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.B. Issuing Senior Securities and 3,472,960 142,369 180,015 1 Borrowing Money 3.D. Concentration of Investments 3,536,837 91,587 166,920 1 3.E. Real Estate and Companies that 3,533,181 101,326 160,837 1 Deal in Real Estate 3.F. Commodities, Commodity 3,518,615 132,137 144,591 1 Contracts and Futures Contracts 3.G. Loans 3,518,531 134,663 142,149 1 3.H. Joint Securities Trading 3,502,791 131,273 161,280 1 Accounts 3.I. Exercising Control 3,522,656 108,376 164,312 1 3.J. Other Investment Companies 3,499,612 105,616 190,115 1 3.K. Oil, Gas, and Other Types of Minerals or Mineral Leases 3,535,058 96,507 163,778 1 3.L. Purchases of Securitieson 3,475,432 166,461 153,451 1 Margin 3.M. Short Sales 3,495,298 138,254 161,792 1
23 GLOBAL BOND PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.N. Pledging, Hypothecating, 3,498,158 149,374 147,811 1 Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or Restricted 3,470,695 135,865 188,784 1 Securities 3.P. Warrants 3,474,348 118,557 202,439 1 4.A. The reclassification of the 3,522,545 87,896 184,903 1 Portfolio's fundamental investment objective as non- fundamental with no change to the investment objective.
24 GLOBAL BOND PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer MICHAEL L. MON(2), Vice President DOUGLAS J. PEEBLES(2), Vice President JEFFREY S. PHLEGAR, Vice President MATTHEW SHERIDAN(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. The management of and investment decisions for the Portfolio's portfolio are made by Global Fixed Income Investment Team. Mr. Douglas J. Peebles, Mr. Michael L. Mon, and Mr. Matthew Sheridan are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 25 GLOBAL BOND PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since 2001 SCB, Inc. New York, NY 10105 and Chairman of the Board of AllianceBernstein 10/2/57 Investment Research and Management, Inc. (2005) ("ABIRM") since prior to 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent Consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC responsible Spring Lake, NJ 07762 for mutual fund administration. Prior to joining 10/23/29 ACMC in 1984, he was Chief Financial Officer of (1990) Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
26 GLOBAL BOND PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific c/o Alliance Capital managing partner of Lexington Capital, LLC Fund, Inc., Management L.P. (investment advisory firm) from 1997 until and The 1345 Avenue of the Americas December 2003. Prior thereto, Chairman and Merger Fund New York, NY 10105 CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation (semi- P.O. Box 128 (semi-conductors) and of SRC Computers Inc., conductors); Cirrus Logic Glenbrook, NV 89413 with which he has been associated since prior to Corporation (semi-conductors); 3/7/36 2001. He is also President of the Arbor Company Novellus Corporation (semi- (2005) (private family investments). conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, Texas, the George Lucas Penthouse 10 from 2003 to present, and President since company Educational Foundation; San Francisco, CA 94104-3402 acquired in 2005, and name changed from DuPont and Chairman of the Board 10/10/41 Photomasks. Prior to the company's sale in 2005, of the Smithsonian's (2005) he was Chairman and CEO. He has also been National Museum of Principal of Turner Venture Associates since 1993. Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 27 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ GLOBAL BOND PORTFOLIO OFFICER INFORMATION(1) Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Douglas J. Peebles Vice President Executive Vice President of ACMC**, with which he 8/10/65 has been associated since prior to 2001. Jeffrey S. Phlegar Vice President Executive Vice President of ACMC**, with which he 6/28/66 has been associated since prior to 2001. Michael L. Mon Vice President Vice President of ACMC**, with which he has been 3/2/69 associated since prior to 2001. Matthew Sheridan Vice President Vice President of ACMC**, with which he has been 3/19/75 associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 28 GLOBAL BOND PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Global Bond Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 29 GLOBAL BOND PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. The directors noted that since the Portfolio does not engage in brokerage transactions, the Adviser does not receive soft dollar benefits in respect of portfolio transactions of the Portfolio. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, and that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services. The directors recognized that the Adviser's profitability would be somewhat lower if the Adviser's affiliates did not receive the benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 9 to 6 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 13 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the S&P/Citigroup World Government Bond Index (unhedged in USD) (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3-, 5- and 10-year and since inception periods (July 1991 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 5th quintile in the 1-, 3- and 5-year periods and in the 3rd quintile in the 10-year period (adjusted to the 4th quintile by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles), and in the Performance Universe comparison the Portfolio was in the 5th quintile in the 1- and 3-year periods and in the 4th quintile in the 5- and 10-year periods. The comparative information showed that the Portfolio underperformed the Index in all periods reviewed. Based on their review and their discussion of the reasons for the Portfolio's underperformance with the Adviser and steps that had been taken by the Adviser in an effort to address such underperformance, the directors retained confidence in the 31 GLOBAL BOND PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Adviser's ability to continue to advise the Portfolio and concluded that the Portfolio's performance was understandable. The directors informed the Adviser that they planned to closely monitor the Portfolio's performance. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 45 basis points was significantly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 10 basis points. The directors also noted that the Portfolio's total expense ratio was somewhat lower than the medians for the Expense Group and Expense Universe. The directors concluded that the Portfolio's expense ratio was satisfactory. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 33 GLOBAL BOND PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Global Bond Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Low Risk Income 45 bp on 1st $2.5 billion Global Bond Portfolio 40 bp on next $2.5 billion 35 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Global Bond Portfolio $69,000 0.10% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Global Bond Portfolio Class A 1.02% December 31 Class B 1.27% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund.
NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ----------------------------------------------------------------------------------------------- Global Bond Portfolio $63.8 Global Fixed Income Schedule 0.207% 50 bp on 1st $20 m 35 bp on next $20 m 30 bp on next $20 m 25 bp on the balance Minimum account size $20 m
The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund that invests in fixed income securities: ASSET CLASS FEE(3) - ------------------------------------------------------ Fixed Income 0.65% (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 35 GLOBAL BOND PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: FUND ACITM MUTUAL FUND(4) FEE - ------------------------------------------------------------------------------- Global Bond Portfolio Alliance Global Bond Fund (Meiji) 0.54% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Global Bond Portfolio 0.450 0.766 1/9 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO(%)(8) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- Global Bond Portfolio 0.881 0.978 5/13 0.978 3/9 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. (4) The name in parenthesis is the distributor of the fund. (5) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (6) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (7) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (8) Most recent fiscal year end Class A share total expense ratio. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent and distribution related services to the Fund and receive transfer agent fees and Rule 12b-1 payments. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ------------------------------------------------------------------------ Global Bond Portfolio $32,164 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------ Global Bond Portfolio $31,552 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the (9) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 37 GLOBAL BOND PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. GLOBAL BOND PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 9/9 13/13 3 year 9/9 11/13 5 year 8/9 9/13 10 year 4/6 8/10 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- SINCE FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION - ------------------------------------------------------------------------------- Global Bond Portfolio 1.81 6.64 7.34 5.20 6.15 S&P/Citigroup World Govt. Bond Index (unhedged in USD) 3.02 8.04 8.23 5.50 7.44 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (10) The performance rankings are for the Class A shares of the Fund. (11) The Lipper Performance Group is identical to the Lipper Expense Group. (12) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (13) The performance returns are for the Class A shares of the Fund. (14) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 38 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN GLOBAL DOLLAR GOVERNMENT PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. GLOBAL DOLLAR GOVERNMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 10, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Global Dollar Government Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks a high level of current income. As a secondary objective, the Portfolio seeks capital appreciation. The Portfolio invests primarily in sovereign debt obligations of developing countries and in U.S. and non-U.S. corporate fixed-income securities. Substantially all of the Portfolio's assets will be invested in high yield, high-risk securities that are low-rated (i.e., below investment grade), or of comparable quality and unrated, and that are considered to be predominantly speculative with regards to the issuer's capacity to pay interest and repay principal. The Portfolio's investments will be U.S. dollar denominated. INVESTMENT RESULTS The table on page 4 shows the Portfolio's performance compared to its old benchmark, the J.P. Morgan (JPM) Emerging Markets Bond Index Plus (EMBI+), and its new benchmark, the J.P. Morgan (JPM) Emerging Markets Bond Index Global (EMBI Global) for the one-, five- and 10-year periods ended December 31, 2005. The JPM EMBI Global expands upon the composition of the JPM EMBI+ by using different country selection and instrument selection processes that are more in line with those of the Portfolio. For the annual reporting period ended December 31, 2005, the Portfolio posted strong absolute returns, but underperformed its new benchmark, the JPM EMBI Global. The Portfolio's overweight exposure to Ecuador during the months of April and May 2005 detracted from its performance. Earlier in the period, an overweight position in Ecuador was favored based on valuation, potential ratings upgrades and the country's ability to finance itself. Political turmoil in April 2005, however, superceded the country's positive fundamentals and caused Ecuador's bond prices to plummet. The Portfolio's security selection also detracted from performance, as the Portfolio was too defensive relative to U.S. interest rates. The Portfolio's duration remained shorter than that of the benchmark, as interest rates were expected to rise and negatively impact bond prices. The Portfolio's holdings in Brazil and Russia contributed positively to the Portfolio's performance. Both Brazil and Russia outperformed the Index, returning 13.21% and 13.29%, respectively. Brazil's stable growth, low inflation and central bank easing helped support its bond prices, particularly toward the end of the year when the Portfolio's exposure to the country was increased. Russia continued to benefit from high oil revenues, a steady reduction of external debt and ratings upgrades. Venezuela also contributed positively to the Portfolio's performance, helped by higher oil prices and speculation that the Venezuelan government will begin to pay back debt. Finally, the Portfolio's exposure to Peru contributed to relative performance mid-year as economic growth there continued to outpace most Latin countries on strong demand for its exports. Offsetting earlier gains, however, was political uncertainty in December generated by the upcoming Peruvian Presidential elections and the softening in the polls of market-friendly candidates. MARKET REVIEW AND INVESTMENT STRATEGY The emerging market debt class posted the strongest returns within the fixed-income sectors of the market for the annual reporting period ended December 31, 2005, returning 10.73% according to the JPM EMBI Global. All 31 countries represented within the JPM EMBI Global posted positive returns with the Latin region at 10.88% edging out non-Latin countries at 10.56%. Emerging market spreads continued to tighten throughout the year, adding an additional 110 basis points to end the period at 237 basis points over Treasuries. The emerging markets enjoyed strong investor demand, a favorable low global interest-rate environment and strong global liquidity. Furthermore, world inflation worries eased somewhat and growth indicators turned more positive benefiting emerging market sovereign debt. Higher commodity prices during the year helped the emerging markets despite a recent pullback in energy prices. Energy prices still remain near three times higher than prices of the last decade. Additionally, strong capital inflows caused currencies to appreciate which allowed central banks in almost every emerging country to accumulate reserves--one of the most important technical drivers supporting the sector. Outperforming countries for the year included the Dominican Republic at 24.10%, the Philippines at 20.60%, the Ivory Coast at 20.00%, Uruguay at 16.26%, Venezuela at 16.06%, Russia at 13.29%, Ecuador at 13.22% and Brazil at 13.21%. Underperforming countries included Bulgaria at 2.12%, Thailand at 2.55% and Argentina at 2.73%. 1 GLOBAL DOLLAR GOVERNMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ During the reporting period, the Portfolio maintained allocations to its core emerging market countries (Brazil, Argentina, Russia, Colombia, Mexico, Turkey and Venezuela). The Portfolio was also positioned with a neutral spread exposure; however, it remained defensive against interest-rate risk. Individual emerging countries favored in the Portfolio during the year included Russia, which was one of the best performing countries outside of Latin America. Russia continued to benefit from higher oil revenues, debt prepayments and strong reserves. The Portfolio's exposure to Peru was increased as economic growth continued to outpace most Latin countries on strong demand for its exports. Exports doubled in Peru during 1999-2004, led by mining, and growth has averaged 5% per annum. Fundamentals in Peru remain positive with strong growth, a low fiscal deficit and low debt levels, despite the political uncertainty of the upcoming elections. The Ukraine, which experienced positive economic growth, strong surpluses and ratings upgrades, was also favored in the Portfolio earlier in the year. Venezuela was highlighted based on strong oil revenues and the potential of debt buybacks. Most recently, Brazil was favored due to low inflation, a stronger currency and prospects for interest-rate cuts. Lastly, the Portfolio's exposure to Ecuador was significantly reduced during the year. Although credit fundamentals in this country are sound, political volatility warranted caution. 2 GLOBAL DOLLAR GOVERNMENT PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE NEITHER THE UNMANAGED J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS (JPM EMBI+) NOR THE UNMANAGED J.P. MORGAN EMERGING MARKETS BOND INDEX GLOBAL (JPM EMBI GLOBAL) REFLECTS FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The JPM EMBI+ is composed of dollar-denominated restructured sovereign bonds; a large percentage of the index is made up of Brady bonds. The JPM EMBI Global tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities; Brady bonds, loans, eurobonds. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Global Dollar Government Portfolio. A WORD ABOUT RISK The Portfolio invests a significant amount of its assets in foreign securities, which may magnify fluctuations and can invest a significant portion of its assets in the securities of a single issuer, which may present greater risk than a more diversified portfolio. Price fluctuation in the Portfolio's securities may be caused by changes in the general level of interest rates or changes in bond credit quality ratings. Changes in interest rates have a greater effect on bonds with longer maturities than on those with shorter maturities. Investments in the Portfolio are not guaranteed because of fluctuation in the net asset value of the underlying fixed-income related investments. These fluctuations can also be due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Similar to direct bond ownership, bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the Portfolio. Portfolio purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. While the Portfolio invests principally in bonds and other fixed-income securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 3 GLOBAL DOLLAR GOVERNMENT PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------------------------------------------------- AllianceBernstein Global Dollar Government Portfolio Class A 9.62% 15.39% 12.53% - ------------------------------------------------------------------------------------------------- AllianceBernstein Global Dollar Government Portfolio Class B 9.35% 18.47%* - ------------------------------------------------------------------------------------------------- JPM EMBI+ 11.86% 12.79% 13.62% - ------------------------------------------------------------------------------------------------- JPM EMBI Global 10.73% 12.23% 13.00% - -------------------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class B shares on 7/22/02. ALLIANCEBERNSTEIN GLOBAL DOLLAR GOVERNMENT PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95-12/31/05 ALLIANCEBERNSTEIN GLOBAL DOLLAR GOVERNMENT PORTFOLIO CLASS A: $32,571 JPM EMBI+: $35,866 JPM EMBI GLOBAL: $33,915 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein Global Dollar Government JPM EMBI Portfolio Class A JPM EMBI+ Global - ------------------------------------------------------------------------------- 12/31/95 $ 10,000 $ 10,000 $ 10,000 12/31/96 $ 12,490 $ 13,931 $ 13,523 12/31/97 $ 14,142 $ 15,744 $ 15,139 12/31/98 $ 11,072 $ 13,485 $ 13,392 12/31/99 $ 13,960 $ 16,987 $ 16,630 12/31/00 $ 15,922 $ 19,648 $ 19,027 12/31/01 $ 17,414 $ 19,493 $ 19,285 12/31/02 $ 20,225 $ 22,269 $ 21,816 12/31/03 $ 26,982 $ 28,687 $ 27,413 12/31/04 $ 29,713 $ 32,064 $ 30,629 12/31/05 $ 32,571 $ 35,866 $ 33,915 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Global Dollar Government Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's new benchmark, the J.P. Morgan (JPM) Emerging Markets Bond Index Global (EMBIGlobal) and its old benchmark, the J.P. Morgan (JPM) Emerging Markets Bond Index Plus (EMBI+). The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 4 GLOBAL DOLLAR GOVERNMENT PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING GLOBAL DOLLAR ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED GOVERNMENT PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,053.32 $8.13 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.29 $7.98 1.57% CLASS B Actual $1,000 $1,051.24 $9.41 1.82% Hypothetical (5% return before expenses) $1,000 $1,016.03 $9.25 1.82%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 5 GLOBAL DOLLAR GOVERNMENT PORTFOLIO SECURITY TYPE BREAKDOWN DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF SECURITY TYPE U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Sovereign Debt Obligations $ 23,779,526 83.6% Corporate Debt Obligations 3,771,700 13.2 ------------ ----- Total Investments* 27,551,226 96.8 Cash and receivables, net of liabilities 903,775 3.2 ------------ ----- Net Assets $ 28,455,001 100.0% * Excludes short-term investments. 6 GLOBAL DOLLAR GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT (000) U.S. $ VALUE - ------------------------------------------------------------------------------- SOVEREIGN DEBT OBLIGATIONS-83.6% ARGENTINA-4.4% Republic of Argentina 0.00% 12/15/35 (a) $ 1,481 $ 77,009 4.005%, 8/03/12 (b) 1,107 986,542 8.28%, 12/31/33 233 195,355 ------------ 1,258,906 ------------ BELIZE-0.1% Government of Belize 9.50%, 8/15/12 36 31,320 ------------ BRAZIL-17.3% Federal Republic of Brazil 0.00%, 4/15/12 531 524,079 4.313%, 4/15/12 (b) 15 14,348 8.00%, 1/15/18 37 39,868 8.25%, 1/20/34 535 567,903 9.25%, 10/22/10 45 50,355 10.50%, 7/14/14 287 351,719 11.00%, 8/17/40 514 663,060 12.00%, 4/15/10 250 304,375 12.75%, 1/15/20 1,626 2,343,878 14.50%, 10/15/09 40 51,300 ------------ 4,910,885 ------------ BULGARIA-0.4% Republic of Bulgaria 8.25%, 1/15/15 (c) 94 113,270 ------------ COLOMBIA-2.5% Republic of Colombia 10.75%, 1/15/13 88 109,120 11.75%, 2/25/20 427 592,463 ------------ 701,583 ------------ DOMINICAN REPUBLIC-1.1% Dominican Republic 9.50%, 9/27/11 (c) 301 318,272 ------------ ECUADOR-1.4% Republic of Ecuador 9.00%, 8/15/30 (c) (d) 120 108,260 9.375%, 12/15/15 (c) 300 279,750 ------------ 388,010 ------------ EL SALVADOR-1.2% Republic of El Salvador 7.625%, 9/21/34 (c) 72 77,940 7.65%, 6/15/35 (c) 138 142,140 8.50%, 7/25/11 (c) 100 112,100 ------------ 332,180 ------------ INDONESIA-1.1% Republic of Indonesia 6.75%, 3/10/14 (c) 260 260,000 7.25%, 4/20/15 (c) 59 60,416 ------------ 320,416 ------------ LEBANON-1.2% Lebanese Republic 7.875%, 5/20/11 (c) 75 77,250 10.125%, 8/06/08 (c) 207 223,043 11.625%, 5/11/16 (c) 33 41,168 ------------ 341,461 ------------ MALAYSIA-1.1% Malaysia 8.75%, 6/01/09 280 312,792 ------------ MEXICO-14.3% United Mexican States 7.50%, 1/14/12 225 250,875 8.125%, 12/30/19 985 1,209,087 11.375%, 9/15/16 364 535,990 Series A 6.375%, 1/16/13 42 44,625 8.00%, 9/24/22 1,173 1,442,789 9.875%, 2/01/10 503 589,768 ------------ 4,073,134 ------------ NIGERIA-1.8% Central Bank of Nigeria Series WW 6.25%, 11/15/20 (d) 500 503,750 ------------ PANAMA-3.2% Republic of Panama 7.125%, 1/29/26 263 266,288 8.875%, 9/30/27 39 46,410 9.375%, 7/23/12-4/01/29 53 63,615 9.625%, 2/08/11 134 156,646 10.75%, 5/15/20 275 381,288 ------------ 914,247 ------------ PERU-3.1% Republic of Peru 7.35%, 7/21/25 142 139,870 8.375%, 5/03/16 49 53,778 8.75%, 11/21/33 606 681,750 9.875%, 2/06/15 4 4,800 ------------ 880,198 ------------ PHILIPPINES-4.7% Republic of Philippines 8.875%, 3/17/15 331 363,769 9.00%, 2/15/13 300 331,500 9.50%, 2/02/30 127 149,225 9.875%, 1/15/19 125 148,000 10.625%, 3/16/25 280 357,000 ------------ 1,349,494 ------------ RUSSIA-12.1% Russia Ministry of Finance Series V 3.00%, 5/14/08 1,755 1,664,441 Series VII 3.00%, 5/14/11 160 142,608 7 GLOBAL DOLLAR GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT (000) U.S. $ VALUE - ------------------------------------------------------------------------------- Russian Federation 5.00%, 3/31/30 (c) (d) $ 1,140 $ 1,286,945 11.00%, 7/24/18 (c) 240 353,760 ------------ 3,447,754 ------------ TURKEY-5.0% Republic of Turkey 7.375%, 2/05/25 116 119,770 11.00%, 1/14/13 195 247,455 11.50%, 1/23/12 233 295,328 11.75%, 6/15/10 140 171,500 11.875%, 1/15/30 375 575,250 ------------ 1,409,303 ------------ UKRAINE-0.7% Government of Ukraine 6.875%, 3/04/11 (c) 113 116,390 11.00%, 3/15/07 (c) 90 93,145 ------------ 209,535 ------------ URUGUAY-1.4% Republic of Uruguay 7.50%, 3/15/15 29 29,653 7.875%, 1/15/33 (e) 134 135,128 9.25%, 5/17/17 200 226,000 ------------ 390,781 ------------ VENEZUELA-5.5% Republic of Venezuela 5.194%, 4/20/11 (b) (c) 80 78,400 8.50%, 10/08/14 30 32,895 9.25%, 9/15/27 526 623,310 10.75%, 9/19/13 681 837,630 ------------ 1,572,235 ------------ Total Sovereign Debt Obligations (cost $21,900,710) 23,779,526 ------------ CORPORATE DEBT OBLIGATIONS-13.2% BRAZIL-0.4% PF Export Receivables Master Trust 6.436%, 6/01/15 (c) 115 114,810 ------------ GERMANY-2.9% Aries Vermogensverwltng 9.60%, 10/25/14 (c) 500 646,700 Citigroup (JSC Severstal) 9.25%, 4/19/14 (c) 68 73,610 Kyivstar 7.75%, 4/27/12 (c) 100 101,320 ------------ 821,630 ------------ HONG KONG-0.3% Noble Group Ltd. 6.625%, 3/17/15 (c) 100 92,089 ------------ INDONESIA-0.6% Freeport-McMoran Copper & Gold 10.125%, 2/01/10 150 164,813 ------------ JAMAICA-0.3% Digicel Ltd. 9.25%, 9/01/12 (c) 100 102,750 ------------ KAZAKHSTAN-0.4% Kazkommerts International BV 8.50%, 4/16/13 (c) 100 108,940 ------------ MEXICO-1.4% America Movil, SA de CV 6.375%, 3/01/35 70 67,816 Monterrey Power, SA De C.V. 9.625%, 11/15/09 (c) 45 50,701 Pemex Project Funding Master Trust 8.00%, 11/15/11 250 279,750 ------------ 398,267 ------------ PEOPLES REPUBLIC OF CHINA-0.4% Choada Modern Agriculture 7.75%, 2/08/10 (c) 112 110,040 ------------ PERU-0.3% Southern Peru Copper 6.375%, 7/27/15 (c) 100 99,818 ------------ ROMANIA-0.4% MobiFon Holdings BV 12.50%, 7/31/10 (c) 100 116,000 ------------ RUSSIA-5.4% Evraz Group, SA 8.25%, 11/10/15 (c) 100 98,900 Gazprom Oao 9.625%, 3/01/13 (c) 830 1,000,238 Gazstream, SA 5.625%, 7/22/13 (c) 145 143,550 Mobile Telesystems Finance 9.75%, 1/30/08 (c) 125 132,500 Russian Standard Finance 7.50%, 10/07/10 (c) 100 97,375 Tyumen Oil 11.00%, 11/06/07 (c) 55 59,620 ------------ 1,532,183 ------------ UKRAINE-0.4% Kyivstar 10.375%, 8/17/09 (c) 100 110,360 ------------ Total Corporate Debt Obligations (cost $3,552,674) 3,771,700 ------------ 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT (000) U.S. $ VALUE - ------------------------------------------------------------------------------- SHORT-TERM INVESTMENT-1.7% TIME DEPOSIT-1.7% The Bank of New York 3.25%, 1/03/06 (cost $471,000) $ 471 $ 471,000 ------------ TOTAL INVESTMENTS-98.5% (cost $25,924,384) 28,022,226 Other assets less liabilities-1.5% 432,775 ------------ NET ASSETS-100% $ 28,455,001 ============ CREDIT DEFAULT SWAP CONTRACTS (SEE NOTE D)
NOTIONAL UNREALIZED SWAP COUNTERPARTY & AMOUNT INTEREST TERMINATION APPRECIATION/ REFERENCED OBLIGATION (000'S) RATE DATE (DEPRECIATION) - -------------------------------------------------------------------------------------------- BUY CONTRACTS: Citigroup Global Markets, Inc. Federal Republic of Brazil 12.25%, 3/06/30 390 4.07% 8/20/15 $(35,628) Citigroup Global Markets, Inc. Federal Republic of Brazil 12.25%, 3/06/30 290 4.14 4/20/10 (26,534) Citigroup Global Markets, Inc. Republic of Colombia 8.375%, 2/15/27 150 3.02 1/20/10 (11,271) Citigroup Global Markets, Inc. Republic of Philippines 10.625%, 3/16/25 130 5.60 3/20/14 (17,829) Citigroup Global Markets, Inc. Republic of Hungary 4.50%, 2/06/13 75 0.50 11/26/13 (910) Deutsche Bank AG London Federal Republic of Brazil 12.25%, 3/06/30 290 4.02 4/20/10 (24,172) JPMorgan Chase & Co. Republic of Hungary 4.75%, 2/03/15 330 0.30 10/20/15 1,863 SALE CONTRACTS: Citigroup Global Markets, Inc. Federal Republic of Brazil 12.25%, 3/06/30 609 1.98 4/20/07 13,773 Citigroup Global Markets, Inc. Federal Republic of Brazil 12.25%, 3/06/30 600 3.09 8/20/10 31,853 Citigroup Global Markets, Inc. Federal Republic of Brazil 12.25%, 3/06/30 200 4.40 5/20/06 4,222 Citigroup Global Markets, Inc. Republic of Colombia 8.375%, 2/15/27 250 1.13 1/20/07 3,070 Citigroup Global Markets, Inc. Republic of Philippines 10.625%, 3/16/25 130 4.95 3/20/09 12,373 Credit Suisse First Boston Federal Republic of Brazil 12.25%, 3/06/30 175 6.90 6/20/07 22,203 Credit Suisse First Boston Federal Republic of Venezuela 9.25%, 9/15/27 520 3.17 9/21/15 9,929
9 GLOBAL DOLLAR GOVERNMENT PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ CREDIT DEFAULT SWAP CONTRACTS (SEE NOTE D) (CONTINUED)
NOTIONAL UNREALIZED SWAP COUNTERPARTY & AMOUNT INTEREST TERMINATION APPRECIATION/ REFERENCED OBLIGATION (000'S) RATE DATE (DEPRECIATION) - -------------------------------------------------------------------------------------------- SALE CONTRACTS (CONTINUED): Deutche Bank AG London Federal Republic of Brazil 12.25%, 3/06/30 609 1.90% 10/20/07 $12,273 Morgan Stanley Federal Republic of Brazil 12.25%, 3/06/30 160 3.80 8/20/06 5,653 JPMorgan Chase & Co. 360 1.04 10/20/10 (3,201) OAO Gazprom 9.125%, 4/25/07 OAO Gazprom 10.50%, 10/21/09 OAO Gazprom 7.80%, 9/27/10 OAO Gazprom 9.625%, 3/01/13 OAO Gazprom 5.875%, 6/01/15 OAO Gazprom 8.625%, 4/28/34, puttable on 4/28/14
(a) Variable rate coupon, rate shown as of December 31, 2005. (b) Floating rate security. Stated interest rate was in effect at December 31, 2005. (c) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $7,001,570 or 24.6% of net assets. (d) Coupon increases periodically based upon a predetermined schedule. Stated interest rate in effect at December 31, 2005. (e) PIK (Paid-in-Kind) payments. See Notes to Financial Statements. 10 GLOBAL DOLLAR GOVERNMENT PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $25,924,384) $ 28,022,226 Cash 38,681 Unrealized appreciation of swap contracts 117,212 Interest receivable 634,357 Receivable for capital stock sold 2,343 ------------ Total assets 28,814,819 ------------ LIABILITIES Unrealized depreciation of swap contracts 119,545 Payable for investment securities purchased 94,573 Payable for capital stock redeemed 45,448 Advisory fee payable 12,026 Distribution fee payable 1,139 Transfer agent fee payable 57 Accrued expenses 87,030 ------------ Total liabilities 359,818 ------------ NET ASSETS $ 28,455,001 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 1,975 Additional paid-in capital 23,482,342 Undistributed net investment income 1,623,631 Accumulated net realized gain on investment transactions 1,251,544 Net unrealized appreciation of investments 2,095,509 ------------ $ 28,455,001 ============ CLASS A SHARES Net assets $ 23,073,088 ============ Shares of capital stock outstanding 1,600,601 ============ Net asset value per share $ 14.42 ============ CLASS B SHARES Net assets $ 5,381,913 ============ Shares of capital stock outstanding 374,791 ============ Net asset value per share $ 14.36 ============ See Notes to Financial Statements. 11 GLOBAL DOLLAR GOVERNMENT PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Interest (net of foreign taxes withheld of $3,036) $ 2,082,778 ------------ EXPENSES Advisory fee 138,486 Distribution fee -- Class B 13,316 Custodian 183,656 Administrative 75,250 Audit 41,750 Printing 13,851 Legal 4,141 Directors' fees 1,000 Transfer agency 794 Miscellaneous 7,029 ------------ Total expenses before interest 479,273 Interest expense 1,638 ------------ Total expenses 480,911 ------------ Net investment income 1,601,867 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on: Investment transactions 1,229,063 Written options 84,713 Swap contracts 45,182 Net change in unrealized appreciation/depreciation of: Investments (403,786) Written options (318) Swap contracts (61,951) ------------ Net gain on investment transactions 892,903 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,494,770 ============ See Notes to Financial Statements. 12 GLOBAL DOLLAR GOVERNMENT PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============ ============ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,601,867 $ 1,647,165 Net realized gain on investment transactions 1,358,958 2,216,471 Net change in unrealized appreciation/ depreciation of investments (466,055) (1,367,714) ------------ ------------ Net increase in net assets from operations 2,494,770 2,495,922 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (1,361,063) (1,636,884) Class B (330,495) (308,029) Net realized gain on investment transactions Class A (1,031,497) -0- Class B (258,602) -0- CAPITAL STOCK TRANSACTIONS Net increase (decrease) 1,030,988 (2,234,889) ------------ ------------ Total increase (decrease) 544,101 (1,683,880) NET ASSETS Beginning of period 27,910,900 29,594,780 ------------ ------------ End of period (including undistributed net investment income of $1,623,631 and $1,674,385, respectively) $ 28,455,001 $ 27,910,900 ============ ============ See Notes to Financial Statements. 13 GLOBAL DOLLAR GOVERNMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Global Dollar Government Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek a high level of current income and, secondarily, capital appreciation. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investments transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 7. REPURCHASE AGREEMENTS It is the policy of the Portfolio that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .75% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 15 GLOBAL DOLLAR GOVERNMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. The Portfolio compensates Alliance Global Investor Services, Inc. (AGIS), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 25,401,161 $ 22,673,419 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding swap contracts) are as follows: Cost $ 25,961,526 ============= Gross unrealized appreciation $ 2,098,218 Gross unrealized depreciation (37,518) ------------- Net unrealized appreciation $ 2,060,700 ============= 1. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not per- 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ form under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. Transactions in written options for the year ended December 31, 2005 were as follows: NUMBER OF PREMIUMS CONTRACTS RECEIVED ============= ============= OPTIONS OUTSTANDING AT DECEMBER 31, 2004 490,000 $ 7,113 Options written. 6,305,000 77,602 Options terminated in closing purchase transactions (2,711,000) (36,642) Options expired (4,084,000) (48,073) ------------- ------------- OPTIONS OUTSTANDING AT DECEMBER 31, 2005 -0- $ -0- ============= ============= 2. SWAP AGREEMENTS The Portfolio may enter into swaps on sovereign debt obligations to protect itself from interest rate fluctuations on the underlying debt instruments and for investment purposes. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Risks may arise as a result of the failure of the counterparty to the 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 the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates or in the underlying value of the securities. As of January 1, 2004, the Portfolio has adopted the method of accounting for interim payments on swap contracts in accordance with Financial Accounting Standards Board Statement No. 133. The Portfolio accrues for the interim payments 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, in addition to realized gain/loss recorded upon the termination of swap contracts on the statements of operations. Prior to January 1, 2004, these interim payments were reflected within interest income/expense in the statement of operations. Fluctuations in the value of swap contracts are recorded as a component of net change in unrealized appreciation/depreciation of investments. The Portfolio may enter into credit default swaps. The Portfolio may purchase credit protection on the referenced obligation of the credit default swap ("Buy Contract") or provide credit protection on the referenced obligation of the credit default swap ("Sale Contract"). A sale/(buy) in a credit default swap provides upon the occurrence of a credit event, as defined in the swap agreement, for the Portfolio to buy/(sell) from/(to) the counterparty at the notional amount (the "Notional Amount") and receive/(deliver) the principal amount of the referenced obligation. If a credit event occurs, the maximum payout amount for a Sale Contract is limited to the Notional Amount of the swap contract ("Maximum Payout Amount"). During the term of the swap agreement, the Portfolio receives/(pays) semi-annual fixed payments 17 GLOBAL DOLLAR GOVERNMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ from/(to) the respective counterparty, calculated at the agreed upon interest rate applied to the Notional Amount. These interim payments are recorded within unrealized appreciation/depreciation of swap contracts on the statement of assets and liabilities. Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer and no credit event occurs, it will lose its investment. In addition, if the Portfolio is a seller and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a loss to the Portfolio At December 31, 2005, the Portfolio had Sale Contracts outstanding with Maximum Payout Amounts aggregating $3,613,000, with net unrealized appreciation of $112,148 and terms ranging from 5 months to 9 years, as reflected in the portfolio of investments. In certain circumstances, the Portfolio may hold Sale Contracts on the same referenced obligation and with the same counterparty it has purchased credit protection, which may reduce its obligation to make payments on Sale Contracts, if a credit event occurs. The Portfolio had Buy Contracts outstanding with a Notional Amount of $1,250,000 with respect to the same referenced obligations and same counterparties of certain Sale Contracts outstanding, which reduced its obligation to make payments on Sale Contracts to $2,363,000 as of December 31, 2005. 3. REVERSE REPURCHASE AGREEMENTS Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. For the year ended December 31, 2005, the average amount of reverse repurchase agreements outstanding was $437,422 and the daily weighted average interest rate was 1.25%. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes designated Class A and Class B. Each class consist of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 351,062 281,328 $ 4,999,771 $ 4,025,798 Shares issued in reinvestment of dividends and distributions 177,358 127,285 2,392,560 1,636,884 Shares redeemed (478,486) (677,105) (6,879,459) (9,595,145) ----------- ----------- ------------- ------------- Net increase (decrease) 49,934 (268,492) $ 512,872 $ (3,932,463) =========== =========== ============= ============= 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS B Shares sold 106,971 193,217 $ 1,536,498 $ 2,745,198 Shares issued in reinvestment of dividends and distributions 43,799 23,990 589,098 308,029 Shares redeemed (113,663) (97,415) (1,607,480) (1,355,653) ----------- ----------- ------------- ------------- Net increase 37,107 119,792 $ 518,116 $ 1,697,574 =========== =========== ============= ============= NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Concentration of Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 1,800,375 $ 1,944,913 Net long-term capital gains 1,181,282 -0- -------------- -------------- Total taxable distributions 2,981,657 1,944,913 -------------- -------------- Total distributions paid $ 2,981,657 $ 1,944,913 ============== ============== 19 GLOBAL DOLLAR GOVERNMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 1,856,729 Undistributed long-term capital gains 1,053,443 Unrealized appreciation/(depreciation) 2,060,512(a) ------------ Total accumulated earnings/(deficit) $ 4,970,684 ============ (a) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the difference between the book and tax treatment of swap income. During the current fiscal year, permanent differences, primarily due to the tax treatment of swap income and paydown gains/losses, resulted in a net increase in undistributed net investment income and a corresponding decrease in accumulated net realized gain on investment transactions. These reclassifications had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. 21 GLOBAL DOLLAR GOVERNMENT PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 22 GLOBAL DOLLAR GOVERNMENT PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004(a) 2003 2002 2001(b) ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $14.79 $14.53 $11.43 $10.63 $10.76 INCOME FROM INVESTMENT OPERATIONS Net investment income (c) .84 .86(d) .95 .94(d) 1.11(d) Net realized and unrealized gain (loss) on investment transactions .46 .45 2.83 .70 (.10) Net increase in net asset value from operations 1.30 1.31 3.78 1.64 1.01 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.95) (1.05) (.68) (.84) (1.14) Distributions from net realized gain on investment transactions (.72) -0- -0- -0- -0- Total dividends and distributions (1.67) (1.05) (.68) (.84) (1.14) Net asset value, end of period $14.42 $14.79 $14.53 $11.43 $10.63 TOTAL RETURN Total investment return based on net asset value (e) 9.62% 10.12% 33.41% 16.14% 9.37% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $23,073 $22,932 $26,433 $22,198 $11,249 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.69% 1.76% 1.90% 1.40% .95% Expenses, before waivers and reimbursements 1.69% 1.93% 1.90% 2.00% 2.37% Expenses, before waivers and reimbursements excluding interest expense 1.68% 1.92% 1.88% 2.00% 2.37% Net investment income 5.83% 6.07%(d) 7.20% 8.83%(d) 10.63%(d) Portfolio turnover rate 91% 188% 150% 142% 176%
See footnote summary on page 24. 23 GLOBAL DOLLAR GOVERNMENT PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B -------------------------------------------------- JULY 22, YEAR ENDED DECEMBER 31, 2002(F) TO ------------------------------------- DECEMBER 31, 2005 2004(a) 2003 2002 ----------- ----------- ----------- ----------- Net asset value, beginning of period $14.74 $14.51 $11.42 $10.20 INCOME FROM INVESTMENT OPERATIONS Net investment income (c) .80 .82(d) .88 .35(d) Net realized and unrealized gain on investment transactions .46 .45 2.89 .87 Net increase in net asset value from operations 1.26 1.27 3.77 1.22 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.92) (1.04) (.68) -0- Distributions from net realized gain on investment transactions (.72) -0- -0- -0- Total dividends and distributions (1.64) (1.04) (.68) -0- Net asset value, end of period $14.36 $14.74 $14.51 $11.42 TOTAL RETURN Total investment return based on net asset value (e) 9.35% 9.81% 33.34% 11.96% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $5,382 $4,979 $3,162 $226 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.93% 2.07% 2.14% 1.63%(g) Expenses, before waivers and reimbursements 1.93% 2.24% 2.14% 1.99%(g) Expenses, before waivers and reimbursements excluding interest expense 1.93% 2.23% 2.12% 1.99%(g) Net investment income 5.60% 5.74%(d) 6.67% 9.12%(d)(g) Portfolio turnover rate 91% 188% 150% 142%
(a) As of January 1, 2004, the Portfolio has adopted the method of accounting for interim payments on swap contracts in accordance with Financial Accounting Standards Board Statement No. 133. These interim payments are reflected within net realized and unrealized gain (loss) on swap contracts, however, prior to January 1, 2004, these interim payments were reflected within interest income/expense on the statement of operations. The effect of this change for the year ended December 31, 2004, was to decrease net investment income per share by $.02 and increase net realized and unrealized gain (loss) on investment transactions per share by $.02 for Class A and B. Consequently, the ratios of net investment income to average net assets were decreased by 0.17% for Class A and B respectively. (b) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change to Class A was to decrease net investment income by less than $.01 per share, decrease net realized and unrealized loss on investments by less than $.01 per share, and decrease the ratio of net investment income to average net assets from 10.65% to 10.63%. (c) Based on average shares outstanding. (d) Net of expenses waived or reimbursed by the Adviser. (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 the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (f) Commencement of distribution. (g) Annualized. 24 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN GLOBAL DOLLAR GOVERNMENT PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Global Dollar Government Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Global Dollar Government Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 25 RESULTS OF SHAREHOLDER MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Global Dollar Government Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.B. Issuing Senior Securities 1,022,252 44,593 28,313 0 and Borrowing Money 3.D. Concentration of 1,017,131 46,701 31,326 0 Investments 3.E. Real Estate and Companies 1,021,262 43,412 30,484 0 that Deal in Real Estate 3.F. Commodities, Commodity 1,020,986 43,688 30,484 0 Contracts and Futures Contracts 3.G. Loans 1,020,599 46,321 28,238 0 3.I. Exercising Control 1,020,144 44,455 30,559 0 3.K. Oil, Gas, and Other Types 1,006,622 60,223 28,313 0 of Minerals or Mineral Leases 3.L. Purchases of Securities 1,003,575 63,270 28,313 0 on Margin 3.M. Short Sales 1,003,575 61,024 30,559 0 3.N. Pledging, Hypothecating, 1,003,575 62,607 28,976 0 Mortgaging, or Otherwise Encumbering Assets 4.A. The reclassification of the 1,002,059 62,540 30,599 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
26 GLOBAL DOLLAR GOVERNMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer PAUL DENOON(2), Vice President MICHAEL L. MON(2), Vice President MATTHEW SHERIDAN(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Global Fixed Income: Emerging Market Investment Team. Mr. Paul DeNoon, a member of the Global Fixed Income: Emerging Market Investment Team is responsible for the day-to-day management of the Portfolio's portfolio. 27 GLOBAL DOLLAR GOVERNMENT PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, Inc.; 1345 Avenue of the Americas Capital Management Corporation SCB, Inc. New York, NY 10105 ("ACMC") since 2001 and Chairman of 10/2/57 the Board of AllianceBernstein Investment (2005) Research and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
28 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and Management L.P. (investment advisory firm) from December The Merger Fund 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Attn: Philip L. Kirstein Fund Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers (semi-conductors); Cirrus Glenbrook, NV 89413 Inc., with which he has been associated since Logic Corporation 3/7/36 prior to 2001. He is also President of the (semi-conductors); (2005) Arbor Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, the George Lucas Penthouse 10 Texas, from 2003 to present, and President Educational Foundation; San Francisco, CA 94104-3402 since company acquired in 2005, and name and Chairman of the Board 10/10/41 changed from DuPont Photomasks. Prior to of the Smithsonian's (2005) the company's sale in 2005, he was Chairman National Museum of and CEO. He has also been Principal of Turner Natural History Venture Associates since 1993.
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 29 GLOBAL DOLLAR GOVERNMENT PORTFOLIO MANAGEMENT OF THE FUND (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning Fund's Officers is listed below.
PRINCIPAL NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent 5/29/45 and Independent Compliance Officer of the AllianceBernstein Compliance Officer Funds, with which he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Paul J. DeNoon Vice President Senior Vice President of ACMC**, with which 4/18/62 he has been associated since prior to 2001. Michael L. Mon Vice President Vice President of ACMC**, with which he has 3/2/69 been associated since prior to 2001. Matthew Sheridan Vice President Vice President of ACMC**, with which he has 3/19/75 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General 11/13/55 Counsel and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global 10/4/50 Financial Officer Investor Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has 8/3/51 been associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 30 GLOBAL DOLLAR GOVERNMENT PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Global Dollar Government Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 31 GLOBAL DOLLAR GOVERNMENT PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. The directors noted that since the Portfolio does not engage in brokerage transactions, the Adviser does not receive soft dollar benefits in respect of portfolio transactions of the Portfolio. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, and that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services. The directors recognized that the Adviser's profitability would be somewhat lower if the Adviser's affiliates did not receive the benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 9 to 6 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 13 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the JP Morgan Emerging Markets Bond Index Plus (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-, 3-, 5- and 10-year and since inception periods (May 1994 inception). The directors noted that in the Performance Group and Performance Universe comparisons, the Portfolio was in the first quintile in all periods reviewed (with the Performance Group comparison adjusted to the 2nd quintile in the 1-year period by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles). The comparative information showed that the Portfolio underperformed the Index in the YTD, 1- and 10-year and since inception periods and outperformed the 33 GLOBAL DOLLAR GOVERNMENT PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Index in the 3- and 5-year periods. Based on their review, the directors concluded that the Portfolio's relative performance over time was highly satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for the Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the relatively low level of assets of the Portfolio would result in a fee rate that would be significantly higher than what the Portfolio's Advisory Agreement provides, but that if the 25 basis point impact of the Portfolio's administrative expense reimbursement provision was taken into account, the application of such fee rate schedule results in a materially lower rate of total compensation to the Adviser than what is paid by the Portfolio. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 75 basis points was slightly lower than the Expense Group median (Lipper reported the Portfolio's fee prior to 2004--the current fee is 50 basis points). The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 25 basis points and that as a result the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement was significantly higher than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was significantly higher than the medians for the Expense Group and Expense Universe. The directors noted that the Portfolio's relatively small size (less than $30 million as of September 30, 2005) caused the administrative expense reimbursement, which does not vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable in the Portfolio's particular circumstances. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 35 GLOBAL DOLLAR GOVERNMENT PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Global Dollar Government Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplate eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- High Income 50 bp on 1st $2.5 billion Global Dollar Government 45 bp on next $2.5 billion Portfolio 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Global Dollar Government Portfolio $69,000 0.25% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Global Dollar Government Portfolio Class A 1.92% December 31 Class B 2.23% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS ALLIANCE EFFECTIVE ALLIANCE 09/30/05 INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- Global Dollar $28.9 Emerging Market 0.604% Government Portfolio Debt Schedule 65 bp on 1st $20 m 50 bp on next $20 m 40 bp on next $20 m 35 bp on the balance Minimum account size $20 m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has almost the same advisory fee schedule as the Fund.(3) (3) The AllianceBernstein Emerging Market Debt Fund, Inc., whose investment style is similar to the Fund, has an advisory fee schedule with the same breakpoints as the Fund, although the fund's advisory fees are based on the fund's adjusted total assets, which is the average daily value of the total assets of the fund, minus the sum of accrued liabilities of the fund, other than the principal amount of money borrowed. 37 GLOBAL DOLLAR GOVERNMENT PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund that invests in fixed income securities: ASSET CLASS FEE(4) - ------------------------------------------------------------ Fixed Income 0.65% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Global Dollar Government Portfolio 0.750 0.766 3/9 The directors noted that the Fund's approximate current size contractual effective fee rate of 0.75% was slightly lower than the Lipper group median (Lipper reported the Fund's fee prior to 2004; the current fee is 0.50%). Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: EXPENSE LIPPER LIPPER LIPPER LIPPER RATIO UNIVERSE UNIVERSE GROUP GROUP FUND (%)(8) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- Global Dollar 1.760 0.978 14/14 0.978 9/9 Government Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces (4) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. (5) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (6) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (7) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (8) Most recent fiscal year end Class A share total expense ratio. 38 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund increased during calendar 2004 relative to 2003. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent and distribution related services to the Fund and receive transfer agent fees and Rule 12b-1 payments. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - --------------------------------------------------------------------- Global Dollar Government Portfolio $10,677 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - --------------------------------------------------------------------- Global Dollar Government Portfolio $91,143 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. (9) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 39 GLOBAL DOLLAR GOVERNMENT PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. GLOBAL DOLLAR GOVERNMENT PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 2/9 2/13 3 year 1/9 1/13 5 year 1/9 1/13 10 year 1/6 1/10 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- SINCE FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION - ------------------------------------------------------------------------------- GLOBAL DOLLAR GOVERNMENT PORTFOLIO 13.45 22.44 15.48 13.13 12.56 J.P. Morgan EMBI Plus Index 15.15 21.81 12.70 14.37 13.84 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (10) The performance rankings are for the Class A shares of the Fund. (11) The Lipper Performance Group is identical to the Lipper Expense Group. (12) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (13) The performance returns are for the Class A shares of the Fund. (14) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 40 (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. Annual Report December 31, 2005 > AllianceBernstein High Yield Portfolio INVESTMENT PRODUCTS OFFERED - ----------------------------- o ARE NOT FDIC INSURED o MAY LOSE VALUE o ARE NOT BANK GUARANTEED - ----------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. HIGH YIELD PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ LETTER TO INVESTORS February 7, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein High Yield Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks the highest level of current income available without assuming undue risk by investing principally in high-yielding fixed-income securities. As a secondary objective, the Portfolio seeks capital appreciation. The Portfolio invests a substantial portion of its assets in higher-yielding, higher-risk, fixed-income securities (commonly known as "junk bonds") that are rated below investment grade and are considered to have predominantly speculative characteristics. INVESTMENT RESULTS The table on page 4 shows the Portfolio's performance compared to its new benchmark, the Lehman Brothers High Yield Index (2% constrained), for the one- and five-year periods ended December 31, 2005 and since inception of the Portfolio's Class A shares on October 27, 1997. Performance is also shown for the Portfolio's old benchmark, the Credit Suisse First Boston High Yield (CSFBHY) Index. The Portfolio's benchmark was changed because the new benchmark more closely matches the Portfolio's investment style. For the annual reporting period ended December 31, 2005, the Portfolio underperformed its new benchmark. The Portfolio's security selection detracted from performance during the year, while the Portfolio's sector allocation contributed positively to relative performance. Specifically, security selection within the building products and container/packaging industry detracted from performance. Also detracting modestly from performance was the Portfolio's security selection in the cable/media industry. Contributing positively to performance was the Portfolio's underweight positions in both the paper & forest products and the automotive industries, which performed poorly. MARKET REVIEW AND INVESTMENT STRATEGY U.S. fixed-income returns were generally modest during the annual reporting period, reflecting higher U.S. interest rates, a significant flattening of the yield curve and modest spread movement in non-Treasury sectors. The high-yield market returned a modest 2.25%, according to the Credit Suisse First Boston (CSFB) High Yield Index, with single B-rated debt outperforming the other quality tiers. For the year, BB-rated debt returned 2.31% and B-rated debt returned 3.83%, while CCC-rated debt underperformed at -3.76%. Spreads in the high-yield sector widened somewhat; however, they remained at historical tights and benefited from low volatility and an historically low default rate. At the end of the annual reporting period, the high-yield spread over Treasuries was 388 basis points, according to CSFB, a widening of 42 basis points during the year. Dampening high-yield performance for the year was a greater incidence of idiosyncratic risk--where shareholder-friendly events were on the rise, including an increase in merger & acquisition and leveraged buy-out activity. Also, while the high-yield default rate remained quite low, it notched higher during the year. This was caused by a number of high-profile bankruptcies, including Northwest Airlines and Delta Air Lines, the auto supplier Delphi, the broker Refco, and the power company Calpine, which alone had close to $17 billion in debt outstanding. Not surprisingly, autos were one of the most volatile sectors of the year as General Motors' (GM) and Ford Motor Company's problems continued to mount after being downgraded to non-investment grade status in the second quarter. In the fourth quarter, Standard & Poor's lowered GM's rating to B, warning that the risk of bankruptcy had increased due to several factors. These factors included a deteriorated financial condition, as well as fierce foreign competition, the slowdown in large sport utility vehicle sales and GM's massive pension and health care cost burdens. Near year-end, Fitch Ratings cut Ford Motor Credit's ratings to non-investment grade for similar reasons, effectively knocking its debt out of investment-grade indices. For the year, autos registered a staggering -13.2%, according to CSFB. During the second half of the year, the Portfolio's overweight in higher-beta credits was reduced to an underweight. Although credit metrics, corporate profits and cash flow remain strong, spreads are historically tight at a time when idiosyncratic and systemic risks are increasing--leaving little margin for error. In this environment, security selection is playing a significant role in the Portfolio's management team's (the "Team's") quest to add value, with an emphasis on avoiding problem credits. Given increased risks and a general lack of compelling opportunities, the Team has continued to maintain a well-diversified portfolio. 1 HIGH YIELD PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ While not one industry stood out as particularly over- or undervalued, the Team has identified certain industries that, in its view, warrant an over- or underweight. For instance, the Portfolio is overweight in cable (with an emphasis on satellite), wireless (international), financial and manufacturing. In the Team's view, these industries offer attractive value and solid fundamentals. The Portfolio is underweight in autos, technology, food/tobacco and the paper industries, where credit trends have deteriorated or the upside potential is limited. 2 HIGH YIELD PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure Neither the unmanaged Credit Suisse First Boston (CSFB) High Yield Index nor the Lehman Brothers (LB) High Yield Index (2% constrained) reflects fees and expenses associated with the active management of a mutual fund portfolio. The CSFB High Yield Index is a trader-priced portfolio constructed to mirror the high yield debt market. The LB High Yield Index (2% constrained) covers the universe of fixed-rate, non-investment grade debt. Representation of any single bond issuer within the Index is limited to 2%. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein High Yield Portfolio. A Word About Risk The Portfolio can invest in foreign securities, including emerging markets, which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Price fluctuation in the Portfolio's securities may be caused by changes in the general level of interest rates or changes in bond credit quality ratings. Please note, as interest rates rise, existing bond prices fall and can cause the value of an investment in the Portfolio to decline. Changes in interest rates have a greater effect on bonds with longer maturities than on those with shorter maturities. The Portfolio invests in high yield bonds (i.e., "junk bonds") which involves a greater risk of default and price volatility than other bonds. Investing in non-investment grade bonds presents special risks, including credit risk. Investments in the Portfolio are not guaranteed because of the fluctuation in the net asset value of the underlying fixed-income related investments. Similar to direct bond ownership, bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the Portfolio. Portfolio purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. While the Portfolio invests principally in bonds and other fixed-income securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. (HISTORICAL PERFORMANCE CONTINUED ON NEXT PAGE) 3 HIGH YIELD PORTFOLIO HISTORICAL PERFORMANCE (CONTINUED FROM PREVIOUS PAGE) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Returns THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------ PERIODS ENDED DECEMBER 31, 2005 1 Year 5 Years Since Inception* - ------------------------------------------------------------------------------- AllianceBernstein High Yield Portfolio Class A 1.78% 6.10% 2.62% - ------------------------------------------------------------------------------- AllianceBernstein High Yield Portfolio Class B 1.54% n/a 10.64% - ------------------------------------------------------------------------------- CSFB High Yield Index 2.25% 9.82% 5.91% - ------------------------------------------------------------------------------- Lehman Brothers High Yield Index (2% constrained) 2.76% 9.12% 5.38% - ------------------------------------------------------------------------------- n/a: not applicable * Since inception of the Portfolio's Class A shares on 10/27/97 and Class B shares on 7/22/02. The since inception benchmark returns are from the closest month-end to the Portfolio's Class A share inception date, which is 10/31/97. ALLIANCEBERNSTEIN HIGH YIELD PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 10/27/97*-12/31/05 CSFB HIGH YIELD INDEX: $15,989 LEHMAN BROTHERS HIGH YIELD INDEX (2% CONSTRAINED): $15,497 ALLIANCEBERNSTEIN HIGH YIELD PORTFOLIO CLASS A: $12,360 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL] AllianceBernstein Lehman Brothers High Yield Portfolio CSFB High High Yield Index Class A Yield Index (2% constrined) - ------------------------------------------------------------------------------- 10/27/97* $ 10,000 $ 10,000 $ 10,000 12/31/97 $ 10,330 $ 10,163 $ 10,192 12/31/98 $ 9,949 $ 10,222 $ 10,383 12/31/99 $ 9,692 $ 10,557 $ 10,631 12/31/00 $ 9,193 $ 10,007 $ 10,015 12/31/01 $ 9,472 $ 10,588 $ 10,562 12/31/02 $ 9,185 $ 10,916 $ 10,537 12/31/03 $ 11,247 $ 13,966 $ 13,569 12/31/04 $ 12,144 $ 15,637 $ 15,081 12/31/05 $ 12,360 $ 15,989 $ 15,497 * SINCE INCEPTION OF THE PORTFOLIO'S CLASS A SHARES ON 10/27/97. CSFB HIGH YIELD INDEX AND LEHMAN BROTHERS HIGH YIELD INDEX DATA IS AS OF 10/29/97, THE DATE CLOSEST TO THE PORTFOLIO'S INCEPTION DATE FOR WHICH DATA IS AVAILABLE. THIS CHART ILLUSTRATES THE TOTAL VALUE OF AN ASSUMED $10,000 INVESTMENT IN ALLIANCEBERNSTEIN HIGH YIELD PORTFOLIO CLASS A SHARES (FROM 10/27/97* TO 12/31/05) AS COMPARED TO THE PERFORMANCE OF THE PORTFOLIO'S NEW BENCHMARK, THE LEHMAN BROTHERS HIGH YIELD INDEX (2% CONSTRAINED), AND ITS OLD BENCHMARK, THE CREDIT SUISSE FIRST BOSTON (CSFB) HIGH YIELD INDEX. THE CHART ASSUMES THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. See Historical Performance and Benchmark disclosures on previous page. 4 HIGH YIELD PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Account Value Account Value Expenses Paid Annualized High Yield Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - --------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000 $1,010.88 $5.58 1.10% Hypothetical (5% return before expenses) $1,000 $1,019.66 $5.60 1.10% Class B Actual $1,000 $1,009.54 $6.89 1.36% Hypothetical (5% return before expenses) $1,000 $1,018.35 $6.92 1.36%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 5 HIGH YIELD PORTFOLIO SECURITY TYPE BREAKDOWN December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ SECURITY TYPE U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Corporate Debt Obligations $43,997,433 95.5% Preferred Stocks 717,300 1.6 Warrant 1 0.0 ----------- ------ Total Investments* 44,714,734 97.1 Cash and receivables, net of liabilities 1,338,732 2.9 ----------- ------ Net Assets $46,053,466 100.0% * Excludes short-term investments. 6 HIGH YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------------- CORPORATE DEBT OBLIGATIONS-95.5% AEROSPACE/DEFENSE-1.0% L-3 Communications Corp. 5.875%, 1/15/15 $ 195 $189,150 Sequa Corp. 9.00%, 8/01/09 70 74,375 Transdigm, Inc. 8.375%, 7/15/11 185 194,713 ---------- 458,238 AUTOMOTIVE-4.4% Affinia Group, Inc. 9.00%, 11/30/14 85 67,150 Asbury Automotive Group 8.00%, 3/15/14 109 104,095 Ford Motor Co. 7.45%, 7/16/31 304 206,720 Ford Motor Credit Co. 4.95%, 1/15/08 195 174,719 7.00%, 10/01/13 129 110,225 General Motors Acceptance Corp. 6.875%, 9/15/11 260 237,105 8.00%, 11/01/31 365 349,626 General Motors Corp. 7.75%, 3/15/36 (a) 410 92,250 HLI Operating Co., Inc. 10.50%, 6/15/10 170 138,975 Keystone Automotive Operations, Inc. 9.75%, 11/01/13 158 136,670 TRW Automotive 9.375%, 2/15/13 93 100,673 11.00%, 2/15/13 67 75,208 United Auto Group, Inc. 9.625%, 3/15/12 115 121,038 Visteon Corp. 7.00%, 3/10/14 140 108,150 ---------- 2,022,604 BROADCASTING/ MEDIA-1.4% Allbritton Communications Co. 7.75%, 12/15/12 165 165,825 Corus Entertainment, Inc. (Canada) 8.75%, 3/01/12 120 129,900 Emmis Communications Corp. 9.745%, 6/15/12 (b) 80 80,300 LIN Television Corp. Series B 6.50%, 5/15/13 185 177,369 Sirius Satellite Radio, Inc. 9.625%, 8/01/13 (c) 95 93,575 ---------- 646,969 BUILDING/ REAL ESTATE-3.6% Associated Materials, Inc. 11.25%, 3/01/14 (a) 385 188,650 D.R. Horton, Inc. 6.875%, 5/01/13 190 198,274 KB HOME 7.75%, 2/01/10 190 198,499 M/I Homes, Inc. 6.875%, 4/01/12 205 184,500 Meritage Homes 6.25%, 3/15/15 295 268,450 Schuler Homes, Inc. 10.50%, 7/15/11 155 166,625 WCI Communities, Inc. 6.625%, 3/15/15 170 147,900 Williams Lyon Homes, Inc. 10.75%, 4/01/13 285 294,262 ---------- 1,647,160 CABLE-7.7% Cablevision Systems Corp. Series B 8.00%, 4/15/12 355 331,925 Charter Communications Holdings LLC 11.75%, 5/15/14(a)(c) 1,275 707,624 CSC Holdings, Inc. 7.00%, 4/15/12 (c) 190 179,550 7.625%, 7/15/18 195 185,250 DirecTV Holdings LLC 6.375%, 6/15/15 280 273,700 EchoStar DBS Corp. 6.375%, 10/01/11 150 144,375 Innova S. de R.L., SA (Mexico) 9.375%, 9/19/13 225 250,043 Insight Communications Co., Inc. 12.25%, 2/15/11 (a) 285 297,825 Insight Midwest LP/Insight Capital, Inc. 9.75%, 10/01/09 190 195,700 Intelsat Bermuda Ltd. 8.625%, 1/15/15 (c) 245 247,450 8.695%, 1/15/12 (b)(c) 65 66,056 PanAmSat Corp. 9.00%, 8/15/14 168 175,980 PanAmSat Holding Corp. 10.375%, 11/01/14 (a) 328 229,600 Rogers Cable, Inc. (Canada) 6.75%, 3/15/15 245 248,675 ---------- 3,533,753 CHEMICALS-4.4% Borden U.S. Finance Corp./ Nova Scotia Finance ULC 9.00%, 7/15/14 (c) 175 173,250 7 HIGH YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------------- Equistar Chemical Funding LP 10.125%, 9/01/08 $ 185 $200,725 10.625%, 5/01/11 130 143,000 Huntsman ICI Chemicals LLC 10.125%, 7/01/09 124 128,030 Huntsman LLC 11.50%, 7/15/12 178 201,585 Nell AF SARL (Luxembourg) 8.375%, 8/15/15 (c) 420 415,800 Quality Distribution LLC 9.00%, 11/15/10 245 218,356 Rhodia, SA (France) 8.875%, 6/01/11 310 317,750 Tronox Worldwide LLC/ Tronox Finance Corp. 9.50%, 12/01/12 (c) 80 81,600 Westlake Chemical Corp. 8.750%, 7/15/11 125 133,750 ---------- 2,013,846 COMMUNICATIONS FIXED-5.4% Cincinnati Bell, Inc. 7.00%, 2/15/15 110 107,800 Citizens Communications Co. 6.25%, 1/15/13 270 261,225 Eircom Funding (Ireland) 8.25%, 8/15/13 245 262,150 Hawaiian Telcom Communications, Inc. 9.75%, 5/01/13 (c) 90 87,975 12.50%, 5/01/15 (c) 90 84,150 MCI, Inc. 7.688%, 5/01/09 150 154,875 Qwest Capital Funding, Inc. 7.25%, 2/15/11 640 647,999 Qwest Corp. 6.875%, 9/15/33 265 249,100 8.875%, 3/15/12 165 186,038 Time Warner Telecom, Inc. 10.125%, 2/01/11 175 183,313 Valor Telecommunications Enterprises LLC 7.75%, 2/15/15 275 287,374 ---------- 2,511,999 COMMUNICATIONS MOBILE-6.4% Digicel Ltd. (Bermuda) 9.25%, 9/01/12 (c) 261 268,178 Inmarsat Finance Plc (United Kingdom) 7.625%, 6/30/12 145 149,531 10.375%, 11/15/12 (a) 205 170,919 KYIVSTAR (Denmark) 10.375%, 8/17/09 (c) 500 551,799 MobiFon Holdings BV (Netherlands) 12.50%, 7/31/10 505 585,799 Mobile Telesystems Finance, SA (Luxembourg) 8.00%, 1/28/12 (c) 286 291,720 Nextel Communications, Inc. 6.875%, 10/31/13 265 276,452 Rogers Wireless, Inc. (Canada) 7.25%, 12/15/12 185 194,481 7.50%, 3/15/15 233 251,640 Rural Cellular Corp. 9.75%, 1/15/10 210 212,100 ---------- 2,952,619 CONSUMER MANUFACTURING-2.5% ACCO Brands Corp. 7.625%, 8/15/15 235 221,488 Broder Brothers Co. 11.25%, 10/15/10 182 173,355 Jostens IH Corp. 7.625%, 10/01/12 240 241,200 Levi Strauss & Co. 8.927%, 4/01/12 (b) 190 191,425 Playtex Products, Inc. 8.00%, 3/01/11 190 202,350 Quiksilver, Inc. 6.875%, 4/15/15 105 101,063 ---------- 1,130,881 DIVERSFIED MEDIA-5.0% American Media Operation 8.875%, 1/15/11 140 119,000 10.25%, 5/01/09 155 141,825 Dex Media, Inc. 8.00%, 11/15/13 200 204,000 Dex Media East LLC 9.875%, 11/15/09 50 54,063 12.125%, 11/15/12 91 106,470 Dex Media West LLC Series B 8.50%, 8/15/10 80 83,800 9.875%, 8/15/13 239 265,290 Lamar Media Corp. 6.625%, 8/15/15 130 130,488 Liberty Media Corp. 5.70%, 5/15/13 75 69,882 7.875%, 7/15/09 58 61,115 8.25%, 2/01/30 75 73,489 Rainbow National Services LLC 8.75%, 9/01/12 (c) 200 213,000 10.375%, 9/01/14 (c) 195 218,400 WDAC Subsidiary 8.375%, 12/01/14 (c) 270 261,563 WMG Holding Corp. 9.50%, 12/15/14 (a) 438 306,599 ---------- 2,308,984 8 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------------- ENERGY-5.0% Amerada Hess Corp. 7.30%, 8/15/31 $ 250 $289,320 Chesapeake Energy Corp. 6.50%, 8/15/17 (c) 195 195,975 7.75%, 1/15/15 260 275,600 Compton Petroleum Finance Corp. (Canada) 7.625%, 12/01/13 (c) 90 92,025 El Paso Corp. 7.75%, 1/15/32 361 361,902 El Paso Production Holding Co. 7.75%, 6/01/13 172 178,450 Grant Prideco, Inc. 6.125%, 8/15/15 (c) 105 104,738 HilCorp Energy 10.50%, 9/01/10 (c) 165 182,738 Kerr-McGee Corp. 6.875%, 9/15/11 85 90,823 Premcor Refining Group, Inc. 9.50%, 2/01/13 115 128,185 Pride International, Inc. 7.375%, 7/15/14 210 225,225 Tesoro Corp. 6.25%, 11/01/12 (C) 170 170,850 ---------- 2,295,831 FINANCIAL-2.7% Crum & Forster Holdings Corp. 10.375%, 6/15/13 105 110,775 Fairfax Financial Holdings Ltd. (Canada) 7.375%, 4/15/18 145 119,581 7.75%, 4/26/12 290 270,594 8.25%, 10/01/15 75 68,906 Liberty Mutual Group 5.75%, 3/15/14 (c) 280 276,381 Markel Capital Trust I Series B 8.71%, 1/01/46 260 279,465 PXRE Capital Trust I 8.85%, 2/01/27 30 29,475 Royal & Sun Alliance Insurance (United Kingdom) 8.95%, 10/15/29 80 102,158 ---------- 1,257,335 FOOD/BEVERAGE-1.2% Central European Distribution Corp. 8.00%, 7/25/12 (c)(d) 59 75,962 Del Monte Corp. 8.625%, 12/15/12 70 74,375 Dole Food Co., Inc. 8.625%, 5/01/09 60 61,500 8.875%, 3/15/11 38 38,950 Domino's, Inc. 8.25%, 7/01/11 127 132,715 Foodcorp Ltd. (South Africa) 8.875%, 6/15/12 (c)(d) 125 163,525 ---------- 547,027 GAMING-5.1% Ameristar Casinos, Inc. 10.75%, 2/15/09 95 100,700 Greektown Holdings LLC 10.75%, 12/01/13 (c) 90 89,325 Kerzner International Ltd. (Bahamas) 6.75%, 10/01/15 (c) 255 247,988 MGM Mirage, Inc. 6.625%, 7/15/15 287 286,283 8.375%, 2/01/11 280 299,599 Mohegan Tribal Gaming Authority 7.125%, 8/15/14 255 261,056 Park Place Entertainment Corp. 7.875%, 3/15/10 90 96,750 9.375%, 2/15/07 120 124,950 Penn National Gaming, Inc. 6.875%, 12/01/11 220 222,200 Riviera Holdings Corp. 11.00%, 6/15/10 210 226,013 Seneca Gaming Corp. 7.25%, 5/01/12 260 261,625 Turning Stone Casino Resort Enterprises 9.125%, 12/15/10 (c) 140 144,200 ---------- 2,360,689 HEALTH CARE-6.3% Concentra Operating Corp. 9.125%, 6/01/12 95 97,850 9.50%, 8/15/10 95 98,325 Coventry Health Care, Inc. 5.875%, 1/15/12 90 90,900 6.125%, 1/15/15 105 107,625 DAVITA, INC. 7.25%, 3/15/15 310 313,875 Hanger Orthopedic Group, Inc. 10.375%, 2/15/09 140 140,000 HCA, Inc. 6.375%, 1/15/15 355 358,846 Iasis Healthcare Corp. 8.75%, 6/15/14 245 257,250 Omnicare, Inc. 6.875%, 12/15/15 110 111,650 PacifiCare Health Systems, Inc. 10.75%, 6/01/09 182 194,968 Select Medical Corp. 7.625%, 2/01/15 400 384,999 Triad Hospitals, Inc. 7.00%, 11/15/13 240 240,600 Universal Hospital Services, Inc. 10.125%, 11/01/11 155 160,425 Vanguard Health Holdings Co. 11.25%, 10/01/15 (a) 465 339,450 ---------- 2,896,763 9 HIGH YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------------- INDUSTRIAL-4.5% Amsted Industries, Inc. 10.25%, 10/15/11 (c) $ 255 $272,850 Amtrol, Inc. 10.625%, 12/31/06 135 128,925 Case New Holland, Inc. 9.25%, 8/01/11 175 187,250 Dayton Superior Corp. 10.75%, 9/15/08 90 86,850 FastenTech, Inc. 11.50%, 5/01/11 120 117,600 FIMEP, SA (FRANCE) 10.50%, 2/15/13 115 129,950 Goodman Global Holdings 7.875%, 12/15/12 (c) 135 125,550 Invensys Plc (United Kingdom) 9.875%, 3/15/11 (c) 115 113,850 Mueller Group, Inc. 10.00%, 5/01/12 190 201,875 NMHG Holdings Co. 10.00%, 5/15/09 105 111,825 Sensus Metering Systems, Inc. 8.625%, 12/15/13 125 110,625 Terex Corp. Series B 10.375%, 4/01/11 195 206,700 Trinity Industries 6.50%, 3/15/14 305 300,425 ---------- 2,094,275 LODGING/LEISURE-3.6% Gaylord Entertainment Co. 8.00%, 11/15/13 136 142,460 Host Marriott LP Series G 9.25%, 10/01/07 160 168,800 Series I 9.50%, 1/15/07 125 129,375 La Quinta Properties, Inc. 8.875%, 3/15/11 185 200,956 NCL Corp. (Bermuda) 10.625%, 7/15/14 175 180,688 Starwood Hotels Resorts 7.875%, 5/01/12 175 192,938 Royal Caribbean Cruises, Ltd. (Liberia) 8.75%, 2/02/11 140 158,200 Universal City Development 11.75%, 4/01/10 195 218,643 Universal City Florida Holding Co. 8.375%, 5/01/10 60 58,650 Vail Resorts, Inc. 6.75%, 2/15/14 210 210,000 ---------- 1,660,710 MINING & METALS-3.6% AK Steel Corp. 7.875%, 2/15/09 190 180,500 Citigroup (JSC Severstal) (Germany) 9.25%, 4/19/14 274 296,605 Evraz Group, SA (Russia) 8.25%, 11/10/15 (c) 223 220,547 Freeport-McMoRan Copper & Gold, Inc. Cl. B 10.125%, 2/01/10 120 131,850 International Steel Group 6.50%, 4/15/14 234 234,000 Ispat Inland ULC (Canada) 9.75%, 4/01/14 201 227,633 Massey Energy Co. 6.875%, 12/15/13 (c) 140 141,225 Peabody Energy Corp. 6.875%, 3/15/13 220 228,800 ---------- 1,661,160 PAPER/PACKAGING-2.3% Berry Plastics Corp. 10.75%, 7/15/12 185 198,875 Crown Americas LLC 7.625%, 11/15/13 (c) 185 191,938 Graphic Packaging International Corp. 9.50%, 8/15/13 215 205,325 Newpage Corp. 10.00%, 5/01/12 145 142,463 OWENS-BROCKWAY GLASS Container 8.875%, 2/15/09 200 208,749 Plastipak Holdings, Inc. 8.50%, 12/15/15 (c) 65 65,650 Russell-Stanley Holdings, Inc. 9.00%, 11/30/08 (e)(f)(g) 91 45,671 ---------- 1,058,671 RETAIL-1.3% GSC Holdings Corp. 8.00%, 10/01/12 (c) 305 286,701 JC Penney Co., Inc. 7.625%, 3/01/97 120 123,843 8.00%, 3/01/10 180 197,144 ---------- 607,688 SERVICE-2.4% Allied Waste North America, Inc. 6.375%, 4/15/11 174 169,650 8.875%, 4/01/08 125 131,875 H & E Equipment Services, Inc. 11.125%, 6/15/12 207 228,735 Service Corp. International 6.50%, 3/15/08 163 164,630 7.70%, 4/15/09 160 168,000 United Rentals North America, Inc. 6.50%, 2/15/12 247 240,516 ---------- 1,103,406 10 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Shares or Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------------- SUPERMARKET/DRUG-0.9% Couche-Tard US/Finance Corp. 7.50%, 12/15/13 $ 169 $174,070 Delhaize America, Inc. 8.125%, 4/15/11 130 141,709 Stater Brothers Holdings, Inc. 8.125%, 6/15/12 100 99,000 ---------- 414,779 TECHNOLOGY-2.2% Avago Technologies Finance 10.125%, 12/01/13 (c) 110 113,025 Flextronics International, Ltd. (Singapore) 6.50%, 5/15/13 175 177,844 Lucent Technologies, Inc. 6.45%, 3/15/29 80 68,600 6.50%, 1/15/28 160 134,400 Nortel Networks Corp. (Canada) 6.875%, 9/01/23 155 138,725 Sungard Data Systems, Inc. 9.125%, 8/15/13 (c) 350 362,250 Telcordia Technologies, Inc. 10.00%, 3/15/13 (c) 15 13,725 ---------- 1,008,569 TRANSPORTATION-1.3% ATA Airlines, Inc. 6.99%, 4/15/16 (c) 289 243,038 Hertz Corp. 8.875%, 1/01/14 (c) 200 203,750 10.50%, 1/01/16 (c) 65 66,950 Horizon Lines LLC 9.00%, 11/01/12 88 92,620 ---------- 606,358 UTILITIES-11.3% AES Corp. 8.75%, 5/15/13 (c) 55 59,881 9.00%, 5/15/15 (c) 100 109,500 Aquila, Inc. 14.875%, 7/01/12 (h) 135 180,900 CMS Energy Corp. 6.875%, 12/15/15 80 80,700 8.50%, 4/15/11 105 114,319 DPL, Inc. 6.875%, 9/01/11 90 94,838 Dynegy Holdings, Inc. 10.125%, 7/15/13 (c) 150 169,500 Dynegy-Roseton Danskamme Series B 7.67%, 11/08/16 240 240,600 Edison Mission Energy 9.875%, 4/15/11 505 588,955 Enterprise Products Operating LP Series B 5.60%, 10/15/14 280 279,780 FirstEnergy Corp. Series B 6.45%, 11/15/11 305 323,299 Kinder Morgan Finance Co. 5.70%, 1/05/16 (c) 85 85,735 Northwest Pipeline Corp. 8.125%, 3/01/10 105 111,300 NRG Energy, Inc. 8.00%, 12/15/13 172 191,780 Reliant Energy, Inc. 6.75%, 12/15/14 50 43,625 9.50%, 7/15/13 240 240,600 Sierra Pacific Resources 8.625%, 3/15/14 130 140,659 Southern Natural Gas Co. 7.35%, 2/15/31 155 159,015 8.875%, 3/15/10 130 138,933 TECO ENERGY, INC. 6.75%, 5/01/15 220 227,700 7.00%, 5/01/12 180 189,000 TXU Corp. 5.55%, 11/15/14 205 194,716 6.50%, 11/15/24 504 478,483 Williams Cos., Inc. 7.625%, 7/15/19 445 477,263 7.875%, 9/01/21 255 276,038 ---------- 5,197,119 Total Corporate Debt Obligations (cost $44,112,655) 43,997,433 ---------- PREFERRED STOCKS-1.6% BROADCAST/MEDIA-0.5% Paxson Communications Corp. 14.25%, 11/13/06 (e) 27 234,900 ---------- FINANCIAL-1.1% Sovereign REIT Series A 12.00%, 5/16/20 (c) 335 482,400 ---------- Total Preferred Stocks (cost $582,680) 717,300 ---------- WARRANT-0.0% Pliant Corp. Warrants, expiring 6/01/10 (e)(f)(g)(i) (cost $1,820) 50 1 ---------- SHORT -TERM INVESTMENT-0.7% TIME DEPOSIT-0.7% The Bank of New York 3.25%, 1/03/06 (cost $315,000) $ 315 315,000 ---------- 11 HIGH YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ U.S. $ Value - ------------------------------------------------------------------------------- TOTAL INVESTMENTS-97.8% (cost $45,012,155) $45,029,734 Other assets less liabilities-2.2% 1,023,732 ----------- NET ASSETS-100% $46,053,466 ----------- FORWARD EXCHANGE CURRENCY CONTRACTS (see Note D) U.S. $ Contract Value on U.S. $ Amount Origination Current Unrealized (000) Date Value Appreciation - ------------------------------------------------------------------------------- Sale Contracts Euro, settling 1/18/06 93 $ 112,672 $ 109,917 $ 2,755 Euro, settling 2/15/06 93 111,901 110,088 1,813 (a) Indicates a security that has a zero coupon that remains in effect until a predetermined date at which time the stated coupon rate becomes effective until final maturity. (b) Variable rate coupon, rate shown as of December 31, 2005. (c) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $9,013,462 or 19.6% of net assets. (d) Positions, or portion thereof, with an aggregate market value of $239,487 have been segregated to collateralize forward exchange currency contracts. (e) PIK (Paid-in-kind) preferred quarterly stock payments. (f) Illiquid security, valued at fair value (see Note A). (g) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.1% of net assets as of December 31, 2005, are considered illiquid and restricted.
Acquisition Acquisition Market Percentage of Restricted Securities Date Cost Value Net Assets - ---------------------------------------------------------------------------------------------- Russell-Stanley Holdings, Inc. 11/09/01-6/06/05 $518,667 $45,671 0.10% 9.00%, 11/30/08 Pliant Corp. 12/01/00 1,820 1 0.00% expiring 6/01/10
(h) The coupon on this security varies along with its rating. If its rating falls below Baa3/BBB- by either Moody's or Standard & Poors, the coupon steps up 50 basis points. The security is currently rated B2/B-. (i) Security is in default and is non-income producing. See Notes to Financial Statements. 12 HIGH YIELD PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $45,012,155) $45,029,734 Cash 506 Foreign cash, at value (cost $6,335) 6,239 Unrealized appreciation of forward exchange currency contracts 4,568 Dividends and interest receivable 958,843 Receivable for capital stock sold 161,379 ----------- Total assets 46,161,269 ----------- LIABILITIES Advisory fee payable 19,523 Payable for investment securities purchased 10,338 Distribution fee payable 2,364 Transfer agent fee payable 53 Accrued expenses 75,525 ----------- Total liabilities 107,803 ----------- NET ASSETS $46,053,466 =========== COMPOSITION OF NET ASSETS Capital stock, at par $6,205 Additional paid-in capital 57,809,195 Undistributed net investment income 3,755,654 Accumulated net realized loss on investment and foreign currency transactions (15,539,592) Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 22,004 ----------- $46,053,466 =========== Net assets $34,968,639 =========== Shares of capital stock outstanding 4,708,619 =========== Net asset value per share $7.43 =========== Class B Shares Net assets $11,084,827 =========== Shares of capital stock outstanding 1,496,259 =========== Net asset value per share $7.41 =========== See Notes to Financial Statements. 13 HIGH YIELD PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INVESTMENT INCOME Interest $4,288,734 Dividends 51,878 ----------- Total investment income 4,340,612 ----------- EXPENSES Advisory fee 250,252 Distribution fee--Class B 29,535 Custodian 147,684 Administrative 75,250 Audit 41,750 Printing 19,799 Legal 3,945 Directors' fees 1,000 Transfer agency 794 Miscellaneous 7,462 ----------- Total expenses 577,471 ----------- Net investment income 3,763,141 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions (415,238) Foreign currency transactions 21,154 Net change in unrealized appreciation/depreciation of: Investments (2,646,324) Foreign currency denominated assets and liabilities 5,441 ----------- Net loss on investment and foreign currency transactions (3,034,967) ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS $728,174 =========== See Notes to Financial Statements. 14 HIGH YIELD PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Year Ended Year Ended December 31, December 31, 2005 2004 ------------ ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $3,763,141 $4,148,437 Net realized gain (loss) on investment and foreign currency transactions (394,084) 968,820 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities (2,640,883) (1,035,275) ------------ ------------- Net increase in net assets from operations 728,174 4,081,982 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A (3,194,538) (2,827,523) Class B (947,882) (641,967) CAPITAL STOCK TRANSACTIONS Net decrease (5,932,748) (1,249,760) ------------ ------------- Total decrease (9,346,994) (637,268) NET ASSETS Beginning of period 55,400,460 56,037,728 ------------ ------------- End of period (including undistributed net investment income of $3,755,654 and $4,113,779, respectively) $46,053,466 $55,400,460 ------------ ------------- See Notes to Financial Statements. 15 HIGH YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE A: Significant Accounting Policies The AllianceBernstein High Yield Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to earn the highest level of current income without assuming undue risk by investing principally in high yielding, fixed-income securities rated Baa or lower by Moody's or BBB or lower by S&P Duff &Phelps or Fitch or, if unrated of comparable quantity. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. 16 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .75% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. 17 HIGH YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005 amounted to $63, none of which was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolios to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: Purchases Sales ----------- ----------- Investment securities (excluding U.S. government securities) $26,482,289 $32,767,650 U.S. Government Securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost $45,032,417 =========== Gross unrealized appreciation $1,619,295 Gross unrealized depreciation (1,621,978) ----------- Net unrealized depreciation $(2,683) =========== 18 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. NOTE E: Securities Lending The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss in the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The lending agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. 19 HIGH YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE F: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- Class B Shares sold 344,164 525,294 $2,663,938 $4,086,863 Shares issued in reinvestment of dividends 437,608 385,221 3,194,538 2,827,523 Shares redeemed (1,449,302) (1,613,919) (11,126,952) (12,584,467) ------------ ------------ -------------- -------------- Net decrease (667,530) (703,404) $(5,268,476) $(5,670,081) ============ ============ ============= ============== Class B Shares sold 357,280 866,850 $2,800,142 $6,776,998 Shares issued in reinvestment of dividends 130,025 87,581 947,882 641,967 Shares redeemed (570,154) (382,523) (4,412,296) (2,998,644) ------------ ------------ -------------- -------------- Net increase (decrease) (82,849) 571,908 $(664,272) $4,420,321 ============ ============ ============= ============== NOTE G: Risks Involved in Investing in the Portfolio Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. 20 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE I: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ----------- ----------- Distributions paid from: Ordinary income $4,142,420 $3,469,490 ----------- ----------- Total taxable distributions 4,142,420 3,469,490 ----------- ----------- Total distributions paid $4,142,420 $3,469,490 ----------- ----------- As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $3,760,222 Accumulated capital and other losses (15,519,330)(a) Unrealized appreciation/(depreciation) (2,826)(b) ------------ Total accumulated earnings/(deficit) $(11,761,934) ============= (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $15,199,656 of which $2,200,265 expires in the year 2007, $5,774,960 expires in the year 2008, $2,890,265 expires in the year 2009, $4,208,388 expires in the year 2010, and $125,778 expires in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Based on certain provisions in the Internal Revenue Code, various limitations regarding the future utilization of these carryforwards, brought forward as a result of the Portfolio's merger with Brinson Series Trust High Income Portfolio, may apply. During the current fiscal year, the Portfolio utilized no capital loss carryforwards. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the realization for tax purposes of gains/losses on certain derivative instruments. During the current fiscal year, permanent differences, primarily due to the tax treatment of foreign currency gains and losses, resulted in a net increase to undistributed net investment income and a net increase in accumulated net realized loss on investment and foreign currency transactions. The reclassification had no effect on net assets. NOTE J: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. 21 HIGH YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both 22 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 23 HIGH YIELD PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A --------------------------------------------------------------- Year Ended December 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001(a) ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $7.97 $7.91 $6.83 $7.51 $7.91 -------- -------- -------- -------- -------- Income From Investment Operations Net investment income (b) .58 .60(c) .55 .54(c) .63(c) Net realized and unrealized gain (loss) on investment and foreign currency transactions (.45) (.01) .95 (.76) (.38) -------- -------- -------- -------- -------- Net increase (decrease) in net asset value from operations .13 .59 1.50 (.22) .25 -------- -------- -------- -------- -------- Less: Dividends Dividends from net investment income (.67) (.53) (.42) (.46) (.65) -------- -------- -------- -------- -------- Net asset value, end of period $7.43 $7.97 $7.91 $6.83 $7.51 -------- -------- -------- -------- -------- Total Return Total investment return based on net asset value (d) 1.78% 7.98% 22.44% (3.03)% 3.04% Ratios/Supplemental Data Net assets, end of period (000's omitted) $34,968 $42,842 $48,076 $34,765 $31,283 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.09% 1.04% 1.46% 1.18% .95% Expenses, before waivers and reimbursements 1.09% 1.21% 1.46% 1.45% 1.51% Net investment income 7.58% 7.74%(c) 7.48% 7.78%(c) 8.08%(c) Portfolio turnover rate 54% 80% 105% 83% 95%
See footnote summary on page 25. 24 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B -------------------------------------------------- July 22, Year Ended December 31, 2002(e) to ------------------------------------- December 31, 2005 2004 2003 2002 ----------- ----------- ----------- ----------- Net asset value, beginning of period $7.95 $7.91 $6.84 $6.45 -------- -------- -------- -------- Income From Investment Operations Net investment income (b) .56 .58(c) .52 .15(c) Net realized and unrealized gain (loss) on investment and foreign currency transactions (.45) (.02) .97 .24 -------- -------- -------- -------- Net increase in net asset value from operations .11 .56 1.49 .39 -------- -------- -------- -------- Less: Dividends Dividends from net investment income (.65) (.52) (.42) -0- -------- -------- -------- -------- Net asset value, end of period $7.41 $7.95 $7.91 $6.84 -------- -------- -------- -------- Total Return Total investment return based on net asset value (d) 1.54% 7.62% 22.24% 6.05% Ratios/Supplemental Data Net assets, end of period (000's omitted) $11,085 $12,558 $7,962 $366 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.34% 1.30% 1.70% 1.42%(f) Expenses, before waivers and reimbursements 1.34% 1.47% 1.70% 1.63%(f) Net investment income 7.33% 7.51%(c) 7.19% 8.39%(c)(f) Portfolio turnover rate 54% 80% 105% 83%
(a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change was to decrease net investment income by less than $.01 per share, decrease net realized and unrealized loss on investments by less than $.01 per share and decrease the ratio of net investment income to average net assets from 8.14% to 8.08%. (b) Based on average shares outstanding. (c) Net of expenses waived or reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Commencement of distribution. (f) Annualized. 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ To the Shareholders and Board of Directors AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein High Yield Portfolio We have audited the accompanying statement of assets and liabilities of the AllianceBernstein High Yield Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein High Yield Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 26 HIGH YIELD PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc.-AllianceBernstein High Yield Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority - ------------------------------------------------------------------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ---------- ------------- --------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ---------- ------------- --------- ---------------- 3.A. Diversification 4,174,967 145,148 110,689 0 3.B. Issuing Senior Securities and 4,123,978 198,914 107,912 0 Borrowing Money 3.C. Underwriting Securities 4,192,232 120,659 117,913 0 3.D. Concentration of Investments 4,159,026 163,866 107,912 0 3.E. Real Estate and Companies 4,208,474 113,939 108,391 0 that Deal in Real Estate 3.F. Commodities, Commodity 4,183,425 180,114 67,266 0 Contracts and Futures Contracts 3.G. Loans 4,170,475 169,932 90,398 0 3.H. Joint Securities Trading 4,180,367 131,734 118,703 0 Accounts 3.I. Exercising Control 4,248,600 101,003 81,201 0 3.J. Other Investment Companies 4,198,872 137,226 94,706 0 3.L. Purchases of Securities on 4,153,942 184,703 92,159 0 Margin
27 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________
Voted For Voted Against Abstained Broker Non-Votes ---------- ------------- --------- ---------------- 3.M. Short Sales 4,164,398 192,849 73,558 0 3.N. Pledging, Hypothecating, 4,163,266 166,246 101,292 0 Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or Restricted Securities 4,172,173 150,440 108,191 0 3.V. Purchasing Voting or Other 4,223,843 79,867 127,094 0 Securities of Issuers 3.W. Repurchase Agreements 4,206,048 98,126 126,631 0 3.Y. Acquisitions of Certain 4,246,661 104,086 80,057 0 Preferred Stock and Debt Securities 4.A. The reclassification of the 4,160,406 180,190 90,209 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
28 HIGH YIELD PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Gershon M. Distenfeld(2), Vice President Mark A. Hamilton(2), Vice President Michael A. Snyder(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the U.S. High Yield Investment Team. Mr. Gershon Distenfeld, Mr. Mark A. Hamilton and Mr. Michael Snyder are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 29 HIGH YIELD PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - -------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, 1345 Avenue of the Americas Capital Management Corporation Inc.; SCB, Inc. New York, NY 10105 ("ACMC") since 2001 and Chairman 10/2/57 of the Board of AllianceBernstein (2005) Investment Research and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co")) and its pre- decessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #,** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been CHAIRMAN OF THE BOARD associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
30 HIGH YIELD PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ----------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and The Merger Management L.P. (investment advisory firm) from December 1997 Fund 1345 Avenue of the Americas until December 2003. Prior thereto, Chairman New York, NY 10105 and CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President Lucas Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/41 changed from DuPont Photomasks. Prior to Chairman of the (2005) the company's sale in 2005, he was Chairman Board of the and CEO. He has also been Principal of Turner Smithsonian's Venture Associates since 1993. National Museum of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 31 HIGH YIELD PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Officer Information Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - ------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Gershon M. Distenfeld Vice President Vice President of ACMC**, with which he has been 12/30/75 associated since prior to 2001. Mark A. Hamilton Vice President Vice President of ACMC**, with which he has been 3/24/65 associated since prior to 2001. Michael A. Snyder Vice President Senior Vice President of ACMC** since May 2001 and 4/18/62 Director of the High Yield Portfolio Management Team. Prior thereto, he was a Managing Director in the high yield asset management group at Donaldson, Lufkin & Jenrette Securities Corporation since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800)227-4618 for a free prospectus or SAI. 32 HIGH YIELD PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein High Yield Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 33 HIGH YIELD PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 34 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. The directors noted that since the Portfolio does not engage in brokerage transactions, the Adviser does not receive soft dollar benefits in respect of portfolio transactions of the Portfolio. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, and that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services. The directors recognized that the Adviser's profitability would be somewhat lower if the Adviser's affiliates did not receive the benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 15 funds in its Lipper category selected by Lipper (the "Performance Group) and as compared to a universe of 46 to 44 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3- and 5-year periods, and as compared to the Credit Suisse First Boston High Yield Bond Index (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3- and 5-year and since inception periods (October 1997 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 3rd quintile in the 1-year period, 4th quintile in the 3-year period and 5th quintile in the 5-year period, and in the Performance Universe comparison the Portfolio was in the 3rd quintile in the 1-year period (adjusted to 4th quintile by the Senior Officer who uses a different methodology than Lipper for assigning performance to quintiles) and in the 4th quintile in the 3- and 5-year periods. The comparative information showed that the Portfolio underperformed the 35 HIGH YIELD PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Index in all periods reviewed. Based on their review and their discussion of the reasons for the Portfolio's performance record with the Adviser, the directors retained confidence in the Adviser's ability to continue to advise the Portfolio and concluded that the Portfolio's performance was understandable. The directors informed the Adviser that they planned to closely monitor the Portfolio's performance. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for the Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be somewhat higher than that in the Portfolio's Advisory Agreement prior to taking account of the administrative expense reimbursements made to the Adviser. The directors noted that adding the 13 basis point administrative expense reimbursement to the fee rate in the Portfolio's Advisory Agreement resulted in a materially lower rate of total compensation to the Adviser under the institutional fee schedule than what is paid by the Portfolio. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 50 basis points was significantly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 13 basis points and that as a result the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement was only slightly lower than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was significantly higher than the medians for the Expense Group and Expense Universe. The directors noted that the Portfolio's relatively small size (less than $50 million as of September 30, 2005) caused the administrative expense reimbursement, which does not 36 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 37 HIGH YIELD PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein High Yield Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of funds with almost all Funds or Funds in each category having the same advisory fee schedule.(2) Advisory Fee Based on % of Average Category Daily Net Assets Fund - ------------------------------------------------------------------------------- High Income 50 bp on 1st $2.5 billion High Yield Portfolio 45 bp on next $2.5 billion 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - ------------------------------------------------------------------------------- High Yield Portfolio $69,000 0.13% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 38 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - ------------------------------------------------------------------------------- High Yield Portfolio Class A 1.21% December 31 Class B 1.47% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. Net Assets Effective Alliance 09/30/05 Alliance Institutional Institutional Fund ($MIL) Fee Schedule Advisory Fee - ------------------------------------------------------------------------------- High Yield Portfolio $47.8 High Yield Schedule 0.546% 65 bp on 1st $20 m 50 bp on next $20 m 40 bp on next $20 m 35 bp on the balance Minimum account size $20 m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to offshore mutual funds that invest in high yield fixed income securities: Asset Class Fee(3) - ------------------------------------------------------------------------------- U.S. High Yield 0.85% Global High Yield 1.25% (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 39 HIGH YIELD PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: Fund ACITM Mutual Fund(4) Fee - ------------------------------------------------------------------------------- High Yield Portfolio Alliance High Yield Open Fund (Kokusai) 1.00% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) Effective Lipper Management Group Fund Fee Median Rank - ------------------------------------------------------------------------------- High Yield Portfolio 0.500 0.650 3/15 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below:
Expense Lipper Lipper Lipper Lipper Ratio Universe Universe Group Group Fund (%)(8) Median (%) Rank Median (%) Rank - --------------------------------------------------------------------------------------------------------------------------- High Yield Portfolio 1.041 0.757 45/47 0.865 15/15
Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. (4) The name in parenthesis is the distributor of the fund. (5) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (6) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (7) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (8) Most recent fiscal year end Class A share total expense ratio. 40 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund increased during calendar 2004 relative to 2003. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent and distribution related services to the Fund and receive transfer agent fees and Rule 12b-1 payments. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - ------------------------------------------------------------------------------- High Yield Portfolio $25,437 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - ------------------------------------------------------------------------------- High Yield Portfolio $48,940 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the (9) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 41 HIGH YIELD PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, and 5 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. High Yield Portfolio Group Universe - ------------------------------------------------------------------------------- 1 year 7/15 28/46 3 year 11/15 33/45 5 year 13/15 33/44 Set forth below are the 1, 3, 5 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14). Periods Ending September 30, 2005 Annualized Performance - ------------------------------------------------------------------------------- Fund 1 Year 3 Year 5 Year Since Inception - ------------------------------------------------------------------------------- High Yield Portfolio 5.58 12.32 5.02 2.61 CSFB Bond Index 6.31 15.55 8.57 6.03 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (10) The performance rankings are for the Class A shares of the Fund. (11) The Lipper Performance Group is identical to the Lipper Expense Group. (12) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (13) The performance returns are for the Class A shares of the Fund. (14) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 42 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN AMERICAS GOVERNMENT INCOME PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. AMERICAS GOVERNMENT INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 13, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Americas Government Income Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks the highest level of current income, consistent with what Alliance considers to be prudent investment risk, that is available from a portfolio of debt securities issued or guaranteed by the governments of the United States, Canada and Mexico, their political subdivisions (including Canadian Provinces but excluding the States of the United States), agencies, instrumentalities or authorities. The Portfolio invests in government securities denominated in local currency and U.S. dollars. Normally, the Portfolio expects to maintain at least 25% of its assets in securities denominated in the U.S. dollar. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmarks, the Lehman Brothers (LB) U.S. Aggregate Index and the LB Intermediate-Term Government Index, for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio outperformed both the Lehman Brothers U.S. Aggregate Index and the Lehman Brothers Intermediate-Term Government Index. The Portfolio's non-U.S. holdings substantively outperformed U.S. Treasuries and the components of both Lehman Brothers benchmarks, which are comprised of only U.S. holdings. Within the Portfolio's government allocation, Canadian holdings contributed positively to relative returns, outperforming U.S. governments. Canadian government bonds, hedged into U.S. dollars, returned 7.55% versus only 2.79% for U.S. Treasuries, according to Lehman Brothers. The Portfolio's Mexican holdings also contributed positively to relative performance. Slowing growth and below-target inflation led Mexican local debt to outpace fixed-income market sectors in the U.S, returning 15.44% (hedged into U.S. dollars), according to Lehman Brothers. MARKET REVIEW AND INVESTMENT STRATEGY The global economy exhibited solid growth throughout the year, while bond yields in most regions increased in 2005. As rates increased and yield curves flattened in many regions, investment opportunities and the reward for taking risk declined. U.S. yields rose as the Federal Reserve (the "Fed") continued to tighten interest rates. With four rate increases of 25 basis points each in the second half of the year, the Fed funds rate ended the year at 4.25%. As foreign demand for U.S. fixed-income assets continued unabated, long-term interest rates ended the year close to 40-year lows. The yield curve ended the year essentially flat, with little differential between the spreads of two-year and 10-year Treasuries. Canada's economy expanded by more than 3.6% in the third quarter, its fastest pace in more than a year. This growth was largely due to manufacturing and a rebound in energy exports. Given above-target headline inflation and solid growth, the Bank of Canada hiked official rates from 2.50% to 3.25% during the year to their highest point since 2003. Mexico's central bank cut its benchmark interest rate by 200 basis points to 8.25% in 2005. Higher interest rates helped reduce inflation to below 3% for the first time ever in November, within the Central Bank's target of 2% - 4%. The Portfolio's overweight positions in the debt of Canada and Mexico are being maintained, as they continue to offer attractive value. 1 AMERICAS GOVERNMENT INCOME PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE NEITHER THE UNMANAGED LEHMAN BROTHERS (LB) U.S. AGGREGATE INDEX NOR THE UNMANAGED LB INTERMEDIATE-TERM GOVERNMENT INDEX REFLECTS FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The LB U.S. Aggregate Index is composed of the LB Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and the LB Government/Credit Index. The LB Intermediate-Term Government Index measures performance of bonds in the one- to 10-year maturity range. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Americas Government Income Portfolio. A WORD ABOUT RISK The Portfolio invests a significant amount of its assets in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of political and economic uncertainties in foreign countries. These risks may be magnified for investments in emerging markets. To increase yield, the Portfolio can use leverage, a speculative technique, which may increase share price fluctuation. Price fluctuation in the Portfolio's securities may be caused by changes in the general level of interest rates or changes in bond credit quality ratings. Please note, as interest rates rise, existing bond prices fall and can cause the value of your investment in the Portfolio to decline. Changes in interest rates have a greater effect on bonds with longer maturities than on those with shorter maturities. The Portfolio may invest in high yield bonds (i.e., "junk bonds") which involves a greater risk of default and price volatility than other bonds. Investing in non-investment grade bonds presents special risks, including credit risk. Similar to direct bond ownership, bond funds have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the Portfolio. Portfolio purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. While the Portfolio invests principally in bonds and other fixed-income securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 AMERICAS GOVERNMENT INCOME PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
RETURNS THE PORTFOLIO VS. ITS BENCHMARKS ------------------------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------------------------------------------------- AllianceBernstein Americas Government Income Portfolio Class A 8.67% 7.06% 8.83% - ------------------------------------------------------------------------------------------------- AllianceBernstein Americas Government Income Portfolio Class B 8.33% 7.40%* - ------------------------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.16% - ------------------------------------------------------------------------------------------------- Lehman Brothers Intermediate-Term Government Index 1.68% 4.82% 5.50% - -------------------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class B shares on 7/22/02. ALLIANCEBERNSTEIN AMERICAS GOVERNMENT INCOME PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95-12/31/05 ALLIANCEBERNSTEIN AMERICAS GOVERNMENT INCOME PORTFOLIO CLASS A: $23,317 LEHMAN BROTHERS U.S. AGGREGATE INDEX: $18,188 LEHMAN BROTHERS INTERMEDIATE-TERM GOVERNMENT INDEX: $17,080 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein Lehman Brothers Lehman Brothers Americas Government U.S. Aggregate Intermediate-Term Income Portfolio Class A Index Government Index - ------------------------------------------------------------------------------- 12/31/95 $ 10,000 $ 10,000 $ 10,000 12/31/96 $ 11,870 $ 10,363 $ 10,406 12/31/97 $ 13,012 $ 11,363 $ 11,209 12/31/98 $ 13,541 $ 12,350 $ 12,161 12/31/99 $ 14,747 $ 12,249 $ 12,221 12/31/00 $ 16,574 $ 13,674 $ 13,500 12/31/01 $ 17,169 $ 14,828 $ 14,637 12/31/02 $ 19,056 $ 16,348 $ 16,048 12/31/03 $ 20,456 $ 17,018 $ 16,415 12/31/04 $ 21,457 $ 17,757 $ 16,798 12/31/05 $ 23,317 $ 18,188 $ 17,080 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Americas Government Income Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmarks. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 AMERICAS GOVERNMENT INCOME PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED AGIT JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,031.60 $6.66 1.30% Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.61 1.30% CLASS B Actual $1,000 $1,030.03 $7.93 1.55% Hypothetical (5% return before expenses) $1,000 $1,017.39 $7.88 1.55%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 AMERICAS GOVERNMENT INCOME PORTFOLIO SECURITY TYPE BREAKDOWN DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF SECURITY TYPE U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Government/Agency Obligations $ 36,275,472 61.4% U.S. Treasury Securities 25,910,116 43.9 ------------ ----- Total Investments* 62,185,588 105.3 Cash and receivables, net of liabilities (3,145,596) (5.3) ------------ ----- Net Assets $ 59,039,992 100.0% ------------ ----- * Excludes short-term investments. 5 AMERICAS GOVERNMENT INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT (000) U.S. $ VALUE - ------------------------------------------------------------------------------- LONG-TERM INVESTMENTS-105.3% CANADA-15.1% GOVERNMENT/AGENCY OBLIGATIONS-15.1% Government of Canada 3.00%, 6/01/07-12/01/36 (a) CAD $ 2,855 $ 2,718,879 4.25%, 9/01/09 (a) 1,284 1,117,553 5.75%, 6/01/33 (a) 1,973 2,172,515 8.00%, 6/01/27 (a) 1,132 1,511,268 Province of Ontario 2.00%, 12/01/36 (a) 575 532,010 5.60%, 6/02/35 (a) 300 300,175 Province of Quebec 5.50%, 12/01/14 (a) 600 558,894 ------------ Total Canadian Securities (cost $8,202,455) 8,911,294 ------------ MEXICO-25.5% GOVERNMENT/AGENCY OBLIGATIONS-25.5% Mexican Government Bonds 8.00%, 12/07/23 (a) MXP 34,501 3,069,658 Series M 9.00%, 12/22/11 (a) 15,000 1,472,843 Series M7 8.00%, 12/24/08 (a) 34,242 3,236,783 Series M20 10.00%, 12/05/24 (a) 16,205 1,729,170 Series MI7 9.00%, 12/24/09 (a) 37,390 3,655,472 Series MI10 8.00%, 12/19/13 (a) 20,416 1,892,240 ------------ Total Mexican Securities (cost $13,154,294) 15,056,166 ------------ UNITED STATES-64.7% U.S. GOVERNMENT SPONSORED AGENCY OBLIGATIONS-20.8% Federal National Mortgage Association 4.125%, 4/15/14 US $ 2,000 1,907,184 5.375%, 11/15/11 5,000 5,146,785 7.00%, 3/01/32 123 127,859 Government National Mortgage Association 6.00%, TBA 5,000 5,115,625 9.00%, 9/15/24 10 10,559 ------------ 12,308,012 ------------ U.S. TREASURY SECURITIES-43.9% U.S. Treasury Bonds 6.25%, 5/15/30 (b) 5,200 6,458,156 U.S. Treasury Notes 1.625%, 1/15/15 (TIPS) 619 595,918 3.50%, 11/15/09 4,915 4,763,520 4.00%, 9/30/07 2,606 2,587,880 4.25%, 8/15/15-11/15/13 735 727,196 4.50%, 11/15/15 886 893,268 4.875%, 2/15/12 150 154,002 U.S. Treasury Strips 0.00%, 5/15/13-11/15/21 17,700 9,730,176 ------------ 25,910,116 ------------ Total United States Securities (cost $36,537,378) 38,218,128 ------------ Total Long-Term Investments (cost $57,894,127) 62,185,588 ------------ SHORT-TERM INVESTMENTS-5.3% TIME DEPOSITS-5.3% Societe Generale 4.19%, 1/03/06 2,600 2,600,000 The Bank of New York 3.25%, 1/03/06 525 525,000 ------------ Total Short-Term Investments (cost $3,125,000) 3,125,000 ------------ TOTAL INVESTMENTS-110.6% (cost $61,019,127) 65,310,588 Other assets less liabilities-(10.6%) (6,270,596) ------------ NET ASSETS-100% $ 59,039,992 ============ 6 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ FORWARD EXCHANGE CURRENCY CONTRACTS (SEE NOTE D)
U.S. $ CONTRACT VALUE ON U.S. $ UNREALIZED AMOUNT ORIGINATION CURRENT APPRECIATION/ (000) DATE VALUE (DEPRECIATION) - ----------------------------------------------------------------------------------------------------------- BUY CONTRACTS Canadian Dollar, settling 1/4/06 2,449 $2,118,300 $2,106,929 $(11,371) Canadian Dollar, settling 2/13/06 911 778,900 784,967 6,067 Mexican Peso, settling 2/21/06 6,053 560,000 566,028 6,028 SALE CONTRACTS Canadian Dollar, settling 2/13/06 10,449 9,086,489 8,999,609 86,880 Mexican Peso, settling 2/21/06 12,677 1,183,535 1,185,508 (1,973) Mexican Peso, settling 2/21/06 29,406 2,665,381 2,749,802 (84,421) Mexican Peso, settling 2/21/06 29,406 2,663,305 2,749,802 (86,497) Mexican Peso, settling 3/22/06 59,896 5,519,647 5,586,573 (66,926)
REVERSE REPURCHASE AGREEMENT (SEE NOTE D) BROKER INTEREST RATE MATURITY AMOUNT - ------------------------------------------------------------------------------- Greenwich Capital Markets 4.15% 1/03/06 $ 1,845,675 (a) Position, or portion thereof, with an aggregate market value of $23,967,460, has been segregated to collateralize open forward exchange currency contracts. (b) Position, or portion thereof, with a market value of $1,862,930, has been segregated to collateralize reverse repurchase agreements. Currency Abbreviations: CAD - Canadian Dollar MXP - Mexican Peso US$ - United States Dollar Glossary of Terms: TBA - To Be Assigned-Securities are purchased on a forward commitment with an approximate principal amount (generally +/-1.0%) and no definite maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. TIPS - Treasury Inflation Protected Security See Notes to Financial Statements. 7 AMERICAS GOVERNMENT INCOME PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $61,019,127) $ 65,310,588 Cash 498 Foreign cash, at value (cost $686,993) 686,595 Unrealized appreciation of forward exchange currency contracts 98,975 Interest receivable 229,041 Receivable for capital stock sold 17,255 ------------ Total assets 66,342,952 ------------ LIABILITIES Unrealized depreciation of forward exchange currency contracts 251,188 Payable for investment securities purchased 5,093,333 Reverse repurchase agreement 1,845,675 Advisory fee payable 23,842 Distribution fee payable 2,311 Payable for capital stock redeemed 436 Transfer agent fee payable 53 Accrued expenses 86,122 ------------ Total liabilities 7,302,960 ------------ NET ASSETS $ 59,039,992 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 4,525 Additional paid-in capital 53,482,983 Undistributed net investment income 1,274,415 Accumulated net realized gain on investment and foreign currency transactions 138,991 Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 4,139,078 ------------ $ 59,039,992 ============ CLASS A SHARES Net assets $ 45,729,812 ============ Shares of capital stock outstanding 3,502,771 ============ Net asset value per share $ 13.06 ============ CLASS B SHARES Net assets $ 13,310,180 ============ Shares of capital stock outstanding 1,021,845 ============ Net asset value per share $ 13.03 ============ See Notes to Financial Statements. 8 AMERICAS GOVERNMENT INCOME PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Interest $ 3,787,238 ------------ EXPENSES Advisory fee 282,660 Distribution fee -- Class B 26,630 Custodian 138,333 Administrative 75,250 Audit 41,750 Printing 19,845 Legal 4,028 Directors' fees 1,000 Transfer agency 794 Miscellaneous 15,353 ------------ Total expenses before interest 605,643 Interest expense 144,330 ------------ Total expenses 749,973 ------------ Net investment income 3,037,265 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 366,861 Written options 11,633 Futures 63,983 Foreign currency transactions (634,195) Net change in unrealized appreciation/depreciation of: Investments 1,627,326 Futures 140,383 Foreign currency denominated assets and liabilities (42,698) ------------ Net gain on investment and foreign currency transactions 1,533,293 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,570,558 ============ See Notes to Financial Statements. 9 AMERICAS GOVERNMENT INCOME PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ============ ============ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 3,037,265 $ 3,056,328 Net realized gain (loss) on investment and foreign currency transactions (191,718) 632,661 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities 1,725,011 (1,273,324) ------------ ------------ Net increase in net assets from operations 4,570,558 2,415,665 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A (3,193,187) (2,720,329) Class B (772,040) (347,443) CAPITAL STOCK TRANSACTIONS Net increase (decrease) 1,266,132 (8,427,958) ------------ ------------ Total increase (decrease) 1,871,463 (9,080,065) NET ASSETS Beginning of period 57,168,529 66,248,594 ------------ ------------ End of period (including undistributed net investment income of $1,274,415 and $2,834,641, respectively) $ 59,039,992 $ 57,168,529 ============ ============ See Notes to Financial Statements. 10 AMERICAS GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Americas Government Income Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc., (the "Fund"). The Portfolio's investment objective is to seek the highest level of current income, consistent with what Alliance Capital Management L.P., considers to be prudent investment risk, that is available from a portfolio of debt securities issued or guaranteed by the government of the United States, Canada, or Mexico, their political subdivisions (including Canadian provinces, but excluding States of the United States), agencies, instrumentalities or authorities. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign 11 AMERICAS GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ markets close well before the Fund 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 and may materially affect the value of those securities. 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holdings of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of interest, dividends and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 7. REPURCHASE AGREEMENTS It is the policy of the Portfolio that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited. 12 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .65% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $3,696, none of which was paid to Sanford C. Bernstein &Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 28,765,022 $ 26,289,592 U.S. government securities 19,490,976 29,620,649 The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures and foreign currency transactions) are as follows: Cost $ 61,019,127 ============= Gross unrealized appreciation $ 4,439,595 Gross unrealized depreciation (148,134) ------------- Net unrealized appreciation $ 4,291,461 ============= 13 AMERICAS GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 1. FINANCIAL FUTURES CONTRACTS The Portfolio may buy or sell financial futures contracts for the purpose of hedging its portfolio against adverse affects of anticipated movements in the market. The Portfolio bears the market risk that arises from changes in the value of these financial instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of a contract. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. 2. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 3. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Transactions in written options for the year ended December 31, 2005 were as follows: NUMBER OF PREMIUMS CONTRACTS RECEIVED ============= ============= OPTIONS OUTSTANDING AT DECEMBER 31, 2004 -0- $ -0- Options written 13,415,000 12,135 Options terminated in closing purchase Transactions (13,415,000) (12,135) ------------- ------------- OPTIONS OUTSTANDING AT DECEMBER 31, 2005 -0- $ -0- ============= ============= 4. REVERSE REPURCHASE AGREEMENTS Under a reverse repurchase agreement, the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value at least equal to the repurchase price. For the year ended December 31, 2005, the average amount of reverse repurchase agreements outstanding was $4,303,661 and the daily weighted average interest rate was 3.28%. 5. DOLLAR ROLLS The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the 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, the Portfolio forgoes principal and interest paid on the securities. The 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. Dollar rolls 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. Dollar rolls are speculative techniques and may be considered to be borrowings by the Portfolio. For the year ended December 31, 2005, the Portfolio earned income of $78,263 from dollar rolls. NOTE E: SECURITIES LENDING The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. NOTE F: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 655,276 392,302 $ 8,404,299 $ 5,147,031 Shares issued in reinvestment of dividends 254,032 225,566 3,193,186 2,720,329 Shares redeemed (1,106,405) (1,572,400) (14,177,377) (20,172,752) ------------ ------------ -------------- -------------- Net decrease (197,097) (954,532) $ (2,579,892) $ (12,305,392) =========== =========== ============= ============= 15 AMERICAS GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS B Shares sold 612,616 589,281 $ 7,934,755 $ 7,708,605 Shares issued in reinvestment of dividends 61,468 28,810 772,040 347,443 Shares redeemed (380,602) (327,735) (4,860,771) (4,178,614) ------------ ------------ -------------- -------------- Net increase 293,482 290,356 $ 3,846,024 $ 3,877,434 =========== =========== ============= ============= NOTE G: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Interest Rate Risk and Credit Risk-- Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 3,965,227 $ 3,067,772 -------------- -------------- Total taxable distributions 3,965,227 3,067,772 -------------- -------------- Total distributions paid $ 3,965,227 $ 3,067,772 ============== ============== 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 3,234,616 Undistributed long-term capital gains 138,944 Accumulated capital and other losses (2,112,367)(a) Unrealized appreciation/(depreciation) 4,291,291(b) ------------ Total accumulated earnings/(deficit) $ 5,552,484 ============ (a) During the current fiscal year, the portfolio utilized capital loss carryforwards of $27,392. For the year ended December 31, 2005, the Portfolio deferred losses on straddles of $2,112,367. (b) The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the realization for tax purposes of gains/losses on certain derivative instruments. During the current fiscal year, permanent differences, primarily due to the tax treatment of foreign currency gains and losses and the tax character paydown losses resulted in a net decrease in undistributed net investment income and an increase in accumulated net realized gain on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. 17 AMERICAS GOVERNMENT INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 19 AMERICAS GOVERNMENT INCOME PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001(a) ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $12.91 $13.01 $12.65 $12.17 $12.72 INCOME FROM INVESTMENT OPERATIONS Net investment income (b) .70 .65(c) .61 .67(c) .92(c) Net realized and unrealized gain (loss) on investment and foreign currency transactions .38 (.06) .34 .61 (.43) Net increase in net asset value from operations 1.08 .59 .95 1.28 .49 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.93) (.69) (.59) (.73) (.91) Distributions from net realized gain on investment transactions -0- -0- -0- (.07) (.13) Total dividends and distributions (.93) (.69) (.59) (.80) (1.04) Net asset value, end of period $13.06 $12.91 $13.01 $12.65 $12.17 TOTAL RETURN Total investment return based on net asset value (d) 8.67% 4.89% 7.35% 10.99% 3.59% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $45,730 $47,776 $60,550 $72,307 $51,146 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.28% 1.00% 1.04% .93% .95% Expenses, before waivers and reimbursements 1.28% 1.11% 1.04% 1.05% 1.15% Expenses, before waivers and reimbursements, excluding interest expense 1.02% .98% 1.04% .93% .95% Net investment income 5.42% 5.07%(c) 4.75% 5.45%(c) 7.35%(c) Portfolio turnover rate 75% 69% 73% 60% 57%
See footnote summary on page 21. 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B -------------------------------------------------- JULY 22, 2002 (e) YEAR ENDED DECEMBER 31, TO ------------------------------------- DECEMBER 31, 2005 2004 2003 2002 ----------- ----------- ----------- ----------- Net asset value, beginning of period $12.90 $13.01 $12.67 $12.04 INCOME FROM INVESTMENT OPERATIONS Net investment income (b) .66 .62(c) .57 .42(c) Net realized and unrealized gain (loss) on investment and foreign currency transactions .38 (.06) .36 .21 Net increase in net asset value from operations 1.04 .56 .93 .63 LESS: DIVIDENDS Dividends from net investment income (.91) (.67) (.59) -0- Net asset value, end of period $13.03 $12.90 $13.01 $12.67 TOTAL RETURN Total investment return based on net asset value (d) 8.33% 4.67% 7.18% 5.23% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $13,310 $9,393 $5,698 $236 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.53% 1.27% 1.30% 1.36%(f) Expenses, before waivers and reimbursements 1.53% 1.37% 1.30% 1.48%(f) Expenses, before waivers and reimbursements, excluding interest expense 1.27% 1.24% 1.30% 1.36%(f) Net investment income 5.17% 4.88%(c) 4.42% 4.72%(c)(f) Portfolio turnover rate 75% 69% 73% 60%
(a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change was to decrease net investment income per share by $.04, increase net realized and unrealized (loss) on investments per share by $.04, and decrease the ratio of net investment income to average net assets from 7.61% to 7.35%. (b) Based on average shares oustanding. (c) Net of expenses waived or reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Commencement of distribution. (f) Annualized. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN AMERICAS GOVERNMENT INCOME PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Americas Government Income Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Americas Government Income Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 22 AMERICAS GOVERNMENT INCOME PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. -- AllianceBernstein Americas Government Income Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.B. Issuing Senior Securities 2,654,396 54,606 84,372 0 and Borrowing Money 3.D. Concentration of Investments 2,682,777 26,226 84,372 0 3.E. Real Estate and Companies 2,694,235 25,950 73,190 0 that Deal in Real Estate 3.F. Commodities, Commodity 2,636,784 83,400 73,190 0 Contracts and Futures Contracts 3.G. Loans 2,646,088 65,999 81,287 0 3.H. Joint Securities Trading 2,678,286 35,112 79,976 0 Accounts 3.I. Exercising Control 2,674,074 26,831 92,469 0 3.J. Other Investment Companies 2,659,827 44,387 89,161 0 3.K. Oil, Gas, and Other Types of 2,664,615 44,387 84,372 0 Minerals or Mineral Leases 3.L. Purchases of Securities on Margin 2,612,228 91,986 89,161 0 3.M. Short Sales 2,608,272 92,634 92,469 0
23 AMERICAS GOVERNMENT INCOME PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.N. Pledging, Hypothecating, 2,608,247 100,756 84,372 0 Mortgaging, or Otherwise Encumbering Assets 3.P. Warrants 2,660,354 44,295 88,726 0 3.U. Option Transactions 2,610,924 85,628 96,823 0 4.A. The reclassification of the 2,639,855 64,795 88,726 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
24 AMERICAS GOVERNMENT INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer PAUL J. DENOON(2), Vice President SCOTT DIMAGGIO(2), Vice President MICHAEL L. MON(2), Vice President DOUGLAS J. PEEBLES(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Global Fixed Income Investment Team. Mr. Paul J. DeNoon, Mr. Michael L. Mon, Mr. Douglas J. Peebles and Mr. Scott DiMaggio are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 25 AMERICAS GOVERNMENT INCOME PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
26 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1997 1345 Avenue of the Americas until December 2003. Prior thereto, Chairman New York, NY 10105 and CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan Photomasks, Inc.; 220 Montgomery Street (semi-conductor manufacturing services), the George Lucas Penthouse 10 Austin, Texas, from 2003 to present, and Educational Foundation; San Francisco, CA 94104-3402 President since company acquired in 2005, and Chairman of the Board 10/10/41 and name changed from DuPont of the Smithsonian's (2005) Photomasks. Prior to the company's sale National Museum of in 2005, he was Chairman and CEO. Natural History He has also been Principal of Turner Venture Associates since 1993.
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 27 AMERICAS GOVERNMENT INCOME PORTFOLIO MANAGEMENT OF THE FUND (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Paul J. DeNoon Vice President Senior Vice President of ACMC**, with which he has 4/18/62 been associated since prior to 2001. Michael L. Mon Vice President Vice President of ACMC**, with which he has been 3/2/69 associated since prior to 2001. Douglas J. Peebles Vice President Executive Vice President of ACMC**, with which he has 8/10/65 been associated since prior to 2001. Scott DiMaggio Vice President Vice President of ACMC**, with which he has been 8/9/71 associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 28 AMERICAS GOVERNMENT INCOME PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Americas Government Income Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 29 AMERICAS GOVERNMENT INCOME PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 30 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. The directors noted that since the Portfolio does not engage in brokerage transactions, the Adviser does not receive soft dollar benefits in respect of portfolio transactions of the Portfolio. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, and that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services. The directors recognized that the Adviser's profitability would be somewhat lower if the Adviser's affiliates did not receive the benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 10 to 7 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 13 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Lehman Brothers U.S. Aggregate Index (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3-, 5- and 10-year and since inception periods (May 1994 inception). The directors noted that in the Performance Group comparison the Portfolio was in the 2nd quintile in the 1-year period, 5th quintile in the 3-year period, 4th quintile in the 5-year period and 1st quintile in the 10-year period, and in the Performance Universe comparison the Portfolio was in the 2nd quintile in the 1-year period, 4th quintile in the 3- and 5-year periods and 1st quintile in the 10-year period. The comparative information showed that the Portfolio outperformed the Index in all periods reviewed. The directors concluded that the Portfolio's relative performance over time was satisfactory. 31 AMERICAS GOVERNMENT INCOME PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., fixed income securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 50 basis points was significantly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 11 basis points and that as a result the total compensation received by the Adviser from the Portfolio pursuant to the Advisory Agreement was only materially lower than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was the same as the medians for the Expense Group and Expense Universe. The directors concluded that the Portfolio's expense ratio was satisfactory. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 33 AMERICAS GOVERNMENT INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Americas Government Income Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- High Income 50 bp on 1st $2.5 billion Americas Government 45 bp on next $2.5 billion Income Portfolio 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Americas Government Income Portfolio $69,000 0.11% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 34 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Set forth below are the Fund's latest fiscal year end gross expense ratios. FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Americas Government Income Portfolio Class A 0.98% December 31 Class B 1.24% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund that invests in fixed income securities: ASSET CLASS FEE(3) - ------------------------------------------------------ Fixed Income 0.65% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 35 AMERICAS GOVERNMENT INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Americas Government Income Portfolio 0.500 0.758 2/10 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe(6). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: EXPENSE LIPPER LIPPER LIPPER LIPPER RATIO UNIVERSE UNIVERSE GROUP GROUP FUND (%)(7) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- Americas Government Income Portfolio 0.981 0.978 9/13 0.978 7/10 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide (4) It should be noted that ieffective management feei is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of i1i means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ transfer agent and distribution related services to the Fund and receive transfer agent fees and Rule 12b-1 payments. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - --------------------------------------------------------------------- Americas Government Income Portfolio $19,426 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - --------------------------------------------------------------------- Americas Government Income Portfolio $47,266 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 37 AMERICAS GOVERNMENT INCOME PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(9) relative to its Lipper Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. AMERICAS GOVERNMENT INCOME PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 3/10 4/13 3 year 9/10 10/13 5 year 8/10 10/13 10 year 1/7 2/10 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(12) versus its benchmark(13). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- SINCE FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION - ------------------------------------------------------------------------------- Americas Government Income Portfolio 8.59 6.83 7.19 9.43 8.15 Lehman Brothers Aggregate Bond Index 2.80 3.96 6.62 6.55 7.03 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 38 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN(R) Investment Research and Management ANNUAL REPORT - -------------------------------------------------------------------------------- AllianceBernstein Variable Products Series Fund, Inc. ---------------------------- Annual Report December 31, 2005 ---------------------------- > AllianceBernstein U.S. Government/ High Grade Securities Portfolio Investment Products Offered ----------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ----------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- LETTER TO INVESTORS February 10, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein U.S. Government/High Grade Securities Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks a high level of current income consistent with the preservation of capital. The Portfolio invests, under normal circumstances, at least 80% of its net assets in U.S. government securities, including mortgage-related securities and repurchase agreements relating to U.S. government securities, and other high-grade debt securities. The Portfolio also may invest in investment-grade corporate and other debt securities, and in options and futures contracts. The average weighted maturity of the Portfolio's investments varies between one year or less and 30 years. INVESTMENT RESULTS The table on page 4 shows the Portfolio's performance compared to its benchmark, the Lehman Brothers (LB) U.S. Aggregate Index, for the one-, five- and 10-year periods ended December 31, 2005. For the annual reporting period ended December 31, 2005, the Portfolio underperformed its benchmark. Underweight positions in agency debt and investment-grade corporate security selection detracted from the Portfolio's performance. Yield curve positioning--specifically, an underweight in the two-year area of the yield curve--contributed most meaningfully to the Portfolio's relative returns for the year. The Portfolio's holdings in Treasury inflation-protected securities (TIPS), investment-grade emerging-market debt (in Russia), and an overweight position in commercial mortgage-backed securities (CMBS) also added to relative returns. MARKET REVIEW AND INVESTMENT STRATEGY The Federal Reserve (the "Fed") raised official rates another 200 basis points over the course of the year as the U.S. economy forged ahead despite surging oil prices. The Fed funds rate now stands at 4.25%, 325 basis points higher than when the Fed started tightening 18 months ago. In December, however, the Federal Open Market Committee removed the word "accommodative" from its release, which was widely interpreted to mean that the long period of monetary tightening was approaching a pause. Although short-term market rates followed the Fed higher, longer-term bond yields ended the year close to 40-year lows. At the close of the year, 10-year Treasuries yielded near 4.39%, below the two-year note's yield of 4.40%. This is the flattest the yield curve has been since 2000, which has triggered some concern that the curve will invert in 2006 and lead to a weaker economy. Foreign demand for U.S. fixed-income assets continued unabated, one of the primary reasons long rates have remained so low. U.S. fixed-income returns were generally modest during the annual reporting period, reflecting higher U.S. interest rates, a significant flattening of the yield curve and modest spread movement in the non-Treasury sectors. U.S. Treasuries posted a modest return of 2.79%, according to Lehman Brothers, substantially underperforming non-U.S. developed government bond markets. Investment-grade corporates posted the weakest performance among U.S. bond sectors, returning 1.68%, according to Lehman Brothers. While all quality tiers within the investment-grade corporate universe underperformed, lower-quality BBB credits were the hardest hit. Declines in the telecommunications, media/cable, entertainment, supermarket and auto industries dragged down the lower-quality tiers. Dampening corporate returns were the downgrading of General Motors (GM) and Ford Motor Company to non-investment grade status in the second quarter. In the fourth quarter, Standard & Poor's lowered GM's rating to B, warning that the risk of bankruptcy had increased due to several factors. These factors included a deteriorated financial condition, as well as fierce foreign competition, the slowdown in large sport utility vehicle sales and GM's massive pension and health care cost burdens. Near year-end, Fitch Ratings cut Ford Motor Credit's ratings to non-investment grade for similar reasons, effectively knocking its debt out of investment-grade indices. In addition to automaker travails, the corporate sector suffered from event risk. Shareholder-friendly actions, such as mergers and acquisitions, share buybacks and dividend payouts, increased during the year. For instance, Carl Icahn's efforts to force more shareholder-friendly changes at BBB-rated Time Warner triggered heavy losses in these bonds. Supermarket bonds were roiled when a consortium, including private-equity investors, almost succeeded in a leveraged buyout of BBB-rated Albertson's. While the effort fell apart in late December--triggering a big sector rebound--supermarkets were still one of the worst industry performers for the year. 1 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Mortgage-backed securities returned 2.61% for the annual period; however, they underperformed like-duration Treasuries, reflecting concerns about extension risk (the risk that mortgage durations will shorten or lengthen rapidly as interest rates fall or rise), and a flood of new supply. At $142 billion, net issuance was substantially greater than the $5.5 billion sold in 2004; the bulk of issuance was concentrated in 5.0% and 5.5% 30-year mortgages. As interest rates rose, paydowns were less pronounced than in 2003 and 2004. While it appears that the Federal Reserve is nearing a pause in its tightening cycle, the Portfolio's management team (the "Team") believes there is scope for further, albeit more limited, rate hikes. As such, the Team is keeping the overall duration of the Portfolio slightly shorter than that of the benchmark and is underweighting short maturities. Additionally, the Portfolios' overweight in investment-grade corporate bonds was moderated as risks increased. The Portfolio's mortgage exposure was recently increased from a modest underweight/neutral to an overweight. Although nominal spreads remain historically narrow, volatility has remained relatively low. At the same time, refinancing activity has remained subdued. An analysis of the market suggests that mortgages are at their most attractive value in two to three years, when taking into account historically tight option-adjusted spreads, low volatility and prepayment risks. Finally, the Portfolio's position in TIPS was reduced, given the more benign inflation outlook, while underweight positions in Treasuries and agencies were maintained. Additionally, an overweight in CMBS was maintained, and the Portfolio continued to have a small position in investment-grade dollar-denominated emerging-market debt (in Russia). 2 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure The unmanaged Lehman Brothers (LB) U.S. Aggregate Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The LB U.S. Aggregate Index covers the U.S. investment-grade fixed-rate bond market, including government and credit securities, agency mortgage pass through securities, asset-backed securities and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein U.S. Government/High Grade Securities Portfolio. A Word About Risk A limited percentage of the Portfolio's assets will be invested in foreign fixed-income securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Price fluctuation in the Portfolio's securities may be caused by changes in the general level of interest rates or changes in bond credit quality ratings. Please note, as interest rates rise, existing bond prices fall and can cause the value of an investment in the Portfolio to decline. Changes in interest rates have a greater effect on bonds with longer maturities than on those with shorter maturities. Investments in the Portfolio are not guaranteed because of fluctuation in the net asset value of the underlying fixed-income related investments. Similar to direct bond ownership, bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the Portfolio. Portfolio purchasers should understand that, in contrast to owning individual bonds, there are ongoing fees and expenses associated with owning shares of bond funds. While the Portfolio invests principally in bonds and other fixed-income securities, in order to achieve its investment objectives, the Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These types of transactions include the purchase and sale of futures contracts or options on futures contracts. Also, at the discretion of the Investment Manager, the Portfolio can invest up to 10% of its total assets in illiquid securities or make loans of portfolio securities of up to 30% of its total assets. In addition, the Portfolio may also enter into repurchase agreements. These financial instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. - -------------------------------------------------------------------------------- (Historical Performance continued on next page) 3 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Returns THE PORTFOLIO VS. ITS BENCHMARK ------------------------------ PERIODS ENDED DECEMBER 31, 2005 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- AllianceBernstein U.S. Government/High Grade Securities Portfolio Class A 1.98% 5.03% 5.27% - -------------------------------------------------------------------------------- AllianceBernstein U.S. Government/High Grade Securities Portfolio Class B 1.75% 4.78% 5.29%* - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.16% - -------------------------------------------------------------------------------- * Since inception of the Portfolio's Class B shares on 6/2/99. [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL] ALLIANCEBERNSTEIN U.S. GOV'T/HIGH GRADE SECURITIES PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/95 - 12/31/05 Lehman Brothers U.S. Aggregate Index: $18,188 AllianceBernstein U.S. Government/High Grade Securities Portfolio: $16,708
AllianceBernstein U.S. Government/High Grade Securities Portfolio Lehman Brothers U.S. Class A Aggregate Index - ------------------------------------------------------------------------------- 12/31/1995 $10,000 $10,000 12/31/1996 $10,255 $10,363 12/31/1997 $11,145 $11,363 12/31/1998 $12,061 $12,350 12/31/1999 $11,766 $12,249 12/31/2000 $13,069 $13,674 12/31/2001 $14,099 $14,828 12/31/2002 $15,198 $16,348 12/31/2003 $15,789 $17,018 12/31/2004 $16,384 $17,757 12/31/2005 $16,708 $18,188
This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein U.S. Government/High Grade Securities Portfolio Class A shares (from 12/31/95 to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. - -------------------------------------------------------------------------------- See Historical Performance and Benchmark disclosures on previous page. 4 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending U.S. Government/High Grade Account Value Account Value Expenses Paid Annualized Securities Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - ------------------------------ ------------- ----------------- --------------- -------------- Class A Actual .............................. $ 1,000 $ 998.31 $ 3.58 0.71% Hypothetical (5% return before expenses) ......................... $ 1,000 $ 1,021.63 $ 3.62 0.71% Class B Actual .............................. $ 1,000 $ 997.44 $ 4.83 0.96% Hypothetical (5% return before expenses) ......................... $ 1,000 $ 1,020.37 $ 4.89 0.96%
- -------------------------------------------------------------------------------- * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 5 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO SECURITY TYPE BREAKDOWN December 31, 2005 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------- SECURITY TYPE U.S. $ VALUE PERCENT OF NET ASSETS - --------------------------------------------------------------------------------------- Government/Agency Obligations $ 52,785,645 48.9% Corporate Debt Obligations 29,192,513 27.0 Commercial Mortgage Backed Securities 11,767,916 10.9 Asset Backed Securities 7,995,334 7.4 Non-Agency Collateralized Mortgage Obligations 679,504 0.6 Federal Agency Collateralized Mortgage Obligation 427,685 0.4 Sovereign Debt Obligations 2,134,268 2.0 ------------ ----- Total Investments* 104,982,865 97.2 Cash and receivables, net of liabilities 3,061,883 2.8 ------------ ----- Net Assets $108,044,748 100.0% - ---------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- * Excludes short-term investments. 6 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- U. S. GOVERNMENT & GOVERNMENT SPONSORED AGENCY OBLIGATIONS-48.9% FEDERAL AGENCIES-1.0% Federal National Mortgage Association 3.875%, 11/17/08 ........................ $ 1,085 $ 1,057,839 -------------- MORTGAGE PASS-THROUGHS-40.6% Federal Gold Loan Mortgage Corp. 4.50%, 8/01/35-10/01/35 ................. 2,265 2,130,801 6.00%, TBA .............................. 560 565,425 Federal National Mortgage Association 4.50%, TBA .............................. 3,550 3,453,483 5.00%, 4/01/19 .......................... 2,306 2,278,628 5.00%, TBA .............................. 4,140 4,030,408 5.50%, 2/01/14-2/01/35 .................. 12,038 12,004,956 5.50%, TBA .............................. 6,960 6,890,399 6.00%, 11/01/16-9/01/35 ................. 5,713 5,780,463 6.00%, TBA .............................. 2,440 2,462,111 6.50%, TBA .............................. 4,110 4,215,319 -------------- 43,811,993 -------------- U.S. TREASURY SECURITIES-7.3% U.S. Treasury Bond 4.50%, 11/15/15 ......................... 652 657,348 5.375%, 2/15/31 ......................... 4,215 4,734,630 7.25%, 5/15/16 .......................... 1,145 1,405,935 U.S. Treasury Notes 1.625%, 1/15/15 (TIPS) .................. 26 25,123 2.00%, 7/15/14 (TIPS) ................... 1,099 1,092,777 -------------- 7,915,813 -------------- Total U. S. Government & Government Sponsored Agency Obligations (cost $52,821,257) ...................... 52,785,645 -------------- CORPORATE DEBT OBLIGATIONS-27.0% AEROSPACE & DEFENSE-0.3% Raytheon Co. 6.75%, 8/15/07 .......................... 166 170,062 Textron, Inc. 6.375%, 11/15/08 ........................ 125 129,803 -------------- 299,865 -------------- AUTOMOTIVE-0.1% Daimler Chrysler NA Holdings Corp. 4.875%, 6/15/10 ......................... 110 107,403 -------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- BANKING-3.4% Bank of America Corp. 4.50%, 8/01/10 .......................... 545 535,567 Barclays Bank Plc (United Kingdom) 8.55%, 9/29/49 (a) (b) .................. 365 421,092 Huntington National Bank 4.375%, 1/15/10 ......................... 250 245,068 JPMorgan Chase & Co. 6.75%, 2/01/11 .......................... 425 455,207 Mizuho Financial Group (Cayman Islands) 8.375%, 12/29/49 ........................ 385 417,148 RBS Capital Trust III 5.512%, 9/29/49 (b) ..................... 335 333,045 Sanwa Bank 7.40%, 6/15/11 .......................... 100 110,424 Sumitomo Mitsui Banking Corp. (Japan) 5.625%, 7/15/49 (a) (b) ................. 100 99,626 Suntrust Bank Series CD 3.99%, 6/02/09 (c) ...................... 190 190,282 UFJ Finance Aruba AEC (Aruba) 6.75%, 7/15/13 .......................... 240 262,048 Washington Mutual, Inc. 4.00%, 1/15/09 .......................... 310 300,662 Wells Fargo & Co. 4.20%, 1/15/10 .......................... 195 189,839 Zions Bancorp 5.50%, 11/16/15 ......................... 135 135,997 -------------- 3,696,005 -------------- BROADCASTING/MEDIA-1.0% BSKYB Finance (UK) Ltd. (United Kingdom) 5.625%, 10/15/15 (a) .................... 210 209,029 News America, Inc. 6.55%, 3/15/33 .......................... 125 128,565 Time Warner Entertainment Co. LP 8.375%, 3/15/23 ......................... 315 364,238 Time Warner, Inc. 6.875%, 5/01/12 ......................... 155 164,994 WPP Finance (UK) Corp. (United Kingdom) 5.875%, 6/15/14 ......................... 175 177,609 -------------- 1,044,435 -------------- BUILDING/REAL ESTATE-0.2% iStar Financial, Inc. 5.15%, 3/01/12 .......................... 125 121,057 Simon Property Group LP 6.375%, 11/15/07 ........................ 145 148,167 -------------- 269,224 -------------- 7 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- CABLE-1.1% AT&T Broadband Corp. 9.455%, 11/15/22 ........................ $ 220 $ 288,242 British Sky Broadcasting Plc (United Kingdom) 6.875%, 2/23/09 ......................... 100 104,757 Comcast Cable Communications, Inc. 6.875%, 6/15/09 ......................... 250 262,583 Comcast Corp. 5.30%, 1/15/14 .......................... 220 215,831 5.50%, 3/15/11 .......................... 275 276,492 -------------- 1,147,905 -------------- CHEMICALS-0.2% Lubrizol Corp. 4.625%, 10/01/09 ........................ 120 117,615 ProLogis 7.05%, 7/15/06 .......................... 105 105,879 -------------- 223,494 -------------- COMMUNICATIONS-1.9 % British Telecom Plc (United Kingdom) 8.375%, 12/15/10 (d) .................... 450 512,262 Deutsche Telekom International Finance BV (Netherlands) 8.00%, 6/15/10 .......................... 150 170,066 Sprint Capital Corp. 8.375%, 3/15/12 ......................... 490 567,892 Telecom Italia Capital SA (Luxembourg) 4.00%, 11/15/08-1/15/10 ................. 595 568,788 6.375%, 11/15/33 ........................ 150 151,730 Verizon Global Funding Corp. 4.90%, 9/15/15 .......................... 140 135,521 -------------- 2,106,259 -------------- COMMUNICATIONS - MOBILE-1.4% AT&T Wireless Services, Inc. 7.35%, 3/01/06 .......................... 150 150,632 7.875%, 3/01/11 ......................... 460 516,145 8.75%, 3/01/31 .......................... 215 284,836 Cingular Wireless LLC 5.625%, 12/15/06 ........................ 250 251,805 Telus Corp. (Canada) 7.50%, 6/01/07 .......................... 330 340,770 -------------- 1,544,188 -------------- CONGLOMERATES/MISCELLANEOUS-0.2% Hutchison Whampoa International Ltd. (Cayman Islands) 7.45%, 11/24/33 (a) ..................... 185 213,682 -------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- CONSUMER MANUFACTURING-0.3% Fortune Brands, Inc. 2.875%, 12/01/06 ........................ 175 171,259 Textron Financial Corp. Series E 4.125%, 3/03/08 ......................... 190 187,078 -------------- 358,337 -------------- ENERGY-1.5% Amerada Hess Corp. 6.65%, 8/15/11 .......................... 310 333,111 7.875%, 10/01/29 ........................ 300 363,265 ConocoPhillips Holdings Co. 6.95%, 4/15/29 .......................... 225 271,553 Duke Energy Field Services LLC 7.875%, 8/16/10 ......................... 70 77,416 Enterprise Products Operating LP 5.60%, 10/15/14 ......................... 125 124,902 Valero Energy Corp. 6.875%, 4/15/12 ......................... 255 277,857 7.50%, 4/15/32 .......................... 105 127,606 -------------- 1,575,710 -------------- FINANCIAL-6.7% American General Finance Corp. 4.625%, 5/15/09 ......................... 340 336,587 Berkshire Hathaway Finance Corp. 4.20%, 12/15/10 ......................... 270 261,394 Boeing Capital Corp. 4.75%, 8/25/08 .......................... 115 114,692 CIT Group, Inc. 4.588%, 5/18/07 (c) ..................... 210 210,569 7.75%, 4/02/12 .......................... 460 521,700 Citigroup, Inc. 4.60%, 6/09/09 (c) ...................... 175 175,351 4.625%, 8/03/10 ......................... 300 295,845 Core Investment Grade Trust 4.659%, 11/30/07 ........................ 575 568,951 Countrywide Home Loans, Inc. 4.00%, 3/22/11 .......................... 330 310,510 Series K 4.25%, 12/19/07 ......................... 265 261,311 Credit Suisse First Boston USA, Inc. 5.50%, 8/15/13 .......................... 255 260,124 General Electric Capital Corp. 4.00%, 2/17/09 .......................... 645 629,143 4.375%, 11/21/11 ........................ 35 33,980 6.75%, 3/15/32 .......................... 245 287,594 Goldman Sachs Group, Inc. 4.75%, 7/15/13 .......................... 230 223,093 5.125%, 1/15/15 ......................... 165 163,134 8 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- Household Finance Corp. 6.50%, 11/15/08 ......................... $ 425 $ 442,329 7.00%, 5/15/12 .......................... 195 213,305 ILFC E-Capital Trust I 5.90%, 12/21/65 (a) (b) ................. 100 100,393 MBNA Corp. 4.625%, 9/15/08 ......................... 290 287,895 Merrill Lynch & Co., Inc. Series C 4.79%, 8/04/10 .......................... 595 588,307 Resona Preferred Global Securities (Cayman Islands) 7.191%, 12/30/49 (a) (b) ................ 135 143,231 SLM Corp. Series A 4.50%, 7/26/10 .......................... 225 220,280 Washington Mutual, Inc. 6.875%, 5/15/11 ......................... 540 585,444 -------------- 7,235,162 -------------- FOOD/BEVERAGE-1.3% Conagra Foods, Inc. 6.75%, 9/15/11 .......................... 43 45,802 7.875%, 9/15/10 ......................... 144 158,651 General Mills, Inc. 5.125%, 2/15/07 ......................... 480 479,588 Kraft Foods, Inc. 4.125%, 11/12/09 ........................ 540 522,536 Kroger Co. 7.80%, 8/15/07 .......................... 225 233,760 -------------- 1,440,337 -------------- HEALTH CARE-1.4% Aetna, Inc. 7.375%, 3/01/06 ......................... 272 273,089 Anthem, Inc. 3.50%, 9/01/07 .......................... 315 307,278 Humana, Inc. 6.30%, 8/01/18 .......................... 215 226,455 WellPoint, Inc. 3.75%, 12/14/07 ......................... 80 78,223 4.25%, 12/15/09 ......................... 405 394,485 Wyeth 5.50%, 2/01/14 .......................... 186 188,409 -------------- 1,467,939 -------------- INSURANCE-1.7% Assurant, Inc. 5.625%, 2/15/14 ......................... 220 222,822 Liberty Mutual Group 5.75%, 3/15/14 (a) ...................... 195 192,480 Mangrove Bay Pass-Through Trust 6.102%, 7/15/33 (a) (b) ................. 635 630,161 Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- Royal Sun & Alliance Insurance Group (United Kingdom) 8.95%, 10/15/29 ......................... $ 215 $ 274,550 Zurich Capital Trust I 8.376%, 6/01/37 (a) ..................... 490 530,307 -------------- 1,850,320 -------------- METALS & MINING-0.2% Ispat Inland ULC (Canada) 9.75%, 4/01/14 .......................... 95 107,588 Teck Cominco Ltd. 6.125%, 10/01/35 ........................ 75 74,171 -------------- 181,759 -------------- PAPER/PACKAGING-0.6% International Paper Co. 5.30%, 4/01/15 .......................... 300 288,944 Packaging Corp. of America 5.75%, 8/01/13 .......................... 155 152,222 Weyerhaeuser Co. 5.95%, 11/01/08 ......................... 175 178,535 -------------- 619,701 -------------- PUBLIC UTILITIES - ELECTRIC & GAS-3.1% Carolina Power & Light Co. 6.50%, 7/15/12 .......................... 335 358,916 Consumers Energy Co. Series C 4.25%, 4/15/08 .......................... 130 127,324 Duke Capital LLC 8.00%, 10/01/19 ......................... 250 298,387 First Energy Corp. Series B 6.45%, 11/15/11 ......................... 265 280,899 Series C 7.375%, 11/15/31 ........................ 270 318,592 MidAmerican Energy Holdings Co. 5.875%, 10/01/12 ........................ 195 201,311 NiSource Finance Corp. 7.875%, 11/15/10 ........................ 190 210,514 Pacific Gas & Electric 4.80%, 3/01/14 .......................... 410 399,557 6.05%, 3/01/34 .......................... 165 170,768 Progress Energy, Inc. 7.10%, 3/01/11 .......................... 185 199,600 Public Service Company of Colorado 7.875%, 10/01/12 ........................ 200 232,829 TXU Australia LP (Australia) 6.15%, 11/15/13 (a) ..................... 235 250,862 Xcel Energy, Inc. 7.00%, 12/01/10 ......................... 260 279,820 -------------- 3,329,379 -------------- 9 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- SERVICE-0.2% Waste Management, Inc. 6.875%, 5/15/09 ......................... $ 205 $ 216,143 -------------- SUPERMARKETS & DRUGS-0.1% Safeway, Inc. 4.80%, 7/16/07 .......................... 85 84,631 6.50%, 3/01/11 .......................... 65 67,308 -------------- 151,939 -------------- TECHNOLOGY-0.1% IBM Corp. 4.375%, 6/01/09 ......................... 90 88,871 Motorola, Inc. 7.625%, 11/15/10 ........................ 22 24,456 -------------- 113,327 -------------- Total Corporate Debt Obligations (cost $28,783,762) ...................... 29,192,513 -------------- COMMERCIAL MORTGAGE BACKED SECURITIES-10.9% Banc of America Commercial Mortgage, Inc. Series 2004-3 Cl.A5 5.482%, 6/10/39 (b) ..................... 675 687,055 Series 2004-4 Cl.A3 4.128%, 7/10/42 ......................... 410 398,213 Series 2004-6 Cl.A2 4.161%, 12/10/42 ........................ 525 508,431 Series 2005-6 Cl.A4 5.182%, 9/10/47 (b) ..................... 680 684,481 Bear Stearns Commercial Mortgage Securities Series 2005-PWR7 A3 5.116%, 2/11/41 (b) ..................... 505 503,118 Series 2005-T18 Cl.A4 4.933%, 2/13/42 (b) ..................... 530 521,912 CS First Boston Mortgage Securities Corp. Series 2003-CK2 Cl.A2 3.861%, 3/15/36 ......................... 360 351,397 Series 2004-C5 Cl.A2 4.183%, 11/15/37 ........................ 440 426,510 Series 2005-C1 Cl.A4 5.014%, 2/15/38 (b) ..................... 450 445,118 GE Capital Commercial Mortgage Corp. Series 2004-C3 Cl.A4 5.189%, 7/10/39 (b) ..................... 320 320,355 Series 2005-C3 Cl.A3FX 4.863%, 7/10/45 ......................... 455 451,201 Greenwich Capital Commercial Funding Corp. Series 2003-C1 Cl.A4 4.111%, 7/05/35 ......................... 450 422,631 Series 2005-GG3 Cl.A2 4.305%, 8/10/42 ......................... 530 516,091 Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities Corp. Series 2004-C1 Cl.A2 4.302%, 1/15/38 ......................... $ 95 $ 91,354 Series 2005-LDP1 Cl.A4 5.038%, 3/15/46 (b) ..................... 550 544,803 Series 2005-LDP3 Cl.A2 4.851%, 8/15/42 ......................... 405 401,274 Series 2005-LDP4 Cl.A2 4.79%, 10/15/42 ......................... 465 459,569 Series 2005-LDP5 Cl.A2 5.198%, 12/15/44 ........................ 360 361,375 LB-UBS Commercial Mortgage Trust Series 2004-C8 Cl.A2 4.201%, 12/15/29 ........................ 420 407,849 Series 2005-C1 Cl.A4 4.742%, 2/15/30 ......................... 365 354,754 Series 2005-C7 Cl.A4 5.197%, 11/15/30 (b) .................... 340 341,248 Merrill Lynch Mortgage Trust Series 2004-Key2 Cl.A2 4.166%, 8/12/39 ......................... 350 338,681 Series 2005-CKI1 Cl.A6 5.245%, 11/12/37 (b) .................... 280 283,069 Series 2005-MKB2 Cl.A2 4.806%, 9/12/42 ......................... 655 649,131 Morgan Stanley Capital I Series 2004-T13 Cl.A2 3.94%, 9/13/45 .......................... 690 661,075 Series 2005-T17 Cl.A5 4.78%, 12/13/41 ......................... 655 637,221 -------------- Total Commercial Mortgage Backed Securities (cost $11,963,306) ...................... 11,767,916 -------------- ASSET-BACKED SECURITIES-7.4% Aegis Asset Backed Securities Trust Series 2004-3 Cl.A2A 4.579%, 9/25/34 (c) ..................... 222 221,504 American Express Credit Account Master Trust Series 2005-1 Cl.A 4.399%, 10/15/12 (c) .................... 320 319,901 Asset Backed Funding Certificates Series 2003-WF1 Cl.A2 4.58%, 12/25/32 (c) ..................... 204 204,247 Bank One Issuance Trust Series 2004-A4 Cl.A4 4.409%, 2/16/10 (c) ..................... 400 400,195 Bear Stearns Asset Backed Securities, Inc. Series 2005-SD1 Cl.1A1 4.529%, 4/25/22 (c) ..................... 183 182,800 10 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- Capital Auto Receivables Asset Trust Series 2005-SN1A Cl.A3A 4.10%, 6/15/08 .......................... $ 465 $ 460,764 Capital One Prime Auto Receivables Trust Series 2005-1 Cl.A3 4.32%, 8/17/09 .......................... 720 715,163 Citifinancial Mortgage Securities, Inc. Series 2003-1 Cl.AFPT 3.36%, 1/25/33 (e) ...................... 132 125,272 Credit-Based Asset Servicing and Securities Series 2005-CB7 Cl.AF2 5.147%, 11/25/35 (e) .................... 260 258,952 Discover Card Master Trust I Series 2004-1 Cl.A 4.399%, 4/16/10 (c) ..................... 460 460,290 Equity One ABS, Inc. Series 2004-3 Cl.AF1 4.539%, 7/25/34 (c) ..................... 7 7,234 GE-WMC Mortgage Securities LLC Series 2005-2 Cl.A2B 4.54%, 12/25/35 (c) ..................... 285 286,556 Home Equity Mortgage Trust Series 2005-2 Cl.A1 4.559%, 7/25/35 (c) ..................... 167 167,360 Series 2005-4 Cl.A3 4.742%, 1/25/36 (e) ..................... 305 300,904 Household Home Equity Loan Trust Series 2005-3 Cl.A1 4.63%, 1/20/35 (c) ...................... 354 354,729 MBNA Credit Card Master Note Trust Series 2001-A5 Cl.A5 4.579%, 3/15/11 (c) ..................... 1,195 1,201,500 Merrill Lynch Mortgage Investors, Inc. Series 2004-SL1 Cl.A 4.639%, 4/25/35 (c) ..................... 4 3,698 Morgan Stanley ABS Capital I Series 2004-HE4 Cl.A3 4.579%, 5/25/34 (c) ..................... 63 63,195 Novastar Home Equity Loan Series 2001-1 A1 4.659%, 7/25/31 (c) ..................... 223 222,592 Providian Gateway Master Trust Series 2004-DA Cl.A 3.35%, 9/15/11 (a) ...................... 360 351,338 RAAC Series Series 2004-SP1 Cl.AI1 4.559%, 6/25/13 (c) ..................... 15 14,992 Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- Residential Asset Mortgage Products, Inc. Series 2005-RS1 Cl.AII1 4.489%, 1/25/35 (c) ..................... $ 239 $ 238,909 Series 2005-RS3 Cl.AIA2 4.54%, 3/25/35 (c) ...................... 290 289,684 Residential Asset Securities Corp. Series 2004-KS7 Cl.A2 4.749%, 11/25/32 (c) .................... 125 124,833 Series 2004-KS7 Cl.AI1 4.529%, 10/25/21 (c) .................... 42 41,908 Residential Funding Mortgage Securities II Series 2004-HS2 Cl.AI1 4.529%, 12/25/18 (c) .................... 1 1,229 Series 2005-HI2 Cl.A3 4.46%, 5/25/35 .......................... 225 220,979 Saxon Asset Securities Trust Series 2005-4 Cl.A2B 4.55%, 11/25/37 (c) ..................... 300 300,000 SLM Student Loan Trust Series 2003-C Cl.A1 3.97%, 9/15/16 (c) ...................... 355 354,894 Structured Asset Investment Loan Trust Series 2004-5 Cl.A2 4.559%, 5/25/34 (c) ..................... 100 99,712 -------------- Total Asset-Backed Securities (cost $8,018,674) ....................... 7,995,334 -------------- NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS-0.6% Credit-Based Asset Servicing and Securities Series 2003-CB1 Cl.AF 3.45%, 1/25/33 (e) ...................... 373 364,879 Washington Mutual Series 2005-AR2 Cl.2A22 4.599%, 2/25/35 (c) ..................... 315 314,625 -------------- Total Non-Agency Collateralized Mortgage Obligations (cost $681,837) ......................... 679,504 -------------- FEDERAL AGENCY COLLATERALIZED MORTGAGE OBLIGATION-0.4% FannieMae Grantor Trust Series 2004-T5 Cl.AB4 4.761%, 5/28/35 (c) (cost $427,553) ......................... 428 427,685 -------------- 11 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- SOVEREIGN DEBT OBLIGATIONS-2.0% Korea Development Bank (South Korea) 4.625%, 9/16/10 ......................... $ 200 $ 196,005 United Mexican States (Mexico) 7.50%, 1/14/12 .......................... 1,060 1,181,900 Russian Federation (Russia) 5.00%, 3/31/30 (e) ...................... 670 756,363 -------------- Total Sovereign Debt Obligations (cost $2,065,821) ....................... 2,134,268 -------------- SHORT-TERM INVESTMENTS-20.8% TIME DEPOSIT-3.2% The Bank of New York 3.25%, 1/03/06 .......................... 3,473 3,473,000 -------------- Principal Amount (000) U.S. $ Value - ------------------------------------------------------------------------- FEDERAL AGENCIES-17.6% Federal Home Loan Bank 0.00%, 1/11/06 .......................... $ 7,650 $ 7,642,977 Federal Home Loan Mortgage Corp. 0.00%, 3/03/06 .......................... 2,490 2,472,615 Federal National Mortgage Association 0.00%, 2/10/06 .......................... 8,945 8,905,347 -------------- 19,020,939 -------------- Total Short-Term Investments (cost $22,490,022) ...................... 22,493,939 -------------- TOTAL INVESTMENTS-118.0% (cost $127,252,232) ..................... 127,476,804 Other assets less liabilities-(18.0%) ..................... (19,432,056) -------------- NET ASSETS-100% $ 108,044,748 ============== INTEREST RATE SWAP CONTRACT (see Note D)
Rate Type ---------------------------- Payments Payments Swap Notional Termination made by received by Unrealized Counterparty Amount Date the Fund the Fund Appreciation - --------------------------------------------------------------------------------------- Lehman Brothers 3,505,000 11/02/07 3 month LIBOR+ 4.814% $ 1,168
+ LIBOR - London Interbank Offered Rate - -------------------------------------------------------------------------------- (a) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $ 3,142,201 or 2.9% of net assets. (b) Variable rate coupon, rate shown as of December 31, 2005. (c) Floating rate security. Stated interest rate was in effect at December 31, 2005. (d) The coupon on this security varies along with its rating. For each rating downgrade by either Moody's or Standard & Poors, the coupon increases by 25 basis points. The coupon decreases by 25 basis points for each upgrade of its rating. Minimum coupon is 8.125%. The security is currently rated Baa1/A-. (e) Coupon increases periodically based upon a predetermined schedule. Stated interest rate in effect at December 31, 2005. Glossary of Terms: TBA-To Be Assigned-Securities are purchased on a forward commitment with an approximate principal amount (generally +/- 1.0%) and no definite maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. TIPS-Treasury Inflation Protected Security See Notes to Financial Statements. 12 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $127,252,232) ... $ 127,476,804 Cash ...................................................... 429,274 Unrealized appreciation of interest rate swap contract .... 1,168 Receivable for investment securities sold ................. 2,736,153 Interest receivable ....................................... 787,957 Receivable for capital stock sold ......................... 185,495 ------------- Total assets .............................................. 131,616,851 ------------- LIABILITIES Payable for investment securities purchased ............... 23,408,599 Advisory fee payable ...................................... 41,459 Distribution fee payable .................................. 5,238 Payable for capital stock redeemed ........................ 1,325 Transfer agent fee payable ................................ 57 Accrued expenses .......................................... 115,425 ------------- Total liabilities ......................................... 23,572,103 ------------- NET ASSETS ................................................... $ 108,044,748 ============= COMPOSITION OF NET ASSETS Capital stock, at par ..................................... $ 9,158 Additional paid-in capital ................................ 104,276,676 Undistributed net investment income ....................... 3,967,681 Accumulated net realized loss on investment transactions .. (434,507) Net unrealized appreciation of investments ................ 225,740 ------------- $ 108,044,748 ============= Class A Shares Net assets ................................................ $ 83,328,441 ============= Shares of capital stock outstanding ....................... 7,048,779 ============= Net asset value per share ................................. $ 11.82 ============= Class B Shares Net assets ................................................ $ 24,716,307 ============= Shares of capital stock outstanding ....................... 2,109,289 ============= Net asset value per share ................................. $ 11.72 ============= - -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest .................................................. $ 4,877,289 ------------- EXPENSES Advisory fee .............................................. 537,925 Distribution fee--Class B ................................. 64,906 Custodian ................................................. 142,096 Administrative ............................................ 75,250 Audit ..................................................... 41,750 Printing .................................................. 32,334 Legal ..................................................... 5,123 Directors' fees ........................................... 1,000 Transfer agency ........................................... 794 Miscellaneous ............................................. 9,136 ------------- Total expenses ............................................ 910,314 ------------- Net investment income ..................................... 3,966,975 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investment transactions .............. (344,511) Net change in unrealized appreciation/depreciation of: Investments ............................................. (1,397,453) Swap contracts .......................................... 1,168 ------------- Net loss on investment transactions ....................... (1,740,796) ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS ................... $ 2,226,179 ============= - -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 2005 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ................................................ $ 3,966,975 $ 3,304,692 Net realized gain (loss) on investment transactions .................. (344,511) 3,528,992 Net change in unrealized appreciation/depreciation of investments .... (1,396,285) (1,779,525) ------------- ------------- Net increase in net assets from operations ........................... 2,226,179 5,054,159 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A ............................................................ (2,754,338) (3,152,959) Class B ............................................................ (705,193) (649,285) Net realized gain on investment transactions Class A ............................................................ (2,609,373) (3,170,573) Class B ............................................................ (726,434) (695,663) CAPITAL STOCK TRANSACTIONS Net decrease ......................................................... (15,673,115) (20,274,658) ------------- ------------- Total decrease ....................................................... (20,242,274) (22,888,979) NET ASSETS Beginning of period .................................................. 128,287,022 151,176,001 ------------- ------------- End of period (including undistributed net investment income of $3,967,681 and $3,438,692, respectively) ........................ $ 108,044,748 $ 128,287,022 ============= =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 15 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE A: Significant Accounting Policies The AllianceBernstein U.S. Government/High Grade Securities Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek high current income consistent with preservation of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. 16 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, ..40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .60% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. 17 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolios to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005, were as follows: Purchases Sales --------------- --------------- Investment securities (excluding U.S. government securities) ............. $ 43,548,199 $ 35,033,735 U.S. government securities ............ 540,815,638 558,134,114 The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding swap contracts) are as follows: Cost ................................................... $ 127,296,867 =============== Gross unrealized appreciation .......................... $ 1,072,525 Gross unrealized depreciation .......................... (892,588) --------------- Net unrealized appreciation ............................ $ 179,937 =============== 1. Swap Agreements The Portfolio may enter into swaps to hedge its exposure to interest rates and credit risk or for investment purposes. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Risks may arise as a result of the failure of the counterparty to the 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 interest payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap contract in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. In accordance with Financial Accounting Standards Board Statement No. 133, the Portfolio accrues for the interim payments 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 18 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- recorded as realized gain/loss on swaps, in addition to realized gain/loss recorded upon the termination of swap contracts on the statement of operations. Fluctuations in the value of swap contracts are recorded as a compontent of net change in unrealized appreciation/depreciation of investments. 2. Dollar Rolls The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the 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, the Portfolio forgoes principal and interest paid on the securities. The 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. Dollar rolls 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. Dollar rolls are speculative techniques and may be considered to be borrowings by the Portfolio. NOTE E: Securities Lending The Portfolio has entered into a securities lending agreement with UBS Warburg LLC (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio, administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss on the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. For the year ended December 31, 2005, the Portfolio had no securities on loan. NOTE F: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: -------------------------- --------------------------- SHARES AMOUNT -------------------------- --------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Class A Shares sold ......... 372,822 239,148 $ 4,471,948 $ 2,928,780 Shares issued in reinvestment of dividends and distributions ..... 453,782 540,011 5,363,710 6,323,532 Shares redeemed ..... (2,125,694) (2,721,343) (25,485,309) (33,760,737) ------------ ------------ ------------ ------------ Net decrease ........ (1,299,090) (1,942,184) $(15,649,651) $(24,508,425) ============ ============ ============ ============ Class B Shares sold ......... 449,657 712,222 $ 5,373,478 $ 8,734,874 Shares issued in reinvestment of dividends and distributions ..... 122,049 115,645 1,431,628 1,344,947 Shares redeemed ..... (575,530) (478,061) (6,828,570) (5,846,054) ------------ ------------ ------------ ------------ Net increase (decrease) ........ (3,824) 349,806 $ (23,464) $ 4,233,767 ============ ============ ============ ============ NOTE G: Risks Involved in Investing in the Portfolio Interest Rate Risk and Credit Risk--Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. 19 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE H: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE I: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ----------- ----------- Distributions paid from: Ordinary income ........................... $ 5,187,497 $ 6,121,986 Net long-term capital gains ............... 1,607,841 1,546,494 ----------- ----------- Total taxable distributions .................. 6,795,338 7,668,480 ----------- ----------- Total distributions paid ..................... $ 6,795,338 $ 7,668,480 =========== =========== As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ............................. $ 3,970,863 Accumulated capital and other losses ...................... (389,872)(a) Unrealized appreciation/(depreciation) .................... 177,923(b) ----------- Total accumulated earnings/(deficit) ...................... $ 3,758,914 =========== (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $13,456, all of which expires in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. For the year ended December 31, 2005, the Portfolio deferred to January 1, 2006, post October capital losses of $376,416. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the recognition for tax purposes of gains/losses on certain derivative instruments. During the current fiscal year, permanent differences, primarily due to tax treatment of paydown gains/losses and the tax treatment of dividends distributed, resulted in an increase in undistributed net investment income, and an increase in accumulated net realized loss on investment transactions. These reclassifications had no effect on net assets. NOTE J: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. 20 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, openend retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints 21 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. 22 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 23 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------------------- CLASS A ----------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------- 2005 2004 2003 2002 2001(a) -------- --------- --------- --------- --------- Net asset value, beginning of period .......................... $ 12.28 $ 12.56 $ 12.54 $ 12.00 $ 11.68 -------- --------- --------- --------- --------- Income From Investment Operations Net investment income (b) ..................................... .41 .32(c) .26 .42 .57 Net realized and unrealized gain (loss) on investment transactions ............................................... (.17) .12 .23 .49 .33 -------- --------- --------- --------- --------- Net increase in net asset value from operations ............... .24 .44 .49 .91 .90 -------- --------- --------- --------- --------- Less: Dividends and Distributions Dividends from net investment income .......................... (.36) (.36) (.37) (.37) (.58) Distributions from net realized gain on investment transactions ............................................... (.34) (.36) (.10) -0- -0- -------- --------- --------- --------- --------- Total dividends and distributions ............................. (.70) (.72) (.47) (.37) (.58) -------- --------- --------- --------- --------- Net asset value, end of period ................................ $ 11.82 $ 12.28 $ 12.56 $ 12.54 $ 12.00 ======== ========= ========= ========= ========= Total Return Total investment return based on net asset value (d) .......... 1.98% 3.77% 3.88% 7.79% 7.88% Ratios/Supplemental Data Net assets, end of period (000's omitted) ..................... $ 83,329 $ 102,543 $ 129,194 $ 164,265 $ 104,635 Ratio to average net assets of: Expenses, net of waivers and reimbursements ................ .71% .68% .77% .82% .89% Expenses, before waivers and reimbursements ................ .71% .78% .77% .82% .89% Net investment income ...................................... 3.37% 2.46%(c) 2.10% 3.49% 4.86% Portfolio turnover rate ....................................... 529% 662% 748% 551% 259%
- -------------------------------------------------------------------------------- See footnote summary on page 25. 24 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------------------- CLASS B ----------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------- 2005 2004 2003 2002 2001(a) -------- --------- --------- --------- --------- Net asset value, beginning of period .......................... $ 12.18 $ 12.47 $ 12.47 $ 11.94 $ 11.64 -------- --------- --------- --------- --------- Income From Investment Operations Net investment income (b) ..................................... .38 .28(c) .24 .39 .55 Net realized and unrealized gain (loss) on investment transactions ............................................... (.17) .13 .21 .49 .31 -------- --------- --------- --------- --------- Net increase in net asset value from operations ............... .21 .41 .45 .88 .86 -------- --------- --------- --------- --------- Less: Dividends and Distributions Dividends from net investment income .......................... (.33) (.34) (.35) (.35) (.56) Distributions from net realized gain on investment transactions ............................................... (.34) (.36) (.10) -0- -0- -------- --------- --------- --------- --------- Total dividends and distributions ............................. (.67) (.70) (.45) (.35) (.56) -------- --------- --------- --------- --------- Net asset value, end of period ................................ $ 11.72 $ 12.18 $ 12.47 $ 12.47 $ 11.94 ======== ========= ========= ========= ========= Total Return Total investment return based on net asset value (d) .......... 1.75% 3.52% 3.61% 7.54% 7.60% Ratios/Supplemental Data Net assets, end of period (000's omitted) ..................... $ 24,716 $ 25,744 $ 21,982 $ 10,602 $ 7,031 Ratio to average net assets of: Expenses, net of waivers and reimbursements ................ .96% .93% 1.03% 1.07% 1.14% Expenses, before waivers and reimbursements ................ .96% 1.03% 1.03% 1.07% 1.14% Net investment income ...................................... 3.14% 2.19%(c) 1.89% 3.25% 4.61% Portfolio turnover rate ....................................... 529% 662% 748% 551% 259%
- -------------------------------------------------------------------------------- (a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change to Class A and Class B shares was to decrease net investment income per share by $.03 and $.03, increase net realized and unrealized gain on investments per share by $.03 and $.03, and decrease the ratio of net investment income to average net assets from 5.11% to 4.86% and 4.86% to 4.61%, respectively. (b) Based on average shares outstanding. (c) Net of expenses reimbursed or waived by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein U.S. Government/High Grade Securities Portfolio: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein U.S. Government/High Grade Securities Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein U.S. Government/High Grade Securities Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 26 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO RESULTS OF SHAREHOLDER MEETING (unaudited) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein U.S. Government/High Grade Securities Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority ----------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------------ ---------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------------ ---------- ---------------- 3.A. Diversification 7,289,147 150,910 194,735 0 3.B. Issuing Senior Securities and Borrowing Money 7,220,320 233,041 181,431 0 3.C. Underwriting Securities 7,303,075 146,148 185,569 0 3.D. Concentration of Investments 7,309,311 144,803 180,678 0 3.E. Real Estate and Companies that Deal in Real Estate 7,294,676 158,322 181,794 0 3.F. Commodities, Commodity Contracts and Futures Contracts 7,273,794 158,322 202,676 0 3.G. Loans 7,273,915 151,495 209,381 0 3.H. Joint Securities Trading Accounts 7,273,456 160,448 200,888 0 3.I. Exercising Control 7,323,735 119,037 192,020 0 3.J. Other Investment Companies 7,245,656 202,013 187,123 0 3.L. Purchases of Securities on Margin 7,259,621 210,108 165,063 0 3.M. Short Sales 7,205,689 257,544 171,558 0
27 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO RESULTS OF SHAREHOLDER MEETING (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Voted For Voted Against Abstained Broker Non-Votes ----------- ------------------ ---------- ---------------- 3.N. Pledging, Hypothecating, Mortgaging, or Otherwise Encumbering Assets 7,255,414 216,512 162,867 0 3.O. Illiquid or Restricted Securities 7,263,780 196,340 174,673 0 3.S. 65% Investment Limitations 7,319,338 148,438 167,016 0 3.V. Purchasing Voting or Other Securities of Issuers 7,250,617 200,406 183,769 0 3.W. Repurchase Agreements 7,266,833 166,845 201,114 0 3.Y. Acquisitions of Certain Preferred Stock and Debt Securities 7,263,126 199,903 171,763 0 3.Z. Investments in Government Securities Consistent with Internal Revenue Code Requirements 7,306,752 158,270 169,770 0 4.A. The reclassification of the Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective. 7,253,301 183,377 198,114 0
28 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Alison M. Martier(2), Vice President Greg J. Wilensky(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 - -------------------------------------------------------------------------------- (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the U.S. Investment Grade Fixed Income Team. Ms. Alison Martier and Mr. Greg Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 29 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners Inc.; 1345 Avenue of the Americas Capital Management Corporation ("ACMC") SCB, Inc. New York, NY 10105 since 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. Prior 10/23/29 to joining ACMC in 1984, he was Chief Financial (1990) Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
30 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1997 1345 Avenue of the until December 2003. Prior thereto, Chairman and Americas CEO of Prudential Mutual Fund Management New York, NY 10105 from 1987 to 1993. Attn: Philip L. Kirstein 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation (semi- P.O. Box 128 (semi-conductors) and of SRC Computers Inc., conductors); Cirrus Glenbrook, NV 89413 with which he has been associated since prior Logic Corporation (semi- 3/7/36 to 2001. He is also President of the Arbor conductors); Novellus (2005) Company (private family investments). Corporation (semi- conductor equipment); Micro Component Technology (semi- conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan Photomasks, Inc.; 220 Montgomery Street (semiconductor manufacturing services), the George Lucas Penthouse 10 Austin, Texas, from 2003 to present, and Educational Foundation; San Francisco, CA 94104-3402 President since company acquired in and Chairman of the Board 10/10/41 2005, and name changed from DuPont of the Smithsonian's (2005) Photomasks. Prior to the company's sale National Museum of in 2005, he was Chairman and CEO. He Natural History has also been Principal of Turner Venture Associates since 1993.
- -------------------------------------------------------------------------------- * 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 31 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Officer Information Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - ----------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Alison M. Martier Vice President Senior Vice President of ACMC**, with which she has 1/29/57 been associated since prior to 2001, and Director of U.S. Core Fixed Income. Greg J. Wilensky Vice President Vice President of ACMC**, with which he has been 4/27/67 associated since prior to 2001, and Director of Stable Value Investments. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel 11/13/55 and Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 32 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein U.S. Government/High Grade Securities Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 33 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific prof- 34 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- itability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. The directors noted that since the Portfolio does not engage in brokerage transactions, the Adviser does not receive soft dollar benefits in respect of portfolio transactions of the Portfolio. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, and that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services. The directors recognized that the Adviser's profitability would be somewhat lower if the Adviser's affiliates did not receive the benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 funds in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 19 funds in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods, and as compared to the Lehman Brothers U.S. Aggregate Index (the "Index") for periods ended September 30, 2005 over the year to date, 1-, 3-, 5- and 10-year and since inception periods (September 1992 inception). The directors noted that in the Performance Group and Performance Universe comparisons the Portfolio was in the 5th quintile in all periods reviewed. The comparative information showed that the Portfolio outperformed the Index in the 1- and 3-year periods and underperformed the Index in all other periods reviewed. Based on their review and their discussion of the reasons for the Portfolio's underperformance with the Adviser, the directors retained confidence in the Adviser's ability to continue to advise the Portfolio and concluded that the Portfolio's performance was understandable. The directors informed the Adviser that they planned to closely monitor the Portfolio's performance. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser 35 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO CONTINUANCE DISCLOSURE (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement. The directors also noted that the application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly lower than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 45 basis points was slightly lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 5 basis points and that as a result the Adviser's total compensation from the Portfolio pursuant to the Advisory Agreement was somewhat higher than the Expense Group median. The directors also noted that the Portfolio's total expense ratio was materially higher than the medians for the Expense Group and the Expense Universe. The directors noted that the Portfolio's expense ratio was affected by its relatively modest size (the Portfolio's net asset value was approximately $116 million as of September 30, 2005). The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advi- 36 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- sory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 37 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein U.S. Government / High Grade Securities Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) Advisory Fee Based on % of Average Category Daily Net Assets Fund - -------------------------------------------------------------------------------- Low Risk Income 45 bp on 1st $2.5 billion U.S. Government/High Grade 40 bp on next $2.5 billion Securities Portfolio 35 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain legal, accounting, clerical, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - -------------------------------------------------------------------------------- U.S. Government/High Grade $ 69,000 0.05% Securities Portfolio - -------------------------------------------------------------------------------- (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 38 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Set forth below are the Fund's latest fiscal year end gross expense ratios. Fund Gross Expense Ratio Fiscal Year - -------------------------------------------------------------------------------- U.S. Government / High Grade Class A 0.78% December 31 Securities Portfolio Class B 1.03% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. Net Assets Effective Alliance 09/30/05 Alliance Institutional Institutional Fund ($MIL) Fee Schedule Advisory Fee - -------------------------------------------------------------------------------- U.S. Government / $115.5 U.S. Core High Grade 0.269% High Grade Securities Schedule Portfolio 40 bp on 1st $20m 25 bp on next $80m 20 bp on next $100m 15 bp on the balance minimum account size $20m The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund that invests in fixed income securities: Asset Class Fee(3) - -------------------------------------------------------------------------------- Fixed Income 0.65% The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. - -------------------------------------------------------------------------------- (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 39 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) Effective Lipper Management Group Fund Fee Median Rank - -------------------------------------------------------------------------------- U.S. Government / High Grade 0.450 0.460 5/13 Securities Portfolio Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe(6). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: Lipper Lipper Lipper Lipper Expense Universe Universe Group Group Fund Ratio (%)(7) Median (%) Rank Median (%) Rank - -------------------------------------------------------------------------------- U.S. Government / High 0.678 0.598 13/19 0.598 9/13 Grade Securities Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. - -------------------------------------------------------------------------------- (4) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 40 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent and distribution related services to the Fund and receive transfer agent fees and Rule 12b-1 payments. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - -------------------------------------------------------------------------------- U.S. Government / High Grade Securities Portfolio $60,942 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - -------------------------------------------------------------------------------- U.S. Government / High Grade Securities Portfolio $33,488 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. - -------------------------------------------------------------------------------- (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 41 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the relative to its LipFund(9) per Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. U.S. Government High Grade Securities Portfolio Group Universe - -------------------------------------------------------------------------------- 1 year 11/13 16/19 3 year 11/13 16/19 5 year 11/13 16/19 10 year 12/13 16/19 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(12) versus its benchmark(13). Periods Ending September 30, 2005 Annualized Performance - -------------------------------------------------------------------------------- Fund 1 Year 3 Year 5 Year 10 Year Since Inception - -------------------------------------------------------------------------------- U.S. Government High Grade Securities Portfolio 2.52 3.63 5.82 5.75 5.70 Lehman Brothers Government Bond Index 2.47 2.85 6.28 6.34 6.40 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 - -------------------------------------------------------------------------------- (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 42 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) - ------------------------------------------------------------------------------- ANNUAL REPORT - ------------------------------------------------------------------------------- [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. Annual Report December 31, 2005 > AllianceBernstein Money Market Portfolio INVESTMENT PRODUCTS OFFERED > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. MONEY MARKET PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MONEY MARKET PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - --------------------------------------------------------------------------------------------------------------------- CLASS A Actual $1,000 $1,014.03 $5.08 1.00% Hypothetical (5% return before expenses) $1,000 $1,020.16 $5.09 1.00% CLASS B ACTUAL $1,000 $1,012.74 $6.39 1.26% Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.41 1.26%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 1 MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------- CORPORATE OBLIGATIONS-4.8% HBOS Treasury 4.328%, 1/17/06 $ 1,500 $ 1,500,002 Sigma Finance, Inc. 4.27%, 7/25/06 1,200 1,200,615 Total Corporate Obligations (amortized cost $2,700,617) 2,700,617 COMMERCIAL PAPER-80.9% Amstel Funding LLC 4.38%, 3/15/06 1,000 991,118 Bank of America 4.33%, 2/08/06 2,500 2,488,574 Bank of Ireland 4.34%, 2/27/06 800 794,503 Barclays Bank Plc 4.185%, 1/19/06 2,500 2,494,769 Bear Stearns 4.04%, 1/10/06 900 899,091 BNP Paribas Finance, Inc. 4.29%, 2/02/06 2,300 2,291,229 Caisse Nationale 4.28%, 1/24/06 1,000 997,266 CBA Delaware, Inc. 4.035%, 1/09/06 1,000 999,103 Citigroup Global Markets 4.29% 2/06/06 2,300 2,290,133 Danske Corp. 4.28% 1/30/06 1,000 996,552 Fortis Funding LLC 4.10% 1/04/06 900 899,692 Fountain Square Funding 4.30% 2/07/06 2,300 2,289,835 Galaxy Funding 4.31%, 2/03/06 2,300 2,290,913 General Electric Corp. 4.12%, 1/03/06 2,600 2,599,405 ING Funding LLC 4.24%, 2/01/06 1,000 996,349 Jupiter Corp. 4.34%, 2/10/06 2,300 2,288,909 Metlife, Inc. 4.39%, 3/13/06 900 892,208 Network Rail 4.17%, 2/02/06 2,600 2,590,363 Newport Funding Corp. 4.06%, 1/18/06 1,000 998,083 Nordea Bank 4.25%, 1/31/06 800 797,170 Old Line Funding 4.23%, 1/12/06 900 898,837 Prudential Plc 4.26%, 1/17/06 2,300 2,295,645 Rabobank USA Finance Corp. 4.00%, 1/03/06 1,200 1,199,733 Santander 4.18%, 1/20/06 1,000 997,794 Societe Generale 4.34%, 2/22/06 1,000 993,731 The Goldman Sachs Group, Inc. 4.30%, 1/20/06 900 897,957 Toyota Motor Credit Corp. 4.32%, 2/13/06 2,300 2,288,132 UBS Finance 4.19%, 1/03/06 2,300 2,299,465 Variable Funding 4.39%, 3/22/06 900 891,220 Westpac Banking Corp. 4.27%, 2/06/06 800 796,299 Total Commercial Paper (amortized cost $45,444,078) 45,444,078 CERTIFICATES OF DEPOSIT-15.2% Banko Bilbao Vizcaya 4.43%, 3/16/06 1,000 1,000,000 Bank of Montreal 4.16%, 1/09/06 900 900,000 Calyon NY 4.32%, 2/28/06 2,300 2,300,000 Canadian Imperial Bank 4.23%, 1/30/06 800 800,000 Credit Suisse First Boston 4.30%, 1/23/06 800 800,000 Depfa Bank 4.38%, 2/14/06 1,000 1,000,000 Dexia 4.39%, 2/22/06 900 900,000 Toronto Dominion Bank 4.29%, 1/24/06 800 800,000 Total Certificates of Deposit (amortized cost $8,500,000) 8,500,000 TOTAL INVESTMENTS-100.9% (cost $56,644,695) 56,644,695 Other assets less liabilities-(0.9%) (496,748) NET ASSETS-100% $ 56,147,947 See Notes to Financial Statements. 2 MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $56,644,695) $ 56,644,695 Cash 22,634 Receivable for capital stock sold 267,476 Interest receivable 40,075 Total assets 56,974,880 LIABILITIES Payable for capital stock redeemed 619,130 Dividends payable 144,342 Advisory fee payable 21,476 Distribution fee payable 5,196 Transfer agent fee payable 65 Accrued expenses 36,724 Total liabilities 826,933 NET ASSETS $56,147,947 COMPOSITION OF NET ASSETS Capital stock, at par $ 56,149 Additional paid-in capital 56,092,257 Accumulated net realized loss on investment transactions (459) ------------ $ 56,147,947 CLASS A SHARES Net assets $ 30,369,729 Shares of capital stock outstanding 30,368,516 Net asset value per share $ 1.00 CLASS B SHARES Net assets $ 25,778,218 Shares of capital stock outstanding 25,780,509 Net asset value per share $ 1.00 See Notes to Financial Statements. 3 MONEY MARKET PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Interest $ 2,051,770 EXPENSES Advisory fee 284,954 Distribution fee--Class B 65,764 Custodian 146,439 Administrative 75,250 Audit 39,760 Printing 25,788 Legal 9,114 Directors' fees 1,000 Transfer agency 794 Miscellaneous 9,254 Total expenses 658,117 Net investment income 1,393,653 REALIZED LOSS ON INVESTMENT TRANSACTIONS Net realized loss on investment transactions (209) NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,393,444 See Notes to Financial Statements. 4 MONEY MARKET PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2005 2004 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,393,653 $ 498,380 Net realized loss on investment transactions (209) (250) Net increase in net assets from operations 1,393,444 498,130 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (851,086) (328,341) Class B (542,837) (170,039) Net realized gain on investment transactions Class A -0- (140) Class B -0- (130) CAPITAL STOCK TRANSACTIONS Net decrease (8,878,786) (37,764,839) Total decrease (8,879,265) (37,765,359) NET ASSETS Beginning of period 65,027,212 102,792,571 End of period (including undistributed net investment income of $0 and $0, respectively) $ 56,147,947 $ 65,027,212 See Notes to Financial Statements. 5 MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Money Market Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek safety of principal, excellent liquidity and maximum current income to the extent consistent with the first two objectives. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Securities in which the Portfolio invests are valued at amortized cost which approximates fair value, under which method a portfolio instrument is valued at cost and any premium or discount is amortized on a constant basis to maturity. 2. TAXES It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. 3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 4. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 5. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares dividends daily from net investment income. The dividends are paid monthly. Net realized gains distributions, if any, will be made at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, ..40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid Alliance Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of .50% of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 6 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Effective January 1, 2004 through September 6, 2004, in contemplation of the final agreement with the Office of New York Attorney General ("NYAG"), the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the advisory agreement, the Portfolio paid $75,250 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2005. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS At December 31, 2005, the cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. NOTE E: CAPITAL STOCK There are 2,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 1,000,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold 29,869,578 28,338,237 $ 29,869,578 $ 28,338,237 Shares issued in reinvestment of dividends and distributions 851,086 328,481 851,086 328,481 Shares redeemed (37,090,427) (46,773,633) (37,090,427) (46,773,633) Net decrease (6,369,763) (18,106,915) $ (6,369,763) $(18,106,915) CLASS B Shares sold 26,874,134 47,869,045 $ 26,874,134 $ 47,869,045 Shares issued in reinvestment of dividends and distributions 542,837 170,169 542,837 170,169 Shares redeemed (29,925,994) (67,697,138) (29,925,994) (67,697,138) Net decrease (2,509,023) (19,657,924) $ (2,509,023) $(19,657,924) 7 MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE F: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Interest Rate Risk and Credit Risk--The Portfolio's primary risks are interest rate risk and credit risk. Because the Portfolio invests in short-term securities, a decline in interest rates will affect the Portfolio's yield as the securities mature or are sold and the Portfolio purchases new short-term securities with a lower yield. Generally, an increase in interest rates causes the value of a debt instrument to decrease. The change in value for shorter-term securities is usually smaller than for securities with longer maturities. Because the Portfolio invests in securities with short maturities and seek to maintain stable net asset value of $1.00 per share, it is possible, though unlikely, that an increase in interest rates would change the value of your investment. Credit risk is the possibility that a security's credit rating will be downgraded or that the issuer of the security will default (fail to make scheduled interest and principal payments). The Portfolio's invests in highly-rated securities to minimize credit risk. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ----------- ----------- Distributions paid from: Ordinary income $ 1,393,923 $ 498,650 Total distributions paid $ 1,393,923 $ 498,650 As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Accumulated capital and other losses $ (459)(a) Total accumulated earnings/(deficit) $ (459) (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $459, of which $250 expires in the year 2012, and $209 which expires in 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. During the current fiscal year, permanent differences due to a tax distribution, in excess of earnings, resulted in a net decrease to distribution in excess of net investment income and a corresponding decrease in additional paid in capital. These reclassifications have no effect on net assets. NOTE H: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled HINDO, ET AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND, ET AL. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the HINDO Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Com- 9 MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ mission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled THE ATTORNEY GENERAL OF THE STATE OF WEST VIRGINIA V. AIM ADVISORS, INC., ET AL. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the HINDO Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled AUCOIN, ET AL. V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 10 MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income .02 .01(a) .01 .01 .04 LESS: DIVIDENDS Dividends from net investment income (.02) (.01) (.01) (.01) (.04) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN Total investment return based on net asset value (b) 2.35% .71% .53% 1.10% 3.57% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $30,370 $36,740 $54,847 $97,216 $128,700 Ratio to average net assets of: Expenses, net of waivers and reimbursements .93% .69% .66% .68% .63% Expenses, before waivers and reimbursements .93% .73% .66% .68% .63% Net investment income 2.30% .68%(a) .55% 1.10% 3.55%
See footnote summary on page 12. 11 MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B --------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income .02 -0-(a)(c) -0-(c) .01 .03 LESS: DIVIDENDS Dividends from net investment income (.02) -0-(c) -0-(c) (.01) (.03) Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 TOTAL RETURN Total investment return based on net asset value (b) 2.10% .46% .28% .85% 3.32% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $25,778 $28,287 $47,946 $52,316 $49,161 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.19% .94% .91% .93% .90% Expenses, before waivers and reimbursements 1.19% .98% .91% .93% .90% Net investment income 2.06% .41%(a) .29% .85% 2.60%
(a) Net of expenses reimbursed or waived by the Adviser. (b) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (c) Amount is less than $.01 per share. 12 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN MONEY MARKET PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Money Market Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Money Market Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 13 MONEY MARKET PORTFOLIO RESULTS OF SHAREHOLDER MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc.-AllianceBernstein Money Market Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES ------------ ------------- ------------ ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES ------------ ------------- ------------ ---------------- 3.A. Diversification 51,216,121 734,164 3,335,388 0 3.B. Issuing Senior Securities 51,146,029 804,256 3,335,388 0 and Borrowing Money 3.C. Underwriting Securities 51,145,675 804,610 3,335,388 0 3.D. Concentration of Investments 51,153,970 793,015 3,338,688 0 3.E. Real Estate and Companies 51,138,827 808,531 3,338,315 0 that Deal in Real Estate 3.F. Commodities, Commodity 51,148,368 801,521 3,335,784 0 Contracts and Futures Contracts 3.G. Loans 51,137,734 812,551 3,335,388 0 3.I. Exercising Control 51,142,473 797,345 3,345,854 0 3.J. Other Investment Companies 51,133,265 804,022 3,348,386 0 3.K Oil, Gas, and Other Types of 51,234,714 705,477 3,345,482 0 Minerals or Mineral Leases 3.M. Short Sales 51,145,087 805,198 3,335,388 0 3.N. Pledging, Hypothecating, 51,167,752 782,136 3,335,784 0 Mortgaging, or Otherwise Encumbering Assets 3.O. Illiquid or Restricted 51,148,578 801,310 3,335,784 0 Securities 3.T. Securities of Issuers in 51,157,730 792,159 3,335,784 0 which Officers, Directors, or Partners Have an Interest
14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES ------------ ------------- ------------ ---------------- 3.U. Option Transactions 51,134,830 815,455 3,335,388 0 3.V. Purchasing Voting or Other 51,173,013 804,256 3,308,404 0 Securities of Issuers 3.W. Repurchase Agreements 51,181,915 795,727 3,308,031 0 3.X. Securities with Maturities 51,196,093 781,549 3,308,031 0 Greater than One Year 4.A. The reclassification of the 51,129,308 847,961 3,308,404 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
15 MONEY MARKET PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), CHAIRMAN MARC O. MAYER, PRESIDENT RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, SENIOR VICE PRESIDENT AND INDEPENDENT COMPLIANCE OFFICER MARIA R. CONA(2), VICE PRESIDENT JOSEPH C. DONA, VICE PRESIDENT JASON MOSHOS(2), VICE PRESIDENT RAYMOND J. PAPERA(2), VICE PRESIDENT EMILIE D. WRAPP, SECRETARY MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER THOMAS R. MANLEY, CONTROLLER CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 TIMES SQUARE New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Money Market Investment Team. Ms. Maria R. Cona, Mr. Raymond Papera and Mr. Jason Moshos are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 16 MONEY MARKET PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, 1345 Avenue of the Americas Management Corporation ("ACMC") since 2001 Inc.; SCB, Inc. New York, NY 10105 and Chairman of the Board of AllianceBernstein 10/2/57 Investment Research and Management, Inc. (2005) ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been CHAIRMAN OF THE BOARD associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico; (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was Chief (1990) Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
17 MONEY MARKET PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and The Merger Management L.P. (investment advisory firm) from December Fund 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Attn: Philip L. Kirstein Fund Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic 3/7/36 to 2001. He is also President of the Arbor Corporation (semi- (2005) Company (private family investments). conductors); Novellus Corporation (semi- conductor equipment); Micro Component Technology (semi- conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President Lucas Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/41 changed from DuPont Photomasks. Prior to Chairman of the (2005) the company's sale in 2005, he was Chairman Board of the and CEO. He has also been Principal of Turner Smithsonian's Venture Associates since 1993. National Museum of Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 18 MONEY MARKET PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) PRINCIPAL OCCUPATION AND DATE OF BIRTH HELD WITH FUND DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and See biography above. 10/2/57 Chief Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Maria R. Cona Vice President Vice President of ACMC**, with which she has been 1/30/55 associated since prior to 2001. Joseph C. Dona Vice President Senior Vice President of ACMC**, with which he has 2/12/61 been associated since prior to 2001. Jason Moshos Vice President Assistant Vice President of ACMC**, with which he has 10/8/76 been associated since prior to 2001. Raymond J. Papera Vice President Senior Vice President of ACMC**, with which he has 3/12/56 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 19 MONEY MARKET PORTFOLIO CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT IN THIS DISCLOSURE, THE TERM "FUND" REFERS TO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC., AND THE TERM "PORTFOLIO" REFERS TO ALLIANCEBERNSTEIN MONEY MARKET PORTFOLIO. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2003 and 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. 21 MONEY MARKET PORTFOLIO CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors recognized that the Adviser should generally be entitled to earn a reasonable level of profits for the services it provides to the Portfolio and, based on their review, concluded that they were satisfied that the Adviser's level of profitability from its relationship with the Portfolio was not excessive. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. The directors noted that since the Portfolio does not engage in brokerage transactions, the Adviser does not receive soft dollar benefits in respect of portfolio transactions of the Portfolio. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, and that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services. The directors recognized that the Adviser's profitability would be somewhat lower if the Adviser's affiliates did not receive the benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 to 10 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 54 to 50 funds (depending on the year) in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-, 3-, 5- and 10-year periods. The directors noted that in the Performance Group and Performance Universe comparisons the Portfolio was in the 5th quintile in all periods reviewed. Based on their review and their discussion of the reasons for the Portfolio's underperformance with the Adviser, which includes the impact of expenses, the directors retained confidence in the Adviser's ability to continue to advise the Portfolio and concluded that the Portfolio's performance was understandable. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., money market securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. 22 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 45 basis points was somewhat lower than the Expense Group median. The directors noted that the latest fiscal year administrative expense reimbursement by the Portfolio pursuant to the Advisory Agreement was 8 basis points and that as a result the Adviser's total compensation from the Portfolio pursuant to the Advisory Agreement was somewhat higher than the Expense Group median. The directors noted that another fund advised by the Adviser has a similar investment objective yet pays a significantly lower advisory fee than the Portfolio. The directors also noted that the Portfolio's total expense ratio was significantly higher than the medians for the Expense Group and the Expense Universe. The directors noted that the Portfolio's relatively modest size (approximately $64 million as of September 30, 2005) caused the administrative expense reimbursement, which does not vary with a Portfolio's size, to have a significant effect on the Portfolio's expense ratio. The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 23 MONEY MARKET PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Money Market Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Low Risk Income 45 bp on 1st $2.5 billion Money Market Portfolio 40 bp on next $2.5 billion 35 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT DAILY NET ASSETS - ------------------------------------------------------------------------------- Money Market Portfolio $69,000 0.08% Set forth below are the Fund's latest fiscal year end gross expense ratios. (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the board of directors on December 14, 2005 in accordance with the assurance of discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 24 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ FUND GROSS EXPENSE RATIO FISCAL YEAR - ------------------------------------------------------------------------------- Money Market Portfolio Class A 0.73% December 31 Class B 0.98% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The AllianceBernstein Exchange Reserves Fund, which the Adviser manages, has a similar investment style as the Fund. Set forth below is the advisory fee schedule of the fund: ADVISORY FEE BASED ON % OF FUND AVERAGE DAILY NET ASSETS - ------------------------------------------------------------------------------- Real Estate Investment Portfolio First $1.25 billion 0.25% Next $0.25 billion 0.24% Next $0.25 billion 0.23% Next $0.25 billion 0.22% Next $1.0 billion 0.21% Excess of $3.0 billion 0.20% The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund that invests in fixed income securities: ASSET CLASS FEE(3) - ------------------------------------------------------------------------------- Fixed Income 0.65% (3) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 25 MONEY MARKET PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(4) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Money Market Portfolio 0.450 0.483 5/13 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(5) and Lipper Expense Universe(6). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO (%)(7) MEDIAN (%) RANK MEDIAN (%) RANK - ------------------------------------------------------------------------------- Money Market Portfolio 0.692 0.531 51/54 0.549 13/13 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser's profitability from providing investment advisory services to the Fund decreased during calendar 2004 relative to 2003 primarily as a result of the reduction of fees in the advisory fee schedule implemented early in 2004. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the eval- (4) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (5) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (6) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (7) Most recent fiscal year end Class A share total expense ratio. 26 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ uation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent and distribution related services to the Fund and receive transfer agent fees and Rule 12b-1 payments. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ------------------------------------------------------------------------------- Money Market Portfolio $102,508 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------------- Money Market Portfolio $214,300 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(8) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. (8) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 27 MONEY MARKET PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The information prepared by Lipper showed the 1, 3, 5 and 10 year performance rankings of the Fund(9) relative to its Lipper Performance Group(10) and Lipper Performance Universe(11) for the period ended September 30, 2005. MONEY MARKET PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 13/13 53/54 3 year 13/13 53/54 5 year 12/12 50/53 10 year 10/10 47/50 Set forth below are the 1, 3, 5, 10 year and since inception performance returns of the Fund (in bold)(12) versus the Lipper Variable Money Market Average(13). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- FUND 1 YEAR 3 YEAR 5 YEAR 10 YEAR SINCE INCEPTION - ------------------------------------------------------------------------------- MONEY MARKET PORTFOLIO 1.85 1.01 1.79 3.38 3.37 Lipper Variable Money Market 2.17 1.19 1.99 3.60 3.69 Average/ # of funds CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (9) The performance rankings are for the Class A shares of the Fund. (10) The Lipper Performance Group is identical to the Lipper Expense Group. (11) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (12) The performance returns are for the Class A shares of the Fund. (13) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 28 [LOGO] ALLIANCEBERNSTEIN(R) Investment Research and Management ANNUAL REPORT - -------------------------------------------------------------------------------- AllianceBernstein Variable Products Series Fund, Inc. ----------------------------- Annual Report December 31, 2005 ----------------------------- > AllianceBernstein U.S. Large Cap Blended Style Portfolio Investment Products Offered ----------------------------- o Are Not FDIC Insured o May Lose Value o Are Not Bank Guaranteed ----------------------------- You may obtain a description of the Fund's proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit the Securities and Exchange Commission's (the "Commission") web site at www.sec.gov, or call AllianceBernstein at (800) 227-4618. The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the Commission's web site at www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- LETTER TO INVESTORS February 8, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein U.S. Large Cap Blended Style Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks long-term growth of capital. The Portfolio invests primarily in the equity securities of U.S. companies. Under normal circumstances, the Portfolio will invest at least 80% of its net assets in large-capitalization companies. In managing the Portfolio, Alliance Capital Management, L.P. ("Alliance") applies its proprietary portfolio optimization model to a selection of "growth" and "value" stocks identified through application of its fundamental Large Cap Growth and Large Cap Value investment disciplines. Through this process, Alliance seeks to construct a single, unified investment portfolio, efficiently diversified between the "growth" and "value" equity investment styles, which is optimized to provide the highest level of long-term return for a given level of risk. Normally, approximately 50% of the value of the Portfolio will consist of growth stocks and 50% of value stocks, although this allocation will vary within a narrow range around this 50/50 target. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmark, the Standard & Poor's (S&P) 500 Stock Index, for the one-year period ended December 31, 2005 and since the Portfolio's Class A shares inception on June 6, 2003. For the annual reporting period ended December 31, 2005, the Portfolio strongly outperformed its benchmark. While both the value and growth components of the Portfolio contributed positively to relative performance during the period under review, the Portfolio benefited significantly from the stronger relative performance of the growth component of the Portfolio. During the reporting period, security selection accounted for all of the Portfolio's relative outperformance while sector selection modestly detracted. Security selection was strongest in the technology sector where companies benefited from an acceleration in capital spending, and in health care where new products drove growth. The negative sector attribution came from underweighted positions in the technology and utilities sectors in the value component of the Portfolio. MARKET REVIEW AND INVESTMENT STRATEGY The S&P 500 Stock Index returned 4.91% in 2005, with most of the gain coming from energy stocks. Despite being the worst performing sector in the fourth quarter of 2005, energy stocks gained 31% for the year. These gains were driven by higher oil prices which boosted industry profits. Consumer discretionary and telecommunications stocks were the worst performing sectors for the year. In terms of style, the Russell 1000 Value Index edged out its growth counterpart, the Russell 1000 Growth Index, for the full year, even though growth outperformed for the last three consecutive quarters of 2005. The strength of value stocks during the first quarter, as well as the outperformance of the energy sector, which makes up a higher weight in the value index, contributed to value edging out growth for the year. Valuations within the equity market, as measured by price/earnings ratios, are unusually compressed. As such, the Portfolio's management team (the "Team") sees reduced opportunity for value stocks. Because the value investment process explicitly targets portfolio risk to be proportional to the expected return, the Portfolio's active sector weights remain small. Additionally, its exposure to other risk factors, such as capitalization, is closer to the market and benchmark levels than usual. The Team continues to have a more aggressive stance for growth stocks, as it believes that the cyclical backdrop appears conducive to unwinding the anomalous under pricing of growth. In the Team's view, many growth stocks remain priced at levels that understate their growth prospects, creating opportunities to exploit through its disciplined research process. 1 U.S. LARGE CAP BLENDED STYLE PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure The unmanaged S&P 500 Stock Index does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Index is comprised of 500 U.S. companies and is a common measure of the performance of the overall U.S. stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein U.S. Large Cap Blended Style Portfolio. A Word About Risk A limited percentage of the Portfolio's assets will be invested in foreign securities which may magnify fluctuations due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Neither growth investing nor value investing guarantees a profit or eliminates risk. Growth stocks can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. If a growth stock company should fail to meet these high earnings expectations, the price of these stocks can be severely negatively affected. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies, which would result in stock prices that rise as initially expected. The Portfolio concentrates its investments in a limited number of issues and an investment in the Portfolio is therefore subject to greater risk and volatility than investments in a more diversified portfolio. Because the Portfolio allocates its investments between "growth" and "value" stocks, an investment in the Portfolio is subject to the risk that this allocation will result in lower returns during periods when one style is outperforming another than if the Portfolio had invested entirely in the outperforming style. The costs associated with this systematic rebalancing may be significant over time. The Portfolio may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. - -------------------------------------------------------------------------------- (Historical Performance continued on next page) 2 U.S. LARGE CAP BLENDED STYLE PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
-------------------------- Returns THE PORTFOLIO VS. ITS BENCHMARK -------------------------- PERIODS ENDED DECEMBER 31, 2005 1 Year Since Inception* - ------------------------------------------------------------------------------------------------ AllianceBernstein U.S. Large Cap Blended Style Portfolio Class A 10.13% 11.43% - ------------------------------------------------------------------------------------------------ AllianceBernstein U.S. Large Cap Blended Style Portfolio Class B 9.57% 10.46% - ------------------------------------------------------------------------------------------------ S&P 500 Stock Index 4.91% 11.51% - ------------------------------------------------------------------------------------------------
* Since inception of the Portfolio's Class A shares on 6/6/03 and Class B shares on 5/2/03. ALLIANCEBERNSTEIN U.S. LARGE CAP BLENDED STYLE PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 6/6/03* - 12/31/05 AllianceBernstein U.S. Large Cap Blended Style Portfolio Class A: $13,208 S&P 500 Stock Index: $13,226 AllianceBernstein U.S. Large Cap Blended Style Portfolio S&P 500 Class A Stock Index ---------------------- ----------- 6/6/03* $10,000 $10,000 12/31/03 $10,960 $11,371 12/31/04 $11,994 $12,607 12/31/05 $13,208 $13,226 * Since inception of the Portfolio's Class A shares on 6/6/03. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein U.S. Large Cap Blended Style Portfolio Class A shares (from 6/6/03* to 12/31/05) as compared to the performance of the Portfolio's benchmark. The chart assumes the reinvestment of dividends and capital gains. - -------------------------------------------------------------------------------- See Historical Performance and Benchmark disclosures on previous page. 3 U.S. LARGE CAP BLENDED STYLE PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Account Value Account Value Expenses Paid Annualized U.S. Large Cap Blended Style July 1, 2005 December 31, 2005 During Period* Expense Ratio* - --------------------------------------------- --------------- ------------------- ----------------- --------------- Class A Actual....................................... $ 1,000 $ 1,106.15 $ 6.32 1.19% Hypothetical (5% return before expenses).................................. $ 1,000 $ 1,019.21 $ 6.06 1.19% Class B Actual....................................... $ 1,000 $ 1,101.79 $ 7.68 1.45% Hypothetical (5% return before expenses).................................. $ 1,000 $ 1,017.90 $ 7.38 1.45%
- -------------------------------------------------------------------------------- * Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 U.S. LARGE CAP BLENDED STYLE PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Exxon Mobil Corp. $ 449,360 2.7% General Electric Co. 441,630 2.6 Google, Inc. Cl.A 431,454 2.6 Apple Computer, Inc. 402,584 2.4 Citigroup, Inc. 388,239 2.3 Yahoo!, Inc. 383,964 2.3 QUALCOMM, Inc. 383,412 2.3 The Procter & Gamble Co. 370,432 2.2 Halliburton Co. 328,388 2.0 Genentech, Inc. 328,374 1.9 ------------- ----- $ 3,907,837 23.3% - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION December 31, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Finance $ 4,030,134 24.1% Technology 2,779,225 16.6 Consumer Services 2,443,649 14.6 Health Care 2,341,105 14.0 Energy 1,700,920 10.2 Consumer Staples 1,316,614 7.9 Capital Goods 629,216 3.7 Utilities 439,954 2.6 Aerospace & Defense 305,919 1.8 Consumer Manufacturing 164,255 1.0 Transportation 153,272 0.9 Basic Industry 143,779 0.8 Multi-Industry Companies 78,575 0.5 ------------- ------ Total Investments* 16,526,617 98.7 Cash and receivables, net of liabilities 211,335 1.3 ------------- ------ Net Assets $ 16,737,952 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Excludes short-term investments Please note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 U.S. LARGE CAP BLENDED STYLE PORTFOLIO COUNTRY DIVERSIFICATION December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COUNTRY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- United States $ 14,807,122 88.5% Bermuda 495,036 2.9 Switzerland 328,430 2.0 Israel 270,963 1.6 Cayman Islands 228,340 1.3 Other** 396,726 2.4 ------------- ------ Total Investments* 16,526,617 98.7 Cash and receivables, net of liabilities 211,335 1.3 ------------- ------ Net Assets $ 16,737,952 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Excludes short-term investments ** The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Canada, Finland, France, Japan, Netherlands, Norway, Panama, Singapore, Sweden and United Kingdom. 6 U.S. LARGE CAP BLENDED STYLE PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------------------- COMMON STOCKS - 98.7% FINANCE - 24.1% BANKING - MONEY CENTER - 3.4% JPMorgan Chase & Co. .......... 7,800 $ 309,582 UBS AG (Switzerland)........... 1,000 95,150 Wachovia Corp. ................ 3,000 158,580 -------------- 563,312 -------------- BANKING - REGIONAL - 4.4% Bank of America Corp. ......... 6,400 295,360 Huntington Bancshares, Inc. ... 2,000 47,500 KeyCorp........................ 600 19,758 Mellon Financial Corp. ........ 2,000 68,500 National City Corp. ........... 2,000 67,140 Northern Trust Corp. .......... 1,500 77,730 PNC Financial Services Group....................... 400 24,732 SunTrust Banks, Inc. .......... 800 58,208 Wells Fargo & Co. ............. 1,400 87,962 -------------- 746,890 -------------- BROKERAGE & MONEY MANAGEMENT - 6.2% Federated Investors, Inc. ..... 1,000 37,040 Franklin Resources, Inc. ...... 2,000 188,020 Legg Mason, Inc................ 1,350 161,582 Lehman Brothers Holdings, Inc............... 500 64,085 Merrill Lynch & Co., Inc. ..... 3,600 243,828 Morgan Stanley................. 2,100 119,154 The Goldman Sachs Group, Inc. ....................... 1,550 197,951 Waddell & Reed Financial, Inc. ....................... 1,000 20,970 -------------- 1,032,630 -------------- INSURANCE - 6.2% Ace Ltd. (Cayman Islands)...... 1,750 93,520 AFLAC, Inc..................... 1,300 60,346 American International Group, Inc. ....................... 4,550 310,446 Genworth Financial, Inc. ...... 1,700 58,786 MetLife, Inc................... 1,500 73,500 RenaissanceRe Holdings Ltd. (Bermuda)................... 800 35,288 The Allstate Corp. ............ 250 13,518 The Chubb Corp. ............... 700 68,355 The Hartford Financial Services Group, Inc. ................ 900 77,301 The Progressive Corp. ......... 500 58,390 The St. Paul Travelers Cos., Inc. ................. 2,000 89,340 Torchmark Corp. ............... 600 33,360 Willis Group Holdings Ltd. .... 800 29,552 XL Capital Ltd. ............... 600 40,428 -------------- 1,042,130 -------------- MORTGAGE BANKING - 1.1% Fannie Mae..................... 2,000 97,620 Freddie Mac.................... 1,200 78,420 -------------- 176,040 -------------- MISCELLANEOUS - 2.8% Citigroup, Inc. ............... 8,000 388,239 MBIA, Inc. .................... 500 30,080 U.S. Bancorp................... 1,700 50,813 -------------- 469,132 -------------- 4,030,134 -------------- TECHNOLOGY - 16.6% COMMUNICATION EQUIPMENT - 5.7% ADC Telecommunications, Inc. (a).................... 1,300 29,042 Corning, Inc. (a).............. 12,000 235,920 Crown Castle International Corp. (a)................... 1,700 45,747 Juniper Networks, Inc. (a)..... 11,400 254,220 Nokia Oyj (ADR) (Finland)...... 600 10,980 QUALCOMM, Inc. ................ 8,900 383,412 -------------- 959,321 -------------- COMMUNICATION SERVICES - 0.1% American Tower Corp. Cl.A (a).................... 400 10,840 -------------- COMPUTER HARDWARE/ STORAGE -3.5% Apple Computer, Inc. (a)....... 5,600 402,584 EMC Corp. (a).................. 1,100 14,982 Hewlett-Packard Co. ........... 5,700 163,191 -------------- 580,757 -------------- COMPUTER PERIPHERALS - 0.7% Network Appliance, Inc. (a).... 4,100 110,700 -------------- COMPUTER SERVICES - 0.4% Electronic Data Systems Corp........................ 2,700 64,908 -------------- CONTRACT MANUFACTURING - 0.8% Celestica, Inc. (Canada) (a)... 2,200 23,232 Cooper Industries Ltd. Cl.A (Bermuda)................... 300 21,900 Flextronics International Ltd. (Singapore) (a)............. 3,100 32,364 Sanmina-SCI Corp. (a).......... 3,000 12,780 Solectron Corp. (a)............ 11,800 43,188 -------------- 133,464 -------------- 7 U.S. LARGE CAP BLENDED STYLE PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------- SEMI-CONDUCTOR CAPITAL EQUIPMENT - 0.1% Agere Systems, Inc. (a)........ 2,100 $ 27,090 -------------- SEMI-CONDUCTOR COMPONENTS - 4.1% Broadcom Corp. (a)............. 6,275 295,866 Intel Corp. ................... 1,600 39,936 Marvell Technology Group Ltd. (Bermuda) (a).......... 4,700 263,623 Texas Instruments, Inc. ....... 2,700 86,589 -------------- 686,014 -------------- SOFTWARE - 1.0% Electronic Arts, Inc. (a)...... 2,500 130,775 Microsoft Corp. ............... 1,600 41,840 -------------- 172,615 -------------- MISCELLANEOUS - 0.2% Avnet, Inc. (a)................ 1,400 33,516 -------------- 2,779,225 -------------- CONSUMER SERVICES - 14.6% APPAREL - 0.3% Jones Apparel Group, Inc. ..... 1,500 46,080 -------------- BROADCASTING & CABLE - 2.0% Comcast Corp. Special Cl.A (a)............ 2,800 71,932 The E.W. Scripps Co. .......... 2,100 100,842 Time Warner, Inc. ............. 8,300 144,752 Viacom, Inc. Cl.B.............. 350 11,410 -------------- 328,936 -------------- ENTERTAINMENT/ LEISURE - 0.4% Carnival Corp. (Panama)........ 1,000 53,470 The Walt Disney Co. ........... 600 14,382 -------------- 67,852 -------------- PRINTING & PUBLISHING - 0.2% The Interpublic Group of Cos., Inc. (a).................... 3,200 30,880 -------------- RESTAURANT & LODGING - 1.0% McDonald's Corp. .............. 3,200 107,904 Starbucks Corp. (a)............ 2,000 60,020 -------------- 167,924 -------------- RETAIL - GENERAL MERCHANDISE - 5.6% eBay, Inc. (a)................. 6,900 298,425 Limited Brands, Inc. .......... 1,900 42,465 Lowe's Cos., Inc. ............. 3,650 243,309 Office Depot, Inc. (a)......... 2,300 72,220 Target Corp. .................. 5,200 285,844 -------------- 942,263 -------------- TOYS - 0.2% Mattel, Inc. .................. 2,800 44,296 -------------- MISCELLANEOUS - 4.9% Google, Inc. Cl.A (a).......... 1,040 431,454 Yahoo!, Inc. (a)............... 9,800 383,964 815,418 -------------- 2,443,649 -------------- HEALTH CARE - 14.0% BIOTECHNOLOGY - 3.6% Amgen, Inc. (a)................ 1,900 149,834 Genentech, Inc. (a)............ 3,550 328,374 Gilead Sciences, Inc. (a)...... 2,300 121,049 -------------- 599,257 -------------- DRUGS - 3.8% Eli Lilly & Co. ............... 800 45,272 Merck & Co., Inc. ............. 3,600 114,516 Pfizer, Inc. .................. 8,700 202,884 Teva Pharmaceutical Industries Ltd. (ADR) (Israel)......... 6,300 270,963 -------------- 633,635 -------------- MEDICAL PRODUCTS - 2.6% Alcon, Inc. (Switzerland)...... 1,800 233,280 St. Jude Medical, Inc. (a)..... 3,925 197,035 -------------- 430,315 -------------- MEDICAL SERVICES - 4.0% Caremark Rx, Inc. (a).......... 1,900 98,401 Medco Health Solutions, Inc. (a).................... 425 23,715 Tenet Healthcare Corp. (a)..... 2,200 16,852 UnitedHealth Group, Inc. ...... 4,275 265,649 WellPoint, Inc. (a)............ 3,425 273,281 -------------- 677,898 -------------- 2,341,105 -------------- ENERGY - 10.2% DOMESTIC INTEGRATED - 0.5% Occidental Petroleum Corp. .... 900 71,892 -------------- INTERNATIONAL - 4.1% BP p.l.c. (ADR) (United Kingdom)............ 600 38,532 ChevronTexaco Corp. ........... 2,700 153,279 Exxon Mobil Corp. ............. 8,000 449,360 Total, SA (ADR) (France)....... 350 44,240 -------------- 685,411 -------------- 8 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------- OIL SERVICE - 5.0% ENSCO International, Inc. ..... 1,200 $ 53,220 GlobalSantaFe Corp. (Cayman Islands)............ 2,800 134,820 Halliburton Co. ............... 5,300 328,388 Nabors Industries Ltd. (Bermuda) (a)............... 2,300 174,225 Noble Corp. ................... 600 42,324 Rowan Cos., Inc. .............. 1,200 42,768 Schlumberger Ltd. (Netherlands)............... 650 63,148 -------------- 838,893 -------------- MISCELLANEOUS - 0.6% ConocoPhillips................. 1,800 104,724 -------------- 1,700,920 -------------- CONSUMER STAPLES - 7.9% BEVERAGES- 0.8% PepsiCo, Inc. ................. 800 47,264 The Coca-Cola Co. ............. 1,975 79,612 -------------- 126,876 -------------- FOOD - 1.0% Del Monte Foods Co. (a)........ 2,000 20,860 General Mills, Inc. ........... 1,200 59,184 Kellogg Co. ................... 1,000 43,220 Kraft Foods, Inc. ............. 275 7,739 Unilever NV (ADR) (Norway).............. 600 41,190 -------------- 172,193 -------------- HOUSEHOLD PRODUCTS - 2.9% Kimberly-Clark Corp. .......... 1,000 59,650 The Clorox Co. ................ 900 51,201 The Procter & Gamble Co. ...... 6,400 370,432 -------------- 481,283 -------------- RETAIL - FOOD & DRUG - 1.9% Safeway, Inc. ................. 2,400 56,784 SUPERVALU, Inc. ............... 1,100 35,728 The Kroger Co. (a)............. 3,100 58,528 Walgreen Co. .................. 1,800 79,668 Whole Foods Market, Inc. ...... 1,200 92,868 -------------- 323,576 -------------- TOBACCO - 1.3% Altria Group, Inc. ............ 2,300 171,856 UST, Inc. ..................... 1,000 40,830 -------------- 212,686 -------------- 1,316,614 -------------- CAPITAL GOODS - 3.7% ELECTRICAL EQUIPMENT - 0.6% Arrow Electronics, Inc. (a).... 1,200 38,436 Emerson Electric Co. .......... 350 26,145 Johnson Controls, Inc. ........ 600 43,746 -------------- 108,327 -------------- MACHINERY - 0.5% Eaton Corp. ................... 700 46,963 Ingersoll-Rand Co., Ltd. ...... 800 32,296 -------------- 79,259 -------------- MISCELLANEOUS - 2.6% General Electric Co. .......... 12,600 441,630 -------------- 629,216 -------------- UTILITIES - 2.6% ELECTRIC & GAS UTILITY - 0.5% Entergy Corp. ................. 900 61,785 Northeast Utilities............ 1,400 27,566 -------------- 89,351 -------------- TELEPHONE UTILITY- 2.1% AT&T, Inc. .................... 2,700 66,123 BellSouth Corp. ............... 1,000 27,100 Sprint Corp. (FON Group)....... 4,700 109,792 Verizon Communications, Inc. ....................... 4,900 147,588 -------------- 350,603 -------------- 439,954 -------------- AEROSPACE & DEFENSE - 1.8% AEROSPACE- 1.8% Goodrich Corp. ................ 1,000 41,100 Northrop Grumman Corp. ........ 900 54,099 The Boeing Co. ................ 3,000 210,720 -------------- 305,919 -------------- CONSUMER MANUFACTURING - 1.0% AUTO & RELATED- 1.0% Autoliv, Inc. (Sweden)......... 1,000 45,420 Cooper Tire & Rubber Co. ...... 700 10,724 Lear Corp. .................... 800 22,768 Magna International, Inc. Cl.A (Canada).................... 250 17,995 SPX Corp. ..................... 900 41,193 Toyota Motor Corp. (ADR) (Japan)..................... 250 26,155 -------------- 164,255 -------------- 9 U.S. LARGE CAP BLENDED STYLE PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Shares or Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------- TRANSPORTATION - 0.9% RAILROAD- 0.7% CSX Corp. ..................... 1,300 $ 66,001 Norfolk Southern Corp. ........ 1,000 44,830 -------------- 110,831 -------------- MISCELLANEOUS-0.2% BorgWarner, Inc. .............. 700 42,441 -------------- 153,272 -------------- BASIC INDUSTRY - 0.8% CHEMICALS- 0.6% E.I. du Pont de Nemours & Co. ...................... 600 25,500 PPG Industries, Inc. .......... 900 52,110 The Lubrizol Corp.............. 700 30,401 -------------- 108,011 -------------- CONTAINERS- 0.2% Owens-Illinois, Inc. (a)....... 1,700 35,768 -------------- 143,779 -------------- MULTI-INDUSTRY COMPANIES- 0.5% Crane Co. ..................... 700 24,689 Textron, Inc. ................. 700 53,886 -------------- 78,575 -------------- Total Common Stocks (cost $13,904,992).......... 16,526,617 -------------- SHORT-TERM INVESTMENT - 1.9% TIME DEPOSIT- 1.9% The Bank of New York 3.25%, 1/03/06 (cost $309,000)............. $ 309 309,000 -------------- TOTAL INVESTMENTS - 100.6% (cost $14,213,992).......... 16,835,617 Other assets less liabilities- (0.6%)......... (97,665) -------------- NET ASSETS - 100%.............. $ 16,737,952 ============== - -------------------------------------------------------------------------------- (a) Non-income producing security. Glossary: ADR - American Depositary Receipt See Notes to Financial Statements. 10 U.S. LARGE CAP BLENDED STYLE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
ASSETS Investments in securities, at value (cost $14,213,992) .............. $ 16,835,617 Cash ................................................................ 752 Receivable for investment securities sold ........................... 63,314 Receivable due from Adviser ......................................... 16,590 Dividends and interest receivable ................................... 14,077 ------------ Total assets ........................................................ 16,930,350 ------------ LIABILITIES Payable for investment securities purchased ......................... 96,931 Payable for capital stock redeemed .................................. 26,643 Distribution fee payable ............................................ 3,601 Transfer agent fee payable .......................................... 53 Accrued expenses .................................................... 65,170 ------------ Total liabilities ................................................... 192,398 ------------ NET ASSETS ............................................................. $ 16,737,952 ------------ COMPOSITION OF NET ASSETS Capital stock, at par ............................................... $ 1,288 Additional paid-in capital .......................................... 13,425,644 Accumulated net realized gain on investment transactions ............ 689,395 Net unrealized appreciation of investments .......................... 2,621,625 ------------ $ 16,737,952 ============ Class A Shares Net assets .......................................................... $ 10,537 ============ Shares of capital stock outstanding ................................. 802.569 ============ Net asset value per share ........................................... $ 13.13 ============ Class B Shares Net assets .......................................................... $ 16,727,415 ============ Shares of capital stock outstanding ................................. 1,287,312 ============ Net asset value per share ........................................... $ 12.99 ============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 U.S. LARGE CAP BLENDED STYLE PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
INVESTMENT INCOME Dividends (net of foreign taxes withheld of $1,037).................. $ 220,927 Interest............................................................. 1,061 ------------ Total investment income.............................................. 221,988 ------------ EXPENSES Advisory fee......................................................... 106,596 Distribution fee -- Class B.......................................... 38,890 Custodian............................................................ 109,491 Administrative....................................................... 75,250 Audit ............................................................... 41,750 Printing............................................................. 38,618 Legal ............................................................... 4,129 Directors' fees...................................................... 1,000 Transfer agency...................................................... 794 Miscellaneous........................................................ 5,680 ------------ Total expenses....................................................... 422,198 Less: expenses waived and reimbursed by the Adviser (see Note B)..... (186,521) ------------ Net expenses......................................................... 235,677 ------------ Net investment loss.................................................. (13,689) ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investment transactions......................... 937,920 Net change in unrealized appreciation/depreciation of investments.... 597,831 ------------ Net gain on investment transactions.................................. 1,535,751 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $ 1,522,062 ============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 U.S. LARGE CAP BLENDED STYLE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 2005 2004 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss)......................................... $ (13,689) $ 49,901 Net realized gain (loss) on investment transactions.................. 937,920 (218,290) Net change in unrealized appreciation/depreciation of investments.... 597,831 1,539,867 ----------------- ----------------- Net increase in net assets from operations........................... 1,522,062 1,371,478 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A........................................................... (5,706) (1,200) Class B........................................................... (43,625) (8,902) CAPITAL STOCK TRANSACTIONS Net increase (decrease).............................................. (1,419,021) 7,626,418 ----------------- ----------------- Total increase....................................................... 53,710 8,987,794 NET ASSETS Beginning of period.................................................. 16,684,242 7,696,448 ----------------- ----------------- End of period (including undistributed net investment income of $0 and $47,157, respectively).................................. $ 16,737,952 $ 16,684,242 ================= =================
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 U.S. LARGE CAP BLENDED STYLE PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE A: Significant Accounting Policies The AllianceBernstein U.S. Large Cap Blended Style Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 14 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 7. Repurchase Agreements It is the policy of the Portfolio that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited. NOTE B: Advisory Fee and Other Transactions With Affiliates Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .65% of the first $2.5 billion, ..55% of the next $2.5 billion and .50% in excess of $5 billion, of the Portfolio's average daily net assets. Prior to September 7, 2004, the Portfolio paid the Adviser an advisory fee at an annual rate of .95% of 15 U.S. LARGE CAP BLENDED STYLE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- the first $5 billion, .90% of the next $2.5 billion, .85% of the next $2.5 billion and .80% of the excess over $10 billion of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2005, the Adviser waived fees in the amount of $111,271. Effective January 1, 2004 through September 6, 2004, in connection with the Adviser's settlement with the New York Attorney General's Office ("NYAG") the Adviser began waiving a portion of its advisory fee so as to charge the Portfolio at the reduced annual rate discussed above. For a more complete discussion of the Adviser's settlement with the NYAG, please see "Legal Proceedings" below. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. Due to the Adviser's agreement to limit total operating expenses as described above, the Adviser waived reimbursement for such services in the amount of $75,250 for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $16,256, of which $3,991 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005 were as follows:
Purchases Sales ------------ ------------ Investment securities (excluding U.S. government securities)..... $ 13,018,492 $ 14,770,851 U.S. government securities....................................... -0- -0-
16 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost............................................................. $ 14,241,920 ================= Gross unrealized appreciation.................................... $ 2,872,105 Gross unrealized depreciation.................................... (278,408) ----------------- Net unrealized appreciation...................................... $ 2,593,697 =================
1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as net unrealized appreciation or depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. 17 U.S. LARGE CAP BLENDED STYLE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- NOTE E: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows:
-------------------------------- ----------------------------------- SHARES AMOUNT -------------------------------- ----------------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 --------------- -------------- --------------- --------------- Class A Shares issued in reinvestment of dividends................... 482 109 $ 5,706 $ 1,200 Shares redeemed................... (99,788) -0- (1,242,557) -0- -------------- -------------- --------------- --------------- Net increase (decrease)........... (99,306) 109 $ (1,236,851) $ 1,200 ============== ============== =============== =============== Class B Shares sold....................... 183,494 879,931 $ 2,184,593 $ 9,659,236 Shares issued in reinvestment of dividends................... 3,716 812 43,625 8,902 Shares redeemed................... (202,505) (183,519) (2,410,388) (2,042,920) -------------- -------------- --------------- --------------- Net increase (decrease)........... (15,295) 697,224 $ (182,170) $ 7,625,218 ============== ============== =============== ===============
NOTE F: Risks Involved in Investing in the Portfolio Foreign Securities Risk -- Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk -- In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Porfolio did not utilize the Facility during the year ended December 31, 2005. NOTE H: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 --------------- --------------- Distributions paid from: Ordinary income................ $ 49,331 $ 10,102 --------------- --------------- Total taxable distributions....... 49,331 10,102 --------------- --------------- Total distributions paid.......... $ 49,331 $ 10,102 =============== =============== 18 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income................... $ 154,041 Undistributed long-term capital gains........... 563,282 Unrealized appreciation/(depreciation).......... 2,593,697(a) ------------ Total accumulated earnings/(deficit)............ $ 3,311,020 ============ (a) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, the Portfolio utilized capital loss carryforwards of $187,067. During the current fiscal year, permanent differences, primarily due to net operating losses and the tax character of distributions, resulted in a decrease in accumulated net investment losses, and a decrease in accumulated net realized gain on investment transactions. These reclassifications had no effect on net assets. NOTE I: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee. For more information on this waiver and amendment to the Fund's investment advisory agreement, please see "Advisory Fee and Other Transactions with Affiliates" above. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed 19 U.S. LARGE CAP BLENDED STYLE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint 20 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 21 U.S. LARGE CAP BLENDED STYLE PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------- CLASS A -------------------------------------------- June 6, Year Ended Year Ended 2003(a) to December 31, December 31, December 31, 2005 2004 2003 ------------ ------------- ------------- Net asset value, beginning of period.............................. $ 11.98 $ 10.96 $ 10.00 ------------ ------------- ------------- Income From Investment Operations Net investment income (b)(c)...................................... .02 .06 .03 Net realized and unrealized gain on investment transactions....... 1.19 .97 .93 ------------ ------------- ------------- Net increase in net asset value from operations................... 1.21 1.03 .96 ------------ ------------- ------------- Less: Dividends Dividends from net investment income.............................. (.06) (.01) -0- ------------ ------------- ------------- Net asset value, end of period.................................... $ 13.13 $ 11.98 $ 10.96 ============ ============= ============= Total Return Total investment return based on net asset value (d).............. 10.13% 9.43% 9.60% Ratios/Supplemental Data Net assets, end of period (000's omitted)......................... $ 11 $ 1,200 $ 1,096 Ratio to average net assets of: Expenses, net of waivers and reimbursements.................... 1.19% 1.20% 1.20%(e) Expenses, before waivers and reimbursements.................... 2.29% 2.67% 6.65%(e) Net investment income (c)...................................... .15% .55% .45%(e) Portfolio turnover rate........................................... 80% 42% 13%
- -------------------------------------------------------------------------------- See footnote summary on page 23. 22 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------- CLASS B -------------------------------------------- May 2, Year Ended Year Ended 2003(f) to December 31, December 31, December 31, 2005 2004 2003 ------------ ------------- ------------- Net asset value, beginning of period.............................. $ 11.89 $ 10.90 $ 10.00 ------------ ------------- ------------- Income From Investment Operations Net investment income (loss) (b)(c)............................... (.01) .04 .01 Net realized and unrealized gain on investment transactions....... 1.14 .96 .89 ------------ ------------- ------------- Net increase in net asset value from operations................... 1.13 1.00 .90 ------------ ------------- ------------- Less: Dividends Dividends from net investment income.............................. (.03) (.01) -0- ------------ ------------- ------------- Net asset value, end of period.................................... $ 12.99 $ 11.89 $ 10.90 ============ ============= ============= Total Return Total investment return based on net asset value (d).............. 9.57% 9.16% 9.00% Ratios/Supplemental Data Net assets, end of period (000's omitted)......................... $ 16,727 $ 15,485 $ 6,600 Ratio to average net assets of: Expenses, net of waivers and reimbursements.................... 1.45% 1.45% 1.43%(e) Expenses, before waivers and reimbursements.................... 2.59% 2.95% 8.25%(e) Net investment income (loss) (c)............................... (.10)% .37% .27%(e) Portfolio turnover rate........................................... 80% 42% 13%
- -------------------------------------------------------------------------------- (a) Commencement of distribution. (b) Based on average shares outstanding. (c) Net of expenses waived and reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. (f) Commencement of operations. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein U.S. Large Cap Blended Style Portfolio We have audited the accompanying statement of assets and liabilities of the AllianceBernstein U.S. Large Cap Blended Style Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein U.S. Large Cap Blended Style Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (unaudited) - -------------------------------------------------------------------------------- For corporate shareholders, 100% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 24 U.S. LARGE CAP BLENDED STYLE PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein U.S. Large Cap Blended Style Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority ---------------- -------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ---------------- --------------- ------------- ------------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ---------------- --------------- ------------- ------------------- 3.A. Diversification 1,235,501 0 146,059 0 3.B. Issuing Senior Securities 1,217,434 18,066 146,059 0 and Borrowing Money 3.C. Underwriting Securities 1,217,434 18,066 146,059 0 3.D. Concentration of Investments 1,235,501 0 146,059 0 3.E. Real Estate and Companies 1,217,434 18,066 146,059 0 that Deal in Real Estate 3.F. Commodities, Commodity 1,235,501 0 146,059 0 Contracts and Futures Contracts 3.G. Loans 1,217,434 18,066 146,059 0 3.I. Purchases of Securities on 1,217,434 18,066 146,059 0 Margin 3.N. Pledging, Hypothecating, 1,217,434 18,066 146,059 0 Mortgaging, or Otherwise Encumbering Assets
25 U.S. LARGE CAP BLENDED STYLE PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (unaudited) (continued) AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
Voted For Voted Against Abstained Broker Non-Votes ---------------- --------------- ------------- ------------------- 4.A. The reclassification of the 1,226,699 8,802 146,059 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
26 U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Thomas J. Bardong, Vice President Seth J. Masters(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 - -------------------------------------------------------------------------------- (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Blend Investment Policy Team, comprised of senior Blend portfolio managers. Day-to-day responsibilities for coordinating the Portfolio's investments resides with Seth J. Masters, the Chief Investment Officer of the Blend Investment Policy Team. 27 U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, 1345 Avenue of the Americas Capital Management Corporation Inc.; SCB, Inc. New York, NY 10105 ("ACMC") since 2001 and Chairman of 10/2/57 the Board of AllianceBernstein Investment (2005) Research and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 107 None P.O. Box 167 1994, he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. Prior 10/23/29 to joining ACMC in 1984, he was Chief Financial (1990) Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
28 U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable Products Series Fund - --------------------------------------------------------------------------------
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ----------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, c/o Alliance Capital managing partner of Lexington Capital, LLC Inc., and The Merger Management L.P. (investment advisory firm) from December 1997 Fund 1345 Avenue of the Americas until December 2003. Prior thereto, Chairman New York, NY 10105 and CEO of Prudential Mutual Fund Management Attn: Philip L. Kirstein from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, 220 Montgomery Street conductor manufacturing services), Austin, Inc.; the George Penthouse 10 Texas, from 2003 to present, and President since Lucas Educational San Francisco, CA 94104-3402 company acquired in 2005, and name changed Foundation; and 10/10/1941 from DuPont Photomasks. Prior to the company's Chairman of the (2005) sale in 2005, he was Chairman and CEO. He has Board of the also been Principal of Turner Venture Associates Smithsonian's since 1993. National Museum of Natural History
- -------------------------------------------------------------------------------- * 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 29 U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Officer Information Certain information concerning the Fund's Officers is listed below.
PRINCIPAL NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------ Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Seth J. Masters Vice President Executive Vice President of ACMC** and Chief 6/4/59 Investment Officer of Style Blend and Core Equity Services. He has also headed the US and Global Style Blend teams at ACMC** since 2002. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ('AGIS')** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AGIS, ABIRM and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800)227-4618 for a free prospectus or SAI. 30 U.S. LARGE CAP BLENDED STYLE PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein U.S. Large Cap Blended Style Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 11. information about fees charged by the Adviser to other clients with a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 31 U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable CONTINUANCE DISCLOSURE (continued) Products Series Fund - -------------------------------------------------------------------------------- 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors noted that in the Portfolio's latest fiscal year the Adviser had waived reimbursement payments from the Portfolio in light of the expense caps currently in effect for the Portfolio. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for May 1, 2003 (inception) to December 31, 2003 and calendar year 2004. The directors also reviewed information in respect of 2004 that had been prepared with a revised expense allocation methodology. The directors 32 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors noted that the Adviser's relationship with the Portfolio was not profitable to it. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors noted that the Adviser's relationship with the Portfolio was not profitable to it in 2003 and 2004. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. The directors noted that the Portfolio is a clone of another fund managed by the Adviser (the "Corresponding Fund") and is managed to track the investment performance of its Corresponding Fund, although investment results may differ between the Portfolio and its Corresponding Fund due to differences in their expense ratios. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 13 funds in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 70 funds in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-year period, and as compared to the Standard & Poor's 500 Stock Index (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-year and since inception periods (June 2003 inception). The directors noted that in the Performance Group and Performance Universe comparisons, the Portfolio was in the 3rd and 2nd quintiles, respectively, in the one-year period. The comparative information showed that the Portfolio outperformed the Index in the YTD and 1-year periods and underperformed the Index in the since inception period. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. 33 U.S. LARGE CAP BLENDED STYLE PORTFOLIO AllianceBernstein Variable CONTINUANCE DISCLOSURE (continued) Products Series Fund - -------------------------------------------------------------------------------- Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors noted that the advisory fee rate schedule for the Portfolio is the same as that for its Corresponding Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, they reviewed information in the Adviser's Form ADV and a chart prepared by the Adviser disclosing the institutional fee schedule for institutional products offered by it that have a substantially similar investment style as the Portfolio. They also received an oral presentation from the Adviser that supplemented such information. The directors noted that the institutional fee schedule for clients with a comparable investment style to the Portfolio had much lower breakpoints than the fee schedule in the Portfolio's Advisory Agreement and that application of such fee schedule to the level of assets of the Portfolio would result in a fee rate that would be significantly higher than that in the Portfolio's Advisory Agreement. The directors noted that the Adviser is currently waiving its right to be reimbursed by the Portfolio for administrative expenses and that total compensation to the Adviser pursuant to the Portfolio's Advisory Agreement would be at a significantly higher rate than under the institutional fee schedule but for such waiver. The directors noted that the Adviser may, in some cases, negotiate fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such negotiated arrangements. The directors also reviewed information that indicated that the Adviser sub-advises certain registered investment companies that have investment strategies similar to the Portfolio at lower fee rates than those paid by the Portfolio. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and sub-advised funds and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 65 basis points was materially lower than the Expense Group median. The directors noted that in the Portfolio's latest fiscal year, the administrative expense reimbursement of 53 basis points had been waived by the Adviser. The directors also noted that the Portfolio's total expense ratio, which had been capped by the Adviser, was materially higher than the Expense Group median and significantly higher than the Expense Universe median. The directors noted that the Portfolio's expense ratio was affected by its relatively small size (the Portfolio's net asset value was approximately $17 million as of September 30, 2005). The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. 34 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 35 U.S. LARGE CAP BLENDED STYLE PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein U.S. Large Cap Blended Style Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) Advisory Fee Based on % of Average Category Daily Net Assets Fund - -------------------------------------------------------------------------------- Blend 65 bp on 1st $2.5 billion U.S. Large Cap Blended Style Portfolio 55 bp on next $2.5 billion 50 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount daily net assets - -------------------------------------------------------------------------------- U.S. Large Cap Blended Style Portfolio(3) $69,000 0.53% - -------------------------------------------------------------------------------- (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. (3) The expense reimbursement has been waived by the Adviser. 36 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's most recent fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. The gross expense ratios of the Fund during the most recently completed fiscal year are also listed below.
Expense Cap Pursuant to Expense Limitation Fund Undertaking Gross Expense Ratio Fiscal Year End - ------------------------------------------------------------------------------------------ U.S. Large Cap Blended Class A 1.20% 2.67% December 31 Style Portfolio Class B 1.45% 2.95%
I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. Net Assets Effective Alliance 09/30/05 Alliance Institutional Institutional Fund ($MIL) Fee Schedule Advisory Fee - -------------------------------------------------------------------------------- U.S. Large Cap $16.1 U.S. Style Blend Schedule 0.800% Blended Style 80 bp on 1st $25 m Portfolio 60 bp on next $25 m 50 bp on next $50 m 40 bp on next $100 m 30 bp on the balance Minimum account size $50 m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have 37 U.S. LARGE CAP BLENDED STYLE PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: Asset Class Fee(4) - -------------------------------------------------------------------------------- Equity Blend 0.80% The Adviser provides sub-advisory investment services to certain other investment companies managed by other fund families. The Adviser charges the following fees for each of these sub-advisory relationships: Fund Fee Schedule - -------------------------------------------------------------------------------- U.S. Large Cap Blended Client # 1 0.40% Style Portfolio Client # 2 0.90% on first $20 million 0.75% on next $20 million 0.60% on next $20 million 0.40% on next $40 million 0.30% on next $100 million It is fair to note that the services the Adviser provides pursuant to sub-advisory agreements are generally confined to the services related to the investment process; in other words, they are not as comprehensive as the services provided to the Fund by the Adviser. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) Effective Lipper Management Group Fund Fee Median Rank - -------------------------------------------------------------------------------- U.S. Large Cap Blended Style Portfolio 0.650 0.800 3/13 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper - -------------------------------------------------------------------------------- (4) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. (5) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the fee waiver or expense reimbursement that effectively reduce the contractual fee rates. In addition, the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. (6) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (7) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. 38 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below:
Lipper Lipper Lipper Lipper Expense Universe Universe Group Group Fund Ratio (%)(8) Median (%) Rank Median (%) Rank - -------------------------------------------------------------------------------------------------------- U.S. Large Cap Blended Style Portfolio 1.200 0.859 67/68 1.005 13/13
Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser did not earn a profit during calendar 2004 and 2003 primarily as a result of the Adviser having to reimburse the Fund for additional expenses incurred above the Funds expense cap limitation. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: Fund 12b-1 Fee Received - -------------------------------------------------------------------------------- U.S. Large Cap Blended Style Portfolio $29,594 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: Adviser Payments to Fund ABIRM - -------------------------------------------------------------------------------- U.S. Large Cap Blended Style Portfolio $292,048 - -------------------------------------------------------------------------------- (8) Most recent fiscal year end Class A share total expense ratio. 39 U.S. LARGE CAP BLENDED STYLE PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $859 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. U.S. Large Cap Blended Style Portfolio Group Universe - -------------------------------------------------------------------------------- 1 year 6/13 20/70 - -------------------------------------------------------------------------------- (9) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. (10) The performance rankings are for the Class A shares of the Fund. (11) The Lipper Performance Group is identical to the Lipper Expense Group. (12) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 40 AllianceBernstein Variable Products Series Fund - -------------------------------------------------------------------------------- Set forth below are the 1 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14). Periods Ending September 30, 2005 Annualized Performance - -------------------------------------------------------------------------------- Fund 1 Year Since Inception - -------------------------------------------------------------------------------- U.S. Large Cap Blended Style Portfolio 15.81 11.60 S&P 500 Index 12.25 12.82 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 - -------------------------------------------------------------------------------- (13) The performance returns are for the Class A shares of the Fund. (14) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 41 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN BALANCED WEALTH STRATEGY PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. BALANCED WEALTH STRATEGY PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Balanced Wealth Strategy Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks to achieve the highest total return consistent with the Adviser's determination of reasonable risk. The Portfolio is designed for investors who seek a moderate tilt toward equity returns without regard to taxes but also want risk diversification offered by debt securities and broad diversification of equity risk across styles, capitalization ranges and geographic regions. Normally, the Portfolio's targeted weighting is 60% equity and 40% debt securities. The Portfolio's targeted equity blend is an equal weighting of growth and value stocks (50% each), with approximately 70% of each in U.S. companies and 30% in non-U.S. companies. The Portfolio's fixed-income securities will primarily be investment grade, but may include high yield ("junk bonds") and preferred stock. The Adviser will allow the Portfolio's relative weightings to change in response to markets, but only within carefully constructed ranges. Beyond those ranges, the Adviser will rebalance toward the targeted blends. The Portfolio can also selectively invest in real estate investment trusts (REITs), which often provide attractive income yet historically have had a low correlation to the other asset classes that can make up the portfolio. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its balanced benchmark, a 60% / 40% blend of the Standard & Poor's (S&P) 500 Stock Index and the Lehman Brothers (LB) U.S. Aggregate Index, for the one-year period ended December 31, 2005 and since the Portfolio's Class A shares inception on July 1, 2004. For the annual reporting period ended December 31, 2005, the Portfolio outperformed its balanced benchmark by a substantial margin, with significant positive contribution coming from the Portfolio's equity investments. The Portfolio's approach of seeking return not only in the U.S. equity market, but also in the international equity markets, contributed significantly to performance, as international stocks outperformed U.S. stocks by a considerable margin. While the S&P 500 Stock Index gained 4.91% for the one-year period ended December 31, 2005, the international markets gained 13.54%, as measured by the MSCI EAFE Index. The Portfolio's performance was further enhanced by its strategic allocation to the real estate investment trust (REIT) market, as REITs returned 12.16% for the year, as measured by the NAREIT Equity Index. Within the U.S. equity market, a renewed interest in growth stocks and large-cap companies created a supportive environment for strong contribution from the Portfolio's large-cap growth stock holdings. While several individual stocks contributed notably to performance, particularly in the information technology and health care sectors, the strength in the Portfolio's large-cap growth holdings was quite broad-based. The international equity markets also saw a renewed interest in growth stocks, although to a lesser extent than in the U.S. In this environment, the Portfolio's international growth holdings also turned in a strong performance, led by a variety of strong stock picks, particularly in the consumer discretionary sector. MARKET REVIEW AND INVESTMENT STRATEGY Global economic growth was resilient in 2005, remaining brisk despite a number of global concerns, including surging oil prices, looming inflationary pressures, and several natural disasters. U.S. stocks ended the year in positive territory but fell short of previous years, while international stocks excelled, particularly in the emerging markets. With U.S. economic growth showing signs of decelerating, the stage was set for growth to outperform value, and growth stocks did not disappoint: large-cap growth stocks outperformed value stocks over the last three quarters of 2005. Meanwhile, rising interest rates led to mixed bond returns in the U.S. as the yield curve continued to flatten. Corporate bonds trailed comparable Treasury bond returns after posting two straight years of stellar performance. REITs continued to perform well in 2005, but were weighed down by concerns about potential inflation and the possibility of further interest rate hikes. The Portfolio's U.S. equity holdings remain positioned to continue to capture the opportunity presented in companies with strong growth prospects that are trading at unusually low premiums, while the Portfolio's international holdings are seeking diverse opportunities across the globe, with a particular focus in emerging markets where the Portfolio's management team (the "Team") has identified a range of world-class companies trading at unusually large discounts. In the Portfolio's bond portfolio, the yield advantage offered by non-Treasury sectors is historically compressed today; the Team has moderated the Portfolio's exposure while continuing to focus on specific security opportunities and staying well diversified. As always, the Team remains focused on its strategy of combining low correlation asset classes, blending growth and value investment styles, globalizing the portfolios and ensuring the Portfolio is aligned with its strategic asset allocation targets through its disciplined rebalancing process. 1 BALANCED WEALTH STRATEGY PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE NEITHER THE UNMANAGED STANDARD & POOR'S (S&P) 500 STOCK INDEX NOR THE UNMANAGED LEHMAN BROTHERS (LB) U.S. AGGREGATE INDEX REFLECTS FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The S&P 500 Stock Index includes 500 U.S. stocks and is a common measure of the performance of the overall U.S. stock market. The LB U.S. Aggregate Index covers the U.S. investment-grade fixed-rate bond market, including government and credit securities, agency mortgage passthrough securities, asset-backed securities and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Balanced Wealth Strategy Portfolio. A WORD ABOUT RISK The Portfolio allocates its investments among multiple asset classes which will include U.S. and foreign securities, as well as equity and fixed-income securities. Within each of these, the Portfolio will also allocate its investments in different types of securities, such as growth and value stocks, real estate investment trusts, and corporate and U.S. government bonds. International investing involves risks not associated with U.S. investments, including currency fluctuations and political and economic changes. The Portfolio may at times use certain types of investment derivatives such as options, futures, forwards and swaps. The Portfolio systematically rebalances its allocations in these asset classes to maintain their target weightings. There can be no assurance that rebalancing will achieve its intended result, and the costs of rebalancing may be significant over time. The use of derivatives involves specific risks and is not suitable for all investors. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 BALANCED WEALTH STRATEGY PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ RETURNS THE PORTFOLIO VS. ITS BENCHMARK --------------------------- PERIODS ENDED DECEMBER 31, 2005 1 YEAR SINCE INCEPTION* - ------------------------------------------------------------------------------- AllianceBernstein Balanced Wealth Strategy Portfolio Class A 7.30% 9.57% - ------------------------------------------------------------------------------- AllianceBernstein Balanced Wealth Strategy Portfolio Class B 7.01% 9.23% - ------------------------------------------------------------------------------- 60% S&P 500 Stock Index / 40% LB U.S. Aggregate Index 3.92% 7.04% - ------------------------------------------------------------------------------- S&P 500 Stock Index 4.91% 8.91% - ------------------------------------------------------------------------------- LB U.S. Aggregate Index 2.43% 4.24% - ------------------------------------------------------------------------------- * Since inception of the Portfolio's Class A and Class B shares on 7/1/04. ALLIANCEBERNSTEIN BALANCED WEALTH STRATEGY PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 7/1/04* - 12/31/05 ALLIANCEBERNSTEIN BALANCED WEALTH STRATEGY PORTFOLIO CLASS A: $11,470 60% S&P 500 STOCK INDEX / 40% LB U.S. AGGREGATE INDEX: $11,090 S&P 500 STOCK INDEX: $11,363 LB U.S. AGGREGATE INDEX: $10,688 [THE FOLLOWING TABLE WAS DEPICTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL.] AllianceBernstein 60% S&P 500 Balanced Stock Index / S&P 500 LB U.S. Wealth Strategy 40% LB U.S. Stock Aggregate Portfolio Class A Aggregate Index Index Index - ------------------------------------------------------------------------------- 7/1/04* $ 10,000 $ 10,000 $ 10,000 $ 10,000 12/31/04 $ 10,690 $ 10,672 $ 10,831 $ 10,418 12/31/05 $ 11,470 $ 11,090 $ 11,363 $ 10,688 * Since inception of the Portfolio's Class A shares on 7/1/04. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Balanced Wealth Strategy Portfolio Class A shares (from 7/1/04* to 12/31/05) as compared to the performance of the Portfolio's balanced benchmark (60% S&P 500 Stock Index / 40% LB U.S. Aggregate Index), as well as the components of the balanced benchmark by themselves. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 BALANCED WEALTH STRATEGY PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING BALANCED WEALTH ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED STRATEGY PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD* EXPENSE RATIO* - ----------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,069.49 $6.26 1.20% Hypothetical (5% return before expenses) $1,000 $1,019.16 $6.11 1.20% CLASS B Actual $1,000 $1,067.80 $7.56 1.45% Hypothetical (5% return before expenses) $1,000 $1,017.90 $7.38 1.45%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 BALANCED WEALTH STRATEGY PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Federal National Mortgage Assoc. (Common Stock & Bonds) $ 11,100,580 15.0% U.S. Treasury Notes 4,007,820 5.4 U.S. Treasury Bonds 3,630,997 4.9 Exxon Mobil Corp. 811,657 1.1 Citigroup, Inc. (Common Stock & Bonds) 756,435 1.0 Google, Inc. Cl.A 692,816 1.0 General Electric Co. 665,950 0.9 American International Group, Inc. 661,831 0.9 The Procter & Gamble Co. 651,150 0.9 Apple Computer, Inc. 643,415 0.8 ------------ ----- $ 23,622,651 31.9% SECTOR DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF SECTOR U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- U.S. Government & Government Sponsored Agency Obligations $ 19,087,518 25.8% Finance 13,219,805 17.8 Construction & Housing 7,227,028 9.8 Technology/Electronics 6,811,353 9.2 Medical 4,306,584 5.8 Energy 4,012,921 5.4 Consumer Cyclical 3,768,039 5.1 Capital Equipment 2,969,286 4.0 Consumer Staples 2,783,697 3.8 Industrials 1,864,200 2.5 Telecommunications 1,672,336 2.3 Utilities 1,398,022 1.9 Industrial Commodities 1,186,314 1.6 Transportation 378,189 0.5 Asset Backed Securities 240,139 0.3 Commerical Mortgage Backed Securities 100,396 0.1 ------------ ----- Total Investments* 71,025,827 95.9 Cash and receivables, net of liabilities 3,045,028 4.1 ------------ ----- Net Assets $ 74,070,855 100.0% * Excludes short-term investments. Please note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 BALANCED WEALTH STRATEGY PORTFOLIO COUNTRY BREAKDOWN DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COUNTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- United States $ 53,254,750 71.9% Japan 3,222,733 4.4 United Kingdom 2,435,138 3.3 France 2,161,015 2.9 Switzerland 1,865,556 2.5 Australia 833,619 1.1 Canada 805,236 1.1 Bermuda 696,179 1.0 Other* 5,751,601 7.7 ------------ ----- Total Investments** 71,025,827 95.9 Cash and receivables, net of liabilities 3,045,028 4.1 ------------ ----- Net Assets $ 74,070,855 100.0% * The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Belgium, Brazil, Cayman Islands, China, Finland, Germany, Greece, Hong Kong, Hungary, India, Ireland, Israel, Italy, Korea, Mexico, Netherlands, Norway, Panama, Singapore, South Africa, Spain, Sweden and Taiwan. ** Excludes short-term investments. 6 BALANCED WEALTH STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- COMMON STOCKS-63.2% UNITED STATES INVESTMENTS-39.3% FINANCE-10.3% BANKING-4.3% Bank of America Corp. 10,825 $ 499,574 Citigroup, Inc. 13,650 662,434 Comerica, Inc. 1,500 85,140 Fannie Mae 3,500 170,835 Freddie Mac 2,075 135,601 Huntington Bancshares, Inc. 3,100 73,625 JPMorgan Chase & Co. 11,075 439,567 KeyCorp 700 23,051 Mellon Financial Corp. 3,000 102,750 National City Corp. 3,200 107,423 Northern Trust Corp. 2,050 106,231 PNC Financial Services Group, Inc. 450 27,824 SunTrust Banks, Inc. 1,300 94,588 U.S. Bancorp 3,400 101,626 UBS AG 1,600 152,240 Wachovia Corp. 4,600 243,156 Wells Fargo & Co. 2,600 163,358 ------------ 3,189,023 ------------ FINANCIAL SERVICES-2.5% Countrywide Financial Corp. 1,700 58,123 Federated Investors, Inc. 1,750 64,820 Franklin Resources, Inc. 3,200 300,832 Legg Mason, Inc. 2,150 257,333 Lehman Brothers Holdings, Inc. 900 115,353 MBIA, Inc. 850 51,136 Merrill Lynch & Co., Inc. 5,525 374,208 Morgan Stanley 3,325 188,661 Prudential Financial, Inc. 200 14,638 The Goldman Sachs Group, Inc. 3,175 405,479 Waddell & Reed Financial, Inc. 1,200 25,164 ------------ 1,855,747 ------------ INSURANCE-3.5% Ace Ltd. 2,150 114,896 AFLAC, Inc. 2,100 97,482 American International Group, Inc. 9,700 661,831 Genworth Financial, Inc. 2,400 82,992 MetLife, Inc. 2,400 117,600 The Allstate Corp. 300 16,221 The Chubb Corp. 900 87,885 The Hartford Financial Services Group, Inc. 1,425 122,393 The Progressive Corp. 850 99,263 The St. Paul Travelers Cos., Inc. 3,150 140,711 Torchmark Corp. 1,550 86,180 UnitedHealth Group, Inc. 6,600 410,124 UnumProvident Corp. 3,900 88,725 WellPoint, Inc. (a) 5,400 430,866 ------------ 2,557,169 ------------ 7,601,939 ------------ TECHNOLOGY/ELECTRONICS-7.2% DATA PROCESSING-4.3% Agere Systems, Inc. (a) 2,500 32,250 Apple Computer, Inc. (a) 8,950 643,415 Arrow Electronics, Inc. (a) 950 30,429 Avnet, Inc. (a) 1,800 43,092 Electronic Arts, Inc. (a) 4,060 212,379 Electronic Data Systems Corp. 3,200 76,928 EMC Corp. (a) 3,700 50,394 Google, Inc. Cl. A (a) 1,670 692,816 Hewlett-Packard Co. 9,100 260,533 International Business Machines Corp. 1,200 98,640 Microsoft Corp. 2,600 67,990 Network Appliance, Inc. (a) 6,500 175,500 Sanmina-SCI Corp. (a) 9,400 40,044 Solectron Corp. (a) 15,400 56,364 Tech Data Corp. (a) 1,400 55,552 Yahoo!, Inc.(a) 15,700 615,126 ------------ 3,151,452 ------------ ELECTRICAL & ELECTRONICS-2.6% ADC Telecommunications, Inc. (a) 1,600 35,744 Broadcom Corp. Cl.A (a) 10,100 476,215 Corning, Inc. (a) 19,400 381,404 Juniper Networks, Inc. (a) 18,550 413,665 QUALCOMM, Inc. 14,000 603,120 Tellabs, Inc. (a) 3,200 34,880 ------------ 1,945,028 ------------ ELECTRONIC COMPONENTS & INSTRUMENTS-0.3% Intel Corp. 2,800 69,888 Texas Instruments, Inc. 4,350 139,504 ------------ 209,392 ------------ 5,305,872 ------------ CONSTRUCTION & HOUSING-3.9% BUILDING MATERIALS-0.1% Martin Marietta Materials, Inc. 425 32,606 Vulcan Materials Co. 800 54,200 ------------ 86,806 ------------ REAL ESTATE-3.8% Alexandria Real Estate Equities, Inc. 1,450 116,725 Archstone-Smith Trust 2,400 100,536 Avalonbay Communities, Inc. 1,000 89,250 7 BALANCED WEALTH STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- Boston Properties, Inc. 1,375 $ 101,929 Brookfield Properties Corp. 3,200 94,144 Camden Property Trust 750 43,440 CarrAmerica Realty Corp. 400 13,852 Corporate Office Properties Trust 2,900 103,066 Cousins Properties, Inc. 600 16,980 Developers Diversified Realty Corp. 1,600 75,232 Digital Realty Trust, Inc. 1,200 27,156 EastGroup Properties, Inc. 1,650 74,514 Equity Office Properties Trust 1,300 39,429 Equity Residential 3,200 125,184 Essex Property Trust, Inc. 425 39,185 Federal Realty Investment Trust 950 57,618 First Potomac Realty Trust 1,300 34,580 General Growth Properties, Inc. 3,925 184,436 Kimco Realty Corp. 3,100 99,448 LaSalle Hotel Properties 900 33,048 Maguire Properties, Inc. 1,800 55,620 Mid-America Apartment Communities, Inc. 1,100 53,350 Pan Pacific Retail Properties, Inc. 750 50,168 ProLogis 4,125 192,720 Public Storage, Inc. 2,200 148,984 Reckson Associates Realty Corp. 750 26,985 Regency Centers Corp. 1,650 97,267 Simon Property Group, Inc. 3,100 237,553 SL Green Realty Corp. 1,200 91,668 Sovran Self Storage, Inc. 350 16,440 Strategic Hotel Capital, Inc. 400 8,232 Sunstone Hotel Investors, Inc. 2,300 61,111 Tanger Factory Outlet Centers, Inc. 1,300 37,362 The Macerich Co. 850 57,069 United Dominion Realty Trust, Inc. 2,200 51,568 Vornado Realty Trust 2,000 166,940 Windrose Medical Properties Trust 1,350 20,061 ------------ 2,842,850 ------------ 2,929,656 ------------ CONSUMER CYCLICAL-4.0% BROADCASTING & PUBLISHING-1.0% Comcast Corp. Cl. A (a) 2,500 64,900 Comcast Corp. Special Cl. A (a) 2,700 69,363 Liberty Media Corp. Cl. A (a) 5,200 40,924 The E.W. Scripps Co. Cl. A 3,350 160,867 The Walt Disney Co. 3,400 81,498 Time Warner, Inc. 13,600 237,184 Viacom, Inc. Cl. B (a) 3,800 123,880 ------------ 778,616 ------------ BUSINESS & PUBLIC SERVICES-0.1% The Interpublic Group of Cos., Inc. (a) 5,500 53,075 ------------ LEISURE & TOURISM-0.6% Host Marriott Corp. 6,500 123,175 McDonald's Corp. 5,000 168,600 Starbucks Corp. (a) 3,200 96,032 Starwood Hotels & Resorts Worldwide, Inc. 1,325 84,615 ------------ 472,422 ------------ MERCHANDISING-2.0% eBay, Inc. (a) 11,250 486,562 Limited Brands 2,900 64,815 Lowe's Cos., Inc. 5,800 386,628 Office Depot, Inc. (a) 3,300 103,620 Target Corp. 7,900 434,263 ------------ 1,475,888 ------------ RECREATION & OTHER CONSUMER-0.1% Mattel, Inc. 3,900 61,698 ------------ TEXTILES & APPAREL-0.1% Jones Apparel Group, Inc. 1,800 55,296 V.F. Corp. 500 27,670 ------------ 82,966 ------------ MISCELLANEOUS CONSUMER CYCLICALS-0.1% Newell Rubbermaid, Inc. 1,900 45,182 ------------ 2,969,847 ------------ MEDICAL-3.3% HEALTH & PERSONAL CARE-3.3% Amgen, Inc. (a) 2,950 232,637 Bristol-Myers Squibb Co. 4,000 91,920 Caremark Rx, Inc. (a) 3,100 160,549 Eli Lilly & Co. 1,250 70,738 Genentech, Inc. (a) 5,750 531,875 Gilead Sciences, Inc (a) 3,800 199,994 Johnson & Johnson 700 42,070 Medco Health Solutions, Inc. (a) 1,100 61,380 Merck & Co., Inc. 5,975 190,065 Pfizer, Inc. 17,200 401,104 St. Jude Medical, Inc. (a) 6,350 318,770 Tenet Healthcare Corp. (a) 2,800 21,448 Ventas, Inc. 1,000 32,020 Wyeth 1,375 63,346 ------------ 2,417,916 ------------ 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- ENERGY-3.2% ENERGY EQUIPMENT & SERVICES-1.2% ENSCO International, Inc. 1,400 $ 62,090 GlobalSantaFe Corp. 2,900 139,635 Halliburton Co. 8,450 523,562 Rowan Cos., Inc. 1,600 57,024 Schlumberger Ltd. 1,000 97,150 ------------ 879,461 ------------ ENERGY SOURCES-2.0% ChevronTexaco Corp. 4,825 273,915 ConocoPhillips 4,100 238,538 Exxon Mobil Corp. 14,450 811,657 Marathon Oil Corp. 1,500 91,455 Occidental Petroleum Corp. 1,300 103,844 ------------ 1,519,409 ------------ 2,398,870 ------------ CONSUMER STAPLES-2.7% BEVERAGES & TOBACCO-0.8% Altria Group, Inc. 3,650 272,728 Kraft Foods, Inc. 1,300 36,582 PepsiCo, Inc. 1,150 67,942 The Coca-Cola Co. 3,325 134,031 UST, Inc. 1,500 61,245 ------------ 572,528 ------------ FOOD & HOUSEHOLD PRODUCTS-1.9% Colgate-Palmolive Co. 600 32,910 ConAgra Foods, Inc. 4,100 83,148 General Mills, Inc. 2,075 102,339 Kellogg Co. 700 30,254 Safeway, Inc. 2,700 63,882 SUPERVALU, Inc. 1,500 48,720 The Clorox Co. 1,400 79,646 The Kroger Co.(a) 3,700 69,856 The Procter & Gamble Co. 11,250 651,150 Walgreen Co. 2,850 126,141 Whole Foods Market, Inc. 1,800 139,302 ------------ 1,427,348 ------------ 1,999,876 ------------ CAPITAL EQUIPMENT-2.4% AEROSPACE & DEFENSE-0.8% Goodrich Corp. 1,700 69,870 Lockheed Martin Corp. 1,000 63,630 Northrop Grumman Corp. 2,000 120,220 The Boeing Co. 4,600 323,104 ------------ 576,824 ------------ AUTOMOBILES-0.3% Autoliv, Inc. 1,200 54,504 BorgWarner, Inc. 1,000 60,630 Cooper Tire & Rubber Co. 900 13,788 Johnson Controls, Inc. 700 51,037 Lear Corp. 1,400 39,844 ------------ 219,803 ------------ INDUSTRIAL COMPONENTS-0.1% Eaton Corp. 1,000 67,090 ------------ MULTI-INDUSTRY-1.2% Crane Co. 800 28,216 Emerson Electric Co. 550 41,085 General Electric Co. 19,000 665,950 Hubbell, Inc. Cl. B 1,250 56,400 SPX Corp. 1,000 45,770 Textron, Inc. 800 61,584 ------------ 899,005 ------------ 1,762,722 ------------ TELECOMMUNICATIONS-0.9% American Tower Corp. (a) 1,100 29,810 AT&T, Inc. 3,300 80,817 BellSouth Corp. 1,100 29,810 Crown Castle International Corp. (a) 2,800 75,348 Sprint Corp. (FON Group) 7,400 172,864 Verizon Communications, Inc. 8,600 259,032 ------------ 647,681 ------------ INDUSTRIAL COMMODITIES-0.6% CHEMICAL-0.3% E.I. du Pont de Nemours & Co. 1,400 59,500 PPG Industries, Inc. 1,575 91,193 The Lubrizol Corp. 1,100 47,773 ------------ 198,466 ------------ FOREST & PAPER-0.2% Kimberly-Clark Corp. 1,750 104,387 Smurfit-Stone Container Corp. (a) 2,300 32,591 ------------ 136,978 ------------ METAL -STEEL-0.0% United States Steel Corp. 800 38,456 ------------ MISCELLANEOUS MATERIALS-0.1% Owens-Illinois, Inc. (a) 2,300 48,392 ------------ 422,292 ------------ UTILITIES-0.4% ELECTRIC & GAS UTILITY-0.4% American Electric Power Co., Inc. 1,400 51,926 Entergy Corp. 1,375 94,394 9 BALANCED WEALTH STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- Exelon Corp. 250 $ 13,285 Northeast Utilities 2,100 41,349 Pinnacle West Capital Corp. 1,800 74,430 Wisconsin Energy Corp. 1,550 60,543 ------------ 335,927 ------------ TRANSPORTATION-0.4% TRANSPORTATION - ROAD & RAIL-0.4% Burlington Northern Santa Fe Corp. 1,000 70,820 CSX Corp. 1,500 76,155 Norfolk Southern Corp. 2,200 98,626 Union Pacific Corp. 1,050 84,535 ------------ 330,136 ------------ Total United States Investments (cost $25,981,420) 29,122,734 ------------ FOREIGN INVESTMENTS-23.9% AUSTRALIA-1.1% Aristocrat Leisure Ltd. 6,250 56,142 Centro Properties Group 6,000 27,751 DB RREEF Trust 30,551 31,046 General Property Trust 22,800 68,405 Macquarie CountryWide Trust 21,380 30,956 Macquarie Goodman Group 17,007 59,502 QBE Insurance Group Ltd. 4,766 68,072 Rinker Group Ltd. 4,078 48,792 Stockland 9,479 45,034 Valad Property Group 26,959 26,596 Westfield Group 27,989 371,323 ------------ 833,619 ------------ BELGIUM-0.2% Delhaize Group 2,000 130,935 ------------ BERMUDA-1.0% Marvell Technology Group Ltd. (a) 7,550 423,479 Nabors Industries Ltd. (a) 3,600 272,700 ------------ 696,179 ------------ BRAZIL-0.3% Petroleo Brasileiro S.A. (ADR) (a) 2,900 192,193 ------------ CANADA-1.0% Allied Properties Real Estate Investment Trust 2,800 40,828 Boardwalk Real Estate Investment Trust 2,000 36,457 Canadian Apartment Properties Real Estate Investment Trust 2,000 27,786 Canadian Natural Resources Ltd. 2,700 133,856 Canadian Real Estate Investment Trust 2,450 47,485 Cominar Real Estate Investment Trust 3,000 49,731 Dundee Real Estate Investment Trust 600 13,265 H&R Real Estate Investment Trust 4,100 73,362 InnVest Real Estate Investment Trust 1,600 17,260 Primaris Retail Real Estate Investment Trust 4,050 56,929 RioCan Real Estate Investment Trust 8,575 168,114 Summit Real Estate Investment Trust 3,700 78,205 ------------ 743,278 ------------ CHINA-0.1% China Petrolium & Chemical Corp. 140,000 69,764 China Shenhua Energy Co., Ltd. (a) 25,500 28,087 ------------ 97,851 ------------ FINLAND-0.0% Sponda Oyj 2,800 26,370 ------------ FRANCE-2.9% Arcelor 6,500 160,972 Assurance Generales de France (AGF) 1,200 118,875 Bail Investissement Fonciere 1,000 52,658 BNP Paribas S.A. 1,988 160,595 Business Objects S.A. (a) 2,317 93,800 CapGemini, SA (a) 2,557 102,912 Credit Agricole, SA 3,010 94,632 European Aeronautic Defence and Space Co. 2,450 92,393 Klepierre 1,690 158,647 Renault, SA 1,900 154,703 Sanofi-Aventis, SA 1,700 148,830 Societe Generale 800 98,314 Total, SA 1,278 322,278 Unibail 2,400 319,237 Vinci, SA 954 82,169 ------------ 2,161,015 ------------ GERMANY-0.8% Continental AG 2,000 177,139 Depfa Bank Plc 1,850 27,312 E.On AG 1,300 134,432 Man AG 1,200 63,992 Muenchener Rueckversicherungs - Gesellschaft AG (MunichRe) 1,000 135,552 RWE AG 270 19,868 SAP AG 362 65,236 ------------ 623,531 ------------ 10 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- GREECE-0.1% EFG Eurobank Ergasias 1,785 $ 56,387 National Bank of Greece S.A. 1,185 50,432 ------------ 106,819 ------------ HONG KONG-0.7% Esprit Holdings Ltd. 2,500 17,733 Henderson Land Development Co., Ltd. 12,000 56,341 Kerry Properties Ltd. 46,000 121,933 Li & Fung Ltd. 20,000 38,483 Sun Hung Kai Properties Ltd. 28,700 278,743 ------------ 513,233 ------------ HUNGARY-0.1% Mol Magyar Olaj-es Gazipari Rt. 600 56,308 ------------ INDIA-0.1% Infosys Technologies Ltd. 1,335 88,888 ------------ IRELAND-0.3% Anglo Irish Bank Corp. Plc 5,871 88,860 CRH Plc 4,276 125,614 ------------ 214,474 ------------ ISRAEL-0.7% Bank Leumi Le-Israel 14,400 54,953 Teva Pharmaceutical Industries Ltd. (ADR) 10,950 470,959 ------------ 525,912 ------------ ITALY-0.6% Beni Stabili S.p.A. 32,000 30,868 Buzzi Unicem S.p.A. 3,000 47,004 Eni S.p.A. 9,452 264,111 Luxottica Group S.p.A. 3,475 88,290 ------------ 430,273 ------------ JAPAN-4.4% Aeon Credit Service Co., Ltd. 800 75,701 Canon, Inc. 2,800 164,360 Denso Corp. 3,700 128,097 East Japan Railway Co. 7 48,052 Honda Motor Co., Ltd. 2,600 150,055 Hoya Corp. 4,600 165,341 Japan Retail Fund Investment Corp. 13 100,829 Japan Tobacco, Inc. 8 116,969 JFE Holdings, Inc. 4,700 157,280 Mitsubishi Corp. 9,500 209,748 Mitsubishi Tokyo Financial Group, Inc. 11 149,795 Mitsui & Co., Ltd. 7,000 89,941 Mitsui Fudosan Co., Ltd. 13,100 265,219 Nippon Building Fund, Inc. 18 151,437 Nitto Denko Corp. 1,800 140,242 Nomura Holdings, Inc. 9,100 175,173 Orix Corp. 770 195,988 Shimamura Co., Ltd. 500 69,093 Sumitomo Electric Industries Ltd. 3,500 53,163 Sumitomo Mitsui Financial Group, Inc. 28 295,802 Takeda Pharmaceutical Co., Ltd. 1,100 59,602 Toyota Motor Corp. 2,600 135,835 Yamada Denki Co., Ltd. 1,000 125,011 ------------ 3,222,733 ------------ KOREA-0.6% Hyundai Motor Co. (a) 380 36,150 Kookmin Bank (a) 1,790 134,906 POSCO 600 119,377 Samsung Electronics Co., Ltd. 120 77,203 Shinhan Financial Group Co., Ltd. (a) 2,050 82,451 ------------ 450,087 ------------ MEXICO-0.3% America Movil, SA de C.V. (ADR) 3,300 96,558 Grupo Televisa, SA (ADR) 900 72,450 Wal-Mart de Mexico SA de C.V. 8,700 48,277 ------------ 217,285 ------------ NETHERLANDS-0.8% Eurocommercial Properties NV 875 30,024 ING Groep NV 11,486 398,448 Rodamco Europe NV 1,850 154,101 Wereldhave NV 355 33,438 ------------ 616,011 ------------ NORWAY-0.1% Norsk Hydro ASA 765 78,715 ------------ PANAMA-0.1% Carnival Corp. 1,600 85,552 ------------ SINGAPORE-0.7% Ascendas Real Estate Investment Trust 135,650 158,945 CapitaMall Trust 103,600 139,444 Flextronics International Ltd. (a) 6,800 70,992 Singapore Telecommunications Ltd. 82,000 128,408 ------------ 497,789 ------------ SOUTH AFRICA-0.1% Naspers Ltd. 2,978 52,814 ------------ 11 BALANCED WEALTH STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SHARES OR PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- SPAIN-0.5% Banco Bilbao Vizcaya Argentaria, SA 5,267 $ 94,036 Endesa, SA 5,000 131,034 Inmobiliaria Colonial, SA 650 36,879 Repsol YPF, SA 4,100 120,017 ------------ 381,966 ------------ SWEDEN-0.2% Atlas Copco AB 3,052 67,984 Telefonaktiebolaget LM Ericsson 18,350 63,225 ------------ 131,209 ------------ SWITZERLAND-2.5% Alcon, Inc. 3,750 485,999 Compagnie Financiere Richemont AG 2,239 97,471 Credit Suisse Group 6,476 329,879 Nestle, SA 707 211,138 Nobel Biocare Holding AG 390 85,851 Novartis AG 3,873 203,139 Roche Holding AG 1,374 206,018 Swiss Re (a) 784 57,290 UBS AG 1,986 188,771 ------------ 1,865,556 ------------ TAIWAN-0.3% Hon Hai Precision Industry Co., Ltd. 1,370 7,528 Quanta Computer, Inc. (GDR) 5,725 40,179 Taiwan Semiconductor Manufacturing Co., Ltd. 24,649 46,965 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) 9,624 95,374 ------------ 190,046 ------------ UNITED KINGDOM-3.3% A & J Mucklow Group Plc 1,400 10,093 Aviva Plc 11,100 134,569 BAE Systems Plc 22,371 147,053 Barclays Plc 12,200 127,986 BHP Billiton Plc 5,771 94,448 BP Plc 7,100 76,022 British American Tobacco Plc 6,800 151,954 British Land Co. Plc 6,616 121,417 Brixton Plc 4,500 33,446 Capital & Regional Plc 3,332 49,633 Derwent Valley Holdings Plc 1,600 39,631 Enterprise Inns Plc 5,036 81,274 Friends Provident Plc 20,270 66,045 GlaxoSmithKline Plc 5,545 139,980 Hammerson Plc 4,750 83,567 HBOS Plc 7,750 132,223 J Sainsbury Plc 19,100 103,564 Land Securities Group Plc 5,968 170,948 Liberty International Plc 2,725 46,011 Marks & Spencer Group Plc 10,636 92,375 Prudential Plc 2,027 19,200 Royal Bank of Scotland Group Plc 5,000 150,886 SABMiller Plc 3,801 69,261 Slough Estates Plc 7,000 71,989 Vodafone Group Plc 54,800 117,926 Wolseley Plc 566 11,934 Xstrata Plc 3,920 91,703 ------------ 2,435,138 ------------ Total Foreign Investments (cost $15,134,692) 17,665,779 ------------ Total Common Stocks (cost $41,116,112) 46,788,513 ------------ CORPORATE DEBT OBLIGATIONS-6.5% AUTOMOTIVE-0.2% DaimlerChrysler North America Holdings 4.875%, 6/15/10 $ 25 24,410 Ford Motor Credit Co. 7.375%, 10/28/09 160 141,902 ------------ 166,312 ------------ BANKS-0.4% Bank of America Corp. 7.40%, 1/15/11 110 121,168 Citigroup, Inc. 4.60%, 6/09/09 (b) 20 20,040 JPMorgan Chase & Co. 6.75%, 2/01/11 80 85,686 Mizuho Finance (Cayman Islands) 8.375%, 12/29/49 40 43,340 Wells Fargo Co. 4.20%, 1/15/10 35 34,074 ------------ 304,308 ------------ FINANCE-1.6% Assurant, Inc. 5.625%, 2/15/14 35 35,449 Berkshire Hathaway Finance Corp. 4.20%, 12/15/10 50 48,406 Boeing Capital Corp. 6.50%, 2/15/12 20 21,588 CIT Group, Inc. 5.50%, 11/30/07 35 35,344 Citigroup, Inc. 4.625%, 8/03/10 75 73,961 Countrywide Home Loan 4.00%, 3/22/11 65 61,161 4.25%, 12/19/07 55 54,234 Duke Capital LLC 5.668%, 8/15/14 50 50,426 12 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- Fairfax Financial Holdings 7.75%, 4/26/12 $ 16 $ 14,929 General Electric Capital Corp. 4.375%, 11/21/11 25 24,272 6.75%, 3/15/32 25 29,346 Goldman Sachs Group, Inc. 4.75%, 7/15/13 35 33,949 HSBC Finance Corp. 6.50%, 11/15/08 80 83,262 7.00%, 5/15/12 40 43,755 Istar Financial, Inc. 5.15%, 3/01/12 20 19,369 Liberty Mutual Group, Inc. 5.75%, 3/15/14 (c) 35 34,548 Merrill Lynch & Co. Series C 4.25%, 2/08/10 120 116,728 Simon Property Group LP 6.375%, 11/15/07 30 30,655 SLM Corp. 4.50%, 7/26/10 55 53,846 TXU Australia 6.15%, 11/15/13 (c) 238 254,065 Washington Mutual, Inc. 4.20%, 1/15/10 65 62,936 ------------ 1,182,229 ------------ INDUSTRIALS-1.7% Allbritton Communications Co. 7.75%, 12/15/12 10 10,050 AOL Time Warner 6.875%, 5/01/12 15 15,967 British Sky Broadcasting 8.20%, 7/15/09 20 21,859 Cablevision Systems Corp. Series B 8.00%, 4/15/12 15 14,025 Comcast Cable Communications Holdings, Inc. 6.20%, 11/15/08 40 41,061 6.875%, 6/15/09 50 52,517 9.455%, 11/15/22 40 52,408 Comcast Corp. 5.30%, 1/15/14 40 39,242 5.50%, 3/15/11 50 50,271 Conagra Foods, Inc. 6.75%, 9/15/11 10 10,652 7.875%, 9/15/10 25 27,544 Cox Communications, Inc. 4.625%, 1/15/10 (b) 25 24,201 Cox Enterprises 4.375%, 5/01/08 (c) 40 39,060 Fortune Brands, Inc. 2.875%, 12/01/06 20 19,572 IBM Corp. 4.375%, 6/01/09 20 19,749 International Paper Co. 5.30%, 4/01/15 55 52,973 Kraft Foods, Inc. 4.125%, 11/12/09 100 96,766 Kroger Co. 7.80%, 8/15/07 45 46,751 Lubrizol Corp. 4.625%, 10/01/09 20 19,602 Motorola, Inc. 7.625%, 11/15/10 5 5,558 News America, Inc. 6.55%, 3/15/33 25 25,713 Packaging Corporation of America 5.75%, 8/01/13 30 29,462 Safeway, Inc. 4.80%, 7/16/07 20 19,913 6.50%, 3/01/11 15 15,533 Teck Cominco Ltd. 6.125%, 10/01/35 15 14,834 Textron Financial Corp. 4.125%, 3/03/08 35 34,462 Time Warner Entertainment 8.375%, 3/15/23 65 75,160 Tyco International Group, SA 6.00%, 11/15/13 85 86,826 Waste Management, Inc. 6.875%, 5/15/09 40 42,174 WellPoint, Inc. 3.50%, 9/01/07 65 63,407 3.75%, 12/14/07 16 15,645 4.25%, 12/15/09 80 77,922 Weyerhaeuser Co. 5.95%, 11/01/08 35 35,707 WPP Finance (UK) Corp. 5.875%, 6/15/14 25 25,373 Wyeth 5.50%, 2/01/14 30 30,389 ------------ 1,252,348 ------------ OIL-0.6% Amerada Hess Corp. 6.65%, 8/15/11 80 85,964 7.875%, 10/01/29 55 66,599 Conoco, Inc. 6.95%, 4/15/29 40 48,276 Enterprise Products Operating LP 5.60%, 10/15/14 25 24,980 Sunoco, Inc. 4.875%, 10/15/14 150 146,381 Valero Energy Corp. 6.875%, 4/15/12 45 49,034 7.50%, 4/15/32 20 24,306 ------------ 445,540 ------------ TELECOMMUNICATIONS-0.9% AT&T Corp. 9.05%, 11/15/11 40 44,273 British Telecom Plc 8.375%, 12/15/10 85 96,761 13 BALANCED WEALTH STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- Cingular Wireless LLC 5.625%, 12/15/06 $ 50 $ 50,361 Cingular Wireless Services 7.35%, 3/01/06 30 30,126 7.875%, 3/01/11 85 95,375 8.75%, 3/01/31 40 52,993 Deutsche Telekom International Finance 8.00%, 6/15/10 30 34,013 Sprint Capital Corp. 8.375%, 3/15/12 100 115,896 Telus Corp. (Canada) 7.50%, 6/01/07 60 61,958 Telecom Italia Capital 4.00%, 1/15/10 105 100,007 ------------ 681,763 ------------ UTILITY-1.1% Alabama Power Capital Trust 5.50%, 10/01/42 (d) 174 174,893 Carolina Power & Light 6.50%, 7/15/12 65 69,641 Consumers Energy 4.25%, 4/15/08 25 24,485 Duke Energy Field Services 7.875%, 8/16/10 15 16,589 Firstenergy Corp. Series B 6.45%, 11/15/11 55 58,300 Series C 7.375%, 11/15/31 55 64,898 Midamerican Energy Holdings 5.875%, 10/01/12 30 30,971 NiSource Finance Corp. 7.875%, 11/15/10 40 44,319 Pacific Gas & Electric 4.80%, 3/01/14 65 63,344 6.05%, 3/01/34 35 36,224 Progress Energy, Inc. 6.85%, 4/15/12 35 37,580 Public Service Company of Colorado 7.875%, 10/01/12 30 34,924 Qwest Communications International 7.50%, 2/15/14 (c) 25 25,688 Telecom Italia Capital 6.00%, 9/30/34 65 62,618 Xcel Energy, Inc. 7.00%, 12/01/10 30 32,287 ------------ 776,761 ------------ Total Corporate Debt Obligations (cost $4,879,785) 4,809,261 ------------ U.S. GOVERNMENT & GOVERNMENT SPONSORED AGENCY OBLIGATIONS-25.8% FEDERAL AGENCIES-1.7% Federal National Mortgage Association 3.875%, 2/15/10 1,265 1,224,800 ------------ MORTGAGE PASS-THROUGHS-13.8% Federal Gold Loan Mortgage Corp. 4.50%, TBA 552 518,956 Federal National Mortgage Association 4.50%, TBA 780 758,793 5.00%, 4/01/19 453 447,623 5.00%, TBA 1,025 998,612 5.50%, TBA 4,460 4,429,027 6.00%, TBA 2,075 2,096,546 6.50%, TBA 950 974,344 ------------ 10,223,901 ------------ UNITED STATES TREASURY SECURITIES-10.3% U.S. Treasury Bond 4.50%, 11/15/15 260 262,133 5.375%, 2/15/31 1,190 1,336,704 7.25%, 5/15/16 1,655 2,032,160 U.S. Treasury Notes 1.625%, 1/15/15 (TIPS) 42 40,197 2.00%, 7/15/14 (TIPS) 238 236,418 3.875%, 7/31/07-9/15/10 1,565 1,542,636 4.25%, 10/31/07 2,195 2,188,569 ------------ 7,638,817 ------------ Total U.S. Government & Government Sponsored Agency Obligations (cost $19,004,247) 19,087,518 ------------ ASSET-BACKED SECURITIES-0.3% Bear Stearns Asset Backed Securities, Inc. Series 2005-SD1 Cl. 1A1 4.529%, 4/25/22 (b) 36 36,068 Home Equity Mortgage Trust Series 2005-4 Cl. A3 4.742%, 1/25/36 (e) 50 49,413 MBNA Credit Card Master Note Trust Series 2003-A6 Cl. A6 2.75%, 10/15/10 50 47,734 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PRINCIPAL AMOUNT COMPANY (000) U.S. $ VALUE - ------------------------------------------------------------------------------- Merrill Lynch Mortgage Investors, Inc. Series 2005-8 Cl. A1C1 5.25%, 8/25/36 (d) 100 $ 99,375 Residential Asset Securities Corp. Series 2004-KS7 Cl. AI1 4.529%, 10/25/21 (d) 8 7,549 ------------ Total Asset-Backed Securities (cost $239,972) 240,139 ------------ COMMERCIAL MORTGAGE BACKED SECURITIES-0.1% Opteum Mortgage Acceptance Corp. Series 2005-5 Cl. 2A1B 5.64%, 11/25/35 (d) (cost $99,998) 100 100,396 ------------ SHORT-TERM INVESTMENT-13.9% TIME DEPOSIT-13.9% The Bank of New York 3.25% 1/03/06 (cost $10,308,000) $ 10,308 10,308,000 ------------ TOTAL INVESTMENTS-109.8% (cost $75,648,114) 81,333,827 Other assets less liabilities-(9.8%) (7,262,972) ------------ NET ASSETS-100% $ 74,070,855 ============ FINANCIAL FUTURES CONTRACTS PURCHASED (SEE NOTE D) NUMBER OF EXPIRATION ORIGINAL VALUE AT UNREALIZED TYPE CONTRACTS MONTH VALUE DECEMBER 31, 2005 APPRECIATION - ------------------------------------------------------------------------------- Euro Stoxx March 50 Index 1 2006 $41,857 $42,478 $621 (a) Non-income producing security. (b) Floating rate security. Stated interest rate was in effect at December 31, 2005 (c) Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the aggregate market value of these securities amounted to $353,361 or 0.5% of net assets. (d) Variable rate coupon, rate shown as of December 31, 2005. (e) Coupon increases periodically based upon a predetermined schedule. Stated interest rate in effect at December 31, 2005. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt TBA - To Be Assigned-Securities are purchased on a forward commitment with an approximate principal amount (generally +/- 1%) and no definite maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned. See Notes to Financial Statements. 15 BALANCED WEALTH STRATEGY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $75,648,114) $ 81,333,827 Foreign cash, at value (cost $207,661) 208,639 Receivable for investment securities sold and foreign currency contracts 1,880,020 Receivable for capital stock sold 294,212 Dividends and interest receivable 255,105 ------------ Total assets 83,971,803 ------------ LIABILITIES Due to custodian 9,216 Payable for investment securities purchased and foreign currency contracts 9,726,887 Advisory fee payable 32,809 Distribution fee payable 13,631 Payable for capital stock redeemed 6,904 Foreign capital gain tax payable 1,410 Payable for variation margin on futures contracts 367 Transfer agent fee payable 53 Accrued expenses 109,671 ------------ Total liabilities 9,900,948 ------------ NET ASSETS $ 74,070,855 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 6,528 Additional paid-in capital 68,235,744 Undistributed net investment income 440,930 Accumulated net realized loss on investment and foreign currency transactions (297,794) Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 5,685,447 ------------ $ 74,070,855 ============ CLASS A SHARES Net assets $ 9,745,572 ============ Shares of capital stock outstanding 855,997 ============ Net asset value per share $ 11.39 ============ CLASS B SHARES Net assets $ 64,325,283 ============ Shares of capital stock outstanding 5,672,197 ============ Net asset value per share $ 11.34 ============ See Notes to Financial Statements. 16 BALANCED WEALTH STRATEGY PORTFOLIO STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Interest $ 870,266 Dividends (net of foreign taxes withheld of $27,867) 559,907 ------------ Total investment income 1,430,173 ------------ EXPENSES Advisory fee 282,736 Distribution fee -- Class B 105,519 Custodian 336,794 Administrative 75,250 Audit 41,750 Printing 21,372 Legal 3,080 Directors' fees 1,000 Transfer agency 794 Miscellaneous 19,826 ------------ Total expenses 888,121 Less: expenses waived and reimbursed by the Adviser (see Note B) (166,456) ------------ Net expenses 721,665 ------------ Net investment income 708,508 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions (445,780) Futures 218,044 Foreign currency transactions (190,218) Net change in unrealized appreciation/depreciation of: Investments 4,432,600(a) Futures (34,447) Foreign currency denominated assets and liabilities 2,864 ------------ Net gain on investment and foreign currency transactions 3,983,063 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,691,571 ============ (a) Net of accrued foreign capital gains taxes of $1,410. See Notes to Financial Statements. 17 BALANCED WEALTH STRATEGY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ JULY 1, YEAR ENDED 2004(a) TO DECEMBER 31, DECEMBER 31, 2005 2004 ============ ============ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 708,508 $ 119,251 Net realized gain (loss) on investment and foreign currency transactions (417,954) 71,945 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities 4,401,017 1,284,430 ------------ ------------ Net increase in net assets from operations 4,691,571 1,475,626 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (41,650) -0- Class B (176,967) -0- Net realized gain on investment and foreign currency transactions Class A (22,100) -0- Class B (97,897) -0- CAPITAL STOCK TRANSACTIONS Net increase 42,763,265 25,479,007 ------------ ------------ Total increase 47,116,222 26,954,633 NET ASSETS Beginning of period 26,954,633 -0- ------------ ------------ End of period (including undistributed net investment income of $440,930 and $137,338, respectively) $ 74,070,855 $ 26,954,633 ============ ============ (a) Commencement of operations. See Notes to Financial Statements. 18 BALANCED WEALTH STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Balanced Wealth Strategy Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio commenced operations on July 1, 2004. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 19 BALANCED WEALTH STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 7. REPURCHASE AGREEMENTS It is the policy of the Portfolio that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of an investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2005 the Adviser waived fees in the amount of $91,206. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. Due to the Adviser's agreement to limit total operating expenses as described above, the Adviser waived reimbursement for such services in the amount of $75,250 for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $78,223, of which $4,129 and $0, respectively was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005 were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 66,160,855 $ 40,250,139 U.S. government securities 44,529,691 26,726,158 The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures and foreign currency transactions) are as follows: Cost $ 76,063,261 ============= Gross unrealized appreciation $ 5,867,485 Gross unrealized depreciation (596,919) ------------- Net unrealized appreciation $ 5,270,566 ============= 1. FINANCIAL FUTURES CONTRACTS The Portfolio may buy or sell financial futures contracts for the purpose of hedging its portfolio against adverse effects of anticipated movements in the market. The Portfolio bears the market risk that arises from changes in the value of these 21 BALANCED WEALTH STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ financial instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. 2. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as net unrealized appreciation or depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 3. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. 22 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE E: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ JULY 1, JULY 1, YEAR ENDED 2004(a) TO YEAR ENDED 2004(a) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- CLASS A Shares sold -0- 850,000 $ -0- $ 8,500,000 Shares issued in reinvestment of dividends and distributions 5,997 -0- 63,750 -0- ------------ ------------ -------------- -------------- Net increase 5,997 850,000 $ 63,750 $ 8,500,000 =========== =========== ============= ============= CLASS B Shares sold 4,906,020 1,731,943 $ 52,487,529 $ 17,574,843 Shares issued in reinvestment of dividends and distributions 25,930 -0- 274,863 -0- Shares redeemed (933,519) (58,177) (10,062,877) (595,836) ------------ ------------ -------------- -------------- Net increase 3,998,431 1,673,766 $ 42,699,515 $ 16,979,007 =========== =========== ============= ============= NOTE F: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Interest Rate Risk and Credit Risk-- Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio's investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit risk rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as "junk bonds") have speculative elements or are predominantly speculative risks. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. 23 BALANCED WEALTH STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE: H: DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ============== ============== Distributions paid from: Ordinary income $ 335,465 $ -0- Net long-term capital gains 3,149 -0- -------------- -------------- Total distributions paid $ 338,614 $ -0- ============== ============== NOTE I: COMPONENT OF ACCUMULATED EARNINGS (DEFICIT) As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 676,674 Accumulated capital and other losses (118,391)(a) Unrealized appreciation/(depreciation) 5,270,300(b) ------------ Total accumulated earnings/(deficit) $ 5,828,583 ============ (a) On December 31, 2005, the Portfolio had a net capital loss carryforward of $112,135, all of which expires in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Net foreign currency losses and passive foreign investment company losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred until January 1, 2006, post-October foreign currency losses of $2,960, and post-October passive foreign investment company losses of $3,296. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the tax treatment of passive foreign investment companies. During the current fiscal year, permanent differences, primarily due to the tax treatment of foreign currency gains and losses, the tax character of gains/losses on disposition of passive foreign investment companies, the tax character of distributions, and the tax treatment of paydown gains/losses resulted in a net decrease in undistributed net investment income and a net decrease in accumulated net realized loss on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE J: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and 24 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee with respect to certain AllianceBernstein funds, including certain of the Fund's portfolios. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee for those portfolios. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the 25 BALANCED WEALTH STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 26 BALANCED WEALTH STRATEGY PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD CLASS A =============================== JULY 1, 2004(a) YEAR ENDED TO DECEMBER 31, DECEMBER 31, 2005 2004 ============== ============== Net asset value, beginning of period $10.69 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (b)(c) .18 .07 Net realized and unrealized gain on investment and foreign currency transactions .60 .62 Net increase in net asset value from operations .78 .69 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.05) -0- Distributions from net realized gain on investment and foreign currency transactions (.03) -0- Total dividends and distributions (.08) -0- Net asset value, end of period $11.39 $10.69 TOTAL RETURN Total investment return based on net asset value (d) 7.30% 6.90% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $9,746 $9,089 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.20% 1.20%(e) Expenses, before waivers and reimbursements 1.54% 2.87%(e) Net investment income (c) 1.64% 1.36%(e) Portfolio turnover rate 139% 44% See footnote summary on page 28. 27 BALANCED WEALTH STRATEGY PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD CLASS B =============================== JULY 1, 2004(A) YEAR ENDED TO DECEMBER 31, DECEMBER 31, 2005 2004 ============== ============== Net asset value, beginning of period $10.67 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (b)(c) .15 .06 Net realized and unrealized gain on investment and foreign currency transactions .60 .61 Net increase in net asset value from operations .75 .67 LESS: DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (.05) -0- Distributions from net realized gain on investment and foreign currency transactions(.03)-0- Total dividends and distributions (.08) -0- Net asset value, end of period $11.34 $10.67 TOTAL RETURN Total investment return based on net asset value (d) 7.01% 6.70% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $64,325 $17,866 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.45% 1.45%(e) Expenses, before waivers and reimbursements 1.77% 3.34%(e) Net investment income (c) 1.31% 1.49%(e) Portfolio turnover rate 139% 44% (a) Commencement of operations. (b) Based on average shares outstanding. (c) Net of expenses waived and reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. 28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN BALANCED WEALTH STRATEGY PORTFOLIO: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Balanced Wealth Strategy Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statements of operations and changes in net assets, and the financial highlights for each of the two periods in the year then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Balanced Wealth Strategy Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations, the changes in its net assets, and the financial highlights for each of the two periods in the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (UNAUDITED) For corporate sharehlders, 49% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 29 BALANCED WEALTH STRATEGY PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Balanced Wealth Strategy Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.A. Diversification 5,175,274 80,564 357,262 0 3.B. Issuing Senior Securities 5,360,054 112,490 140,556 0 and Borrowing Money 3.D. Concentration of Investments 5,390,291 82,253 140,556 0 3.E. Real Estate and Companies that 5,439,134 100,178 73,787 0 Deal in Real Estate 3.F. Commodities, Commodity 5,445,698 98,490 68,912 0 Contracts and Futures Contracts 3.G. Loans 5,445,698 98,490 68,912 0 3.I. Exercising Control 5,400,095 72,449 140,556 0 3.N. Pledging, Hypothecating, 5,355,178 112,490 145,432 0 Mortgaging, or Otherwise Encumbering Assets 4.A. The reclassification of the Portfolio's 4,615,020 624,124 373,956 0 fundamental investment objective as non-fundamental with no change to the investment objective.
30 BALANCED WEALTH STRATEGY PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR. (1), Chairman MARC O. MAYER, President RUTH BLOCK (1) DAVID H. DIEVLER (1) JOHN H. DOBKIN (1) MICHAEL J. DOWNEY (1) D. JAMES GUZY (1) MARSHALL C. TURNER, JR. (1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer SETH J. MASTERS (2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Blend Investment Policy Team, comprised of senior Blend portfolio managers. Day-to-day responsibilities for coordinating the Portfolio's investments resides with Seth J. Masters, the Chief Investment Officer of the Blend Investment Policy Team. 31 BALANCED WEALTH STRATEGY PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research and (2005) Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC responsible Spring Lake, NJ 07762 for mutual fund administration. Prior to joining 10/23/29 ACMC in 1984, he was Chief Financial Officer of (1990) Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Fund Attn: Philip L. Kirstein Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, the George Lucas Penthouse 10 Texas, from 2003 to present, and President Educational Foundation; San Francisco, CA 94104-3402 since company acquired in 2005, and name and Chairman of the 10/10/41 changed from DuPont Photomasks. Prior to the Board of the (2005) company's sale in 2005, he was Chairman and Smithsonian's National CEO. He has also been Principal of Turner Museum of Natural Venture Associates since 1993. History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 33 BALANCED WEALTH STRATEGY PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ OFFICER INFORMATION Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* PRINCIPAL POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which Compliance Officer he has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Seth J. Masters Vice President Executive Vice President of ACMC** and Chief 6/4/59 Investment Officer of Style Blend and Core Equity Services and head of the U.S. and Global Style Blend teams since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which 8/3/51 he has been associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB&Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 34 BALANCED WEALTH STRATEGY CONTINUANCE DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Balanced Wealth Strategy Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 35 BALANCED WEALTH STRATEGY CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors noted that the Adviser had waived reimbursement payments from the Portfolio since inception in light of the expense caps currently in effect for the Portfolio. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISER The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for July 1, 2004 (inception) to December 31, 2004. The directors also reviewed information for the same period that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors noted that the Adviser's relationship with the Portfolio was not profitable to it. FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio, and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 15 funds in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 35 funds in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-year period, and as compared to a composite index (consisting of 60% Standard & Poor's 500 Stock Index and 40% Lehman Brothers U.S. Aggregate Index) (the "Index") for periods ended September 30, 37 BALANCED WEALTH STRATEGY CONTINUANCE DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2005 over the year to date, 1-year and since inception periods (July 2004 inception). The directors noted that in the Performance Group and Performance Universe comparisons, the Portfolio was in the 2nd quintile in the 1-year period. The comparative information showed that the Portfolio outperformed the Index in all periods reviewed. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. ADVISORY FEES AND OTHER EXPENSES The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., equity and fixed income securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 55 basis points was significantly lower than the Expense Group median. The directors noted that in the Portfolio's latest fiscal year, the administrative expense reimbursement of 41 basis points had been waived by the Adviser. The directors also noted that the Adviser advises another AllianceBernstein fund with a similar investment objective and strategies as the Portfolio for the same fee rate as the Portfolio. The directors further noted that the Portfolio's total expense ratio, which had been capped by the Adviser, was significantly higher than the medians for the Expense Group and Expense Universe. The Adviser explained that the Portfolio's relatively high expense ratio was in part due to the Portfolio's small size (the Portfolio's net asset value was less than $70 million as of September 30, 2005). The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. They concluded that the Portfolio's expense ratio was acceptable in the Portfolio's particular circumstances. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. ECONOMIES OF SCALE The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not 38 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 39 BALANCED WEALTH STRATEGY SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Balanced Wealth Strategy Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2) ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ------------------------------------------------------------------------------- Balanced 55 bp on 1st $2.5 billion Balanced Wealth 45 bp on next $2.5 billion Strategy Portfolio 40 bp on the balance The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: AS A % OF AVERAGE FUND AMOUNT(3) DAILY NET ASSETS - ------------------------------------------------------------------------------- Balanced Wealth Strategy Portfolio4 $34,500 0.41% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. (3) The Fund commenced operations on July 1, 2004. Therefore, the reimbursement amount to the Advisor is for a 6 month period. (4) The expense reimbursement has been waived by the Adviser. 40 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's most recent fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. The gross expense ratios of the Fund during the most recently completed fiscal year are also listed below. EXPENSE CAP PURSUANT TO GROSS EXPENSE LIMITATION EXPENSE FUND UNDERTAKING RATIO FISCAL YEAR END - ------------------------------------------------------------------------------- Balanced Wealth Class A 1.20% 2.87% December 31 Strategy Portfolio Class B 1.45% 3.34% I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) (5) It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the fee waiver or expense reimbursement that effectively reduce the contractual fee rates. In addition, the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. 41 BALANCED WEALTH STRATEGY SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Balanced Wealth 0.550 0.720 2/15 Strategy Portfolio Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO(%)(8) MEDIAN(%) RANK MEDIAN(%) RANK - ------------------------------------------------------------------------------- Balanced Wealth 1.201 0.792 34/36 0.900 14/15 Strategy Portfolio Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser did not earn a profit during calendar 2004 primarily as a result of the Adviser having to reimburse the Fund for additional expenses incurred above the Funds expense cap limitation. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. (6) Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. (7) Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. (8) Most recent fiscal year end Class A share total expense ratio. 42 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12B-1 FEE RECEIVED - ---------------------------------------------------------------------- Balanced Wealth Strategy Portfolio $10,258 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ---------------------------------------------------------------------- Balanced Wealth Strategy Portfolio $113,088 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $409 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. (9) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 43 BALANCED WEALTH STRATEGY SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. BALANCED WEALTH STRATEGY PORTFOLIO GROUP UNIVERSE - ------------------------------------------------------------------------------- 1 year 4/15 9/35 Set forth below are the 1 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- FUND 1 YEAR SINCE INCEPTION - ------------------------------------------------------------------------------- BALANCED WEALTH STRATEGY PORTFOLIO 11.39 11.50 S&P 500 Index 12.25 11.82 Lehman Brothers Aggregate Bond Index 2.80 4.31 60% S&P 500 Index, 40% Lehman Brothers Aggregate Bond Index 8.47 8.82 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 (10) The performance rankings are for the Class A shares of the Fund. (11) The Lipper Performance Group is identical to the Lipper Expense Group. (12) For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. (13) The performance returns are for the Class A shares of the Fund. (14) The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 44 (This page left intentionally blank.) [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management AllianceBernstein Variable Products Series Fund, Inc. Annual Report December 31, 2005 > AllianceBernstein Wealth Appreciation Strategy Portfolio INVESTMENT PRODUCTS OFFERED - ----------------------------- o ARE NOT FDIC INSURED o MAY LOSE VALUE o ARE NOT BANK GUARANTEED - ----------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. WEALTH APPRECIATION STRATEGY PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Wealth Appreciation Strategy Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks to achieve long-term growth of capital by investing in a portfolio of equity securities. The Portfolio is designed for investors who seek equity returns without regard to taxes but also want broad diversification of related risks across styles, capitalization ranges and geographic regions. Normally, the Portfolio's targeted blend is an equal weighting of growth and value stocks (50% each), with approximately 70% of each in U.S. companies and 30% in non-U.S. companies. The Adviser will allow the Portfolio's relative weightings to change in response to markets, but only within carefully constructed ranges. Beyond those ranges, the Adviser will rebalance toward the targeted blends. The Portfolio can also selectively invest in real estate investment trusts (REITs), which often provide attractive income, yet historically have had a low correlation to other asset classes that can make up the portfolio. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its balanced benchmark, a 70% / 30% blend of the Standard & Poor's (S&P) 500 Stock Index and the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index, respectively, for the one-year period ended December 31, 2005 and since the Portfolio's Class A shares inception on July 1, 2004. For the annual reporting period ended December 31, 2005, the Portfolio outperformed its balanced benchmark by a substantial margin, with strong positive contribution coming from the Portfolio's U.S. equity investments. The Portfolio's performance was also enhanced by its strategic allocation to the real estate investment trust (REIT) market, which significantly outperformed the U.S. stock market in 2005, returning 12.16%, as measured by the NAREIT Equity Index. Within the U.S. equity market, a renewed interest in growth stocks and large-cap companies created a supportive environment for strong contribution from the Portfolio's large-cap growth stock holdings. While several individual stocks contributed notably to performance, particularly in the information technology and health care sectors, the strength in the Portfolio's large-cap growth holdings was quite broad-based. The international equity markets also saw a renewed interest in growth stocks, although to a lesser extent than in the U.S. In this environment, the Portfolio's international growth holdings also turned in a strong performance, led by a variety of strong stock picks, particularly in the consumer discretionary sector. MARKET REVIEW AND INVESTMENT STRATEGY Global economic growth was resilient in 2005, remaining brisk despite a number of global concerns, including surging oil prices, looming inflationary pressures and several natural disasters. U.S. stocks ended the year in positive territory but fell short of previous years, while international stocks excelled, particularly in the emerging markets. With U.S. economic growth showing signs of decelerating, the stage was set for growth to outperform value, and growth stocks did not disappoint: large-cap growth stocks outperformed value stocks over the last three quarters of 2005. REITs continued to perform well in 2005, but were weighed down by concerns about potential inflation and the possibility of further interest rate hikes. The Portfolio's U.S. equity holdings remain positioned to continue to capture the opportunity presented in companies with strong growth prospects that are trading at unusually low premiums, while the Portfolio's international holdings are seeking diverse opportunities across the globe, with a particular focus in emerging markets where the Portfolio's management team (the "Team") has identified a range of world-class companies trading at unusually large discounts. As always, the Team remains focused on its strategy of combining low correlation asset classes, blending growth and value investment styles, globalizing the portfolios and ensuring that the Portfolio is aligned with its strategic asset allocation targets through its disciplined rebalancing process. 1 WEALTH APPRECIATION STRATEGY PORTFOLIO HISTORICAL PERFORMANCE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ An Important Note About the Value of Historical Performance The performance shown on the following page represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month-end. The investment return and principal value of an investment in the Portfolio will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. You should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For a free copy of the Portfolio's prospectus, which contains this and other information, call your financial advisor or (800) 984-7654. You should read the prospectus carefully before you invest. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. Benchmark Disclosure Neither the unmanaged Standard & Poor's (S&P) 500 Stock Index nor the unmanaged Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index reflects fees and expenses associated with the active management of a mutual fund portfolio. The S&P 500 Stock Index includes 500 U.S. stocks and is a common measure of the performance of the overall U.S. stock market. The MSCI EAFE Index is a market capitalization-weighted index that measures stock performance in 21 countries in Europe, Australasia and the Far East. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Wealth Appreciation Strategy Portfolio. A Word About Risk The Portfolio allocates its investments among multiple asset classes which will include U.S. and foreign securities. Within each of these, the Portfolio will also allocate its investments in different types of securities, such as growth and value stocks and real estate investment trusts. International investing involves risks not associated with U.S. investments, including currency fluctuations and political and economic changes. There can be no assurance that rebalancing will achieve its intended result, and the costs of rebalancing may be significant over time. The Portfolio may at times use certain types of investment derivatives such as options, futures, forwards and swaps. The use of derivatives involves specific risks and is not suitable for all investors. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. The Portfolio systematically rebalances its allocations in these asset classes to maintain their target weightings. There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money. (HISTORICAL PERFORMANCE CONTINUED ON NEXT PAGE) 2 WEALTH APPRECIATION STRATEGY PORTFOLIO HISTORICAL PERFORMANCE (CONTINUED FROM PREVIOUS PAGE) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Returns THE PORTFOLIO VS. ITS BENCHMARK ------------------------------------------ PERIODS ENDED DECEMBER 31, 2005 1 Year Since Inception* - ------------------------------------------------------------------------------- AllianceBernstein Wealth Appreciation Strategy Portfolio Class A 11.22% 12.22% - ------------------------------------------------------------------------------- AllianceBernstein Wealth Appreciation Strategy Portfolio Class B 10.93% 11.88% - ------------------------------------------------------------------------------- 70% S&P 500 Stock Index / 30% MSCI EAFE Index 7.50% 12.09% - ------------------------------------------------------------------------------- S&P 500 Stock Index 4.91% 8.91% - ------------------------------------------------------------------------------- MSCI EAFE Index 13.54% 19.50% - ------------------------------------------------------------------------------- * Since inception of the Portfolio's Class A and Class B shares on 7/1/04. ALLIANCEBERNSTEIN WEALTH APPRECIATION STRATEGY PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 7/1/04* - 12/31/05 ALLIANCEBERNSTEIN WEALTH APPRECIATION STRATEGY PORTFOLIO CLASS A: $11,889 70% S&P 500 STOCK INDEX / 30% MSCI EAFE INDEX: $11,859 S&P 500 STOCK INDEX: $11,363 MSCI EAFE INDEX: $13,058 [THE FOLLOWING DATA WAS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED MATERIAL] AllianceBernstein 70% S&P 500 Wealth Appreciation Stock Index / Strategy Portfolio 30% MSCI S&P 500 MSCI EAFE Class A EAFE Index Stock Index Index - ------------------------------------------------------------------------------- 7/1/04* 10000 10000 10000 10000 12/31/04 10690 11032 10831 11501 12/31/05 11889 11859 11363 13058 * SINCE INCEPTION OF THE PORTFOLIO'S CLASS A SHARES ON 7/1/04. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Wealth Appreciation Strategy Portfolio Class A shares (from 7/1/04* to 12/31/05) as compared to the performance of the Portfolio's balanced benchmark (70% S&P 500 Stock Index / 30% MSCI EAFE Index), as well as the components of the balanced benchmark by themselves. The chart assumes the reinvestment of dividends and capital gains. See Historical Performance and Benchmark disclosures on previous page. 3 WEALTH APPRECIATION STRATEGY PORTFOLIO FUND EXPENSES AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Ending Wealth Appreciation Account Value Account Value Expenses Paid Annualized Strategy Portfolio July 1, 2005 December 31, 2005 During Period* Expense Ratio* - --------------------------------------------------------------------------------------------------------------- Class A Actual $1,000 $1,115.42 $6.24 1.17% Hypothetical (5% return before expenses) $1,000 $1,019.31 $5.96 1.17% Class B Actual $1,000 $1,112.80 $7.72 1.45% Hypothetical (5% return before expenses) $1,000 $1,017.90 $7.38 1.45%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 WEALTH APPRECIATION STRATEGY PORTFOLIO TEN LARGEST HOLDINGS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Exxon Mobil Corp. $585,572 1.8% Google, Inc. Cl. A 477,089 1.5 General Electric Co. 471,422 1.5 The Procter & Gamble Co. 465,934 1.5 Citgroup, Inc. 462,247 1.4 Apple Computer, Inc. 454,704 1.4 QUALCOMM, Inc. 430,800 1.4 Yahoo!, Inc. 427,062 1.3 American International Group, Inc. 417,908 1.3 Genentech, Inc. 376,937 1.2 ----------- ------ $4,569,675 14.3% SECTOR DIVERSIFICATION December 31, 2005 SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- Finance $8,208,695 25.7% Technology / Electronics 4,862,855 15.2 Construction & Housing 3,364,931 10.5 Medical 3,093,300 9.7 Energy 2,900,385 9.1 Consumer Cyclical 2,588,767 8.1 Capital Equipment 2,150,317 6.7 Consumer Staples 2,002,180 6.3 Industrial Commodities 855,763 2.7 Telecommunications 734,876 2.3 Utilities 353,586 1.1 Transportation 235,504 0.7 ----------- ------ Total Investments* 31,351,159 98.1 Cash and receivables, net of liabilities 606,671 1.9 ----------- ------ Net Assets $31,957,830 100.0% * Excludes short-term investments. Please note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 WEALTH APPRECIATION STRATEGY PORTFOLIO COUNTRY DIVERSIFICATION December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ COUNTRY U.S. $ VALUE PERCENT OF NET ASSETS - ------------------------------------------------------------------------------- United States $19,936,233 62.4% Japan 2,153,389 6.7 United Kingdom 1,613,893 5.0 France 1,466,208 4.6 Switzerland 1,302,915 4.1 Bermuda 496,049 1.5 Germany 412,715 1.3 Australia 404,738 1.3 Canada 369,027 1.2 Netherlands 354,525 1.1 Israel 335,478 1.0 Other* 2,505,989 7.9 ----------- ------ Total Investments** 31,351,159 98.1 Cash and receivables, net of liabilities 606,671 1.9 ----------- ------ Net Assets $31,957,830 100.0% * The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Belgium, Brazil, Finland, Greece, Hong Kong, Hungary, India, Ireland, Italy, Mexico, Norway, Panama, Peoples Republic of China, Singapore, South Africa, South Korea, Spain, Sweden and Taiwan. ** Excludes short-term investments. 6 WEALTH APPRECIATION STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Company Shares U.S. $ Value - ------------------------------------------------------------------------------- COMMON STOCKS-98.1% UNITED STATES INVESTMENTS-62.4% FINANCE-16.7% BANKING-7.2% Bank of America Corp. 7,850 $362,278 Citigroup, Inc. 9,525 462,247 Comerica, Inc. 1,100 62,436 Fannie Mae 2,200 107,382 Freddie Mac 1,700 111,095 Huntington Bancshares, Inc. 2,000 47,500 JPMorgan Chase & Co. 7,900 313,551 KeyCorp 500 16,465 Mellon Financial Corp. 1,900 65,075 National City Corp. 2,350 78,890 Northern Trust Corp. 2,200 114,004 PNC Financial Services Group, Inc. 400 24,732 SunTrust Banks, Inc. 1,125 81,855 UBS AG 1,100 104,665 US Bancorp 2,000 59,780 Wachovia Corp. 3,500 185,010 Wells Fargo & Co. 1,600 100,528 ------------ 2,297,493 FINANCIAL SERVICES-4.0% Federated Investors, Inc. 1,050 38,892 Franklin Resources, Inc. 2,200 206,822 Legg Mason, Inc. 1,600 191,504 Lehman Brothers Holdings, Inc. 600 76,902 MBIA, Inc. 500 30,080 Merrill Lynch & Co., Inc. 4,000 270,920 Morgan Stanley 2,500 141,850 Prudential Financial, Inc. 150 10,979 The Goldman Sachs Group, Inc. 2,200 280,962 Waddell & Reed Financial, Inc. 900 18,873 ------------ 1,267,784 INSURANCE-5.5% ACE Ltd. 1,500 80,160 AFLAC, Inc. 1,400 64,988 American International Group, Inc. 6,125 417,908 Genworth Financial, Inc. 1,925 66,567 MetLife, Inc. 1,600 78,400 The Allstate Corp. 200 10,814 The Chubb Corp. 700 68,355 The Hartford Financial Services Group, Inc. 1,025 88,037 The Progressive Corp. 600 70,068 The St. Paul Travelers Cos., Inc. 2,225 99,391 Torchmark Corp. 1,000 55,600 UnitedHealth Group, Inc. 4,800 298,272 UnumProvident Corp. 2,700 61,425 WellPoint, Inc. (a) 3,800 303,202 ------------ 1,763,187 ------------ 5,328,464 TECHNOLOGY / ELECTRONICS-11.8% DATA PROCESSING-7.1% Agere System, Inc. (a) 2,000 25,800 Apple Computer, Inc. (a) 6,325 454,704 Arrow Electronics, Inc. (a) 1,350 43,241 Avnet, Inc. (a) 1,800 43,092 Electronic Arts, Inc. (a) 2,775 145,160 Electronic Data Systems Corp. 2,600 62,504 EMC Corp. (a) 1,300 17,706 Google, Inc. Cl. A (a) 1,150 477,089 Hewlett-Packard Co. 6,600 188,958 International Business Machines Corp. 950 78,090 Microsoft Corp. 1,600 41,840 Network Appliance, Inc. (a) 4,500 121,500 Sanmina-SCI Corp. (a) 7,800 33,228 Solectron Corp. (a) 11,500 42,090 Tech Data Corp. (a) 1,300 51,584 Yahoo!, Inc. (a) 10,900 427,062 ------------ 2,253,648 ELECTRICAL & ELECTRONICS-4.3% ADC Telecommunications, Inc. (a) 1,300 29,042 Broadcom Corp. Cl. A (a) 7,100 334,765 Corning, Inc. (a) 13,700 269,342 Juniper Networks, Inc. (a) 13,000 289,900 QUALCOMM, Inc. 10,000 430,800 Tellabs, Inc. (a) 3,300 35,970 ------------ 1,389,819 ELECTRONIC COMPONENTS & INSTRUMENTS-0.4% Intel Corp. 1,700 42,432 Texas Instruments, Inc. 3,000 96,210 ------------ 138,642 ------------ 3,782,109 CONSUMER CYCLICAL-6.3% BROADCASTING & PUBLISHING-1.7% Comcast Corp. Cl. A (a) 1,000 25,960 Comcast Corp. Special Cl. A (a) 2,750 70,648 Liberty Media Corp. Cl. A (a) 2,200 17,314 The E.W. Scripps Co. Cl. A 2,350 112,847 The Walt Disney Co. 2,000 47,940 Time Warner, Inc. 9,300 162,192 Viacom, Inc. Cl. B (a) 2,950 96,170 ------------ 533,071 7 WEALTH APPRECIATION STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Company Shares U.S. $ Value - ------------------------------------------------------------------------------- BUSINESS & PUBLIC SERVICES-0.1% The Interpublic Group of Cos., Inc. (a) 4,200 $40,530 ------------ HOUSEHOLD - APPLIANCES/ DURABLES-0.1% Newell Rubbermaid, Inc. 1,400 33,292 ------------ LEISURE & TOURISM-0.8% Host Marriott Corp. 3,025 57,324 McDonald's Corp. 3,100 104,532 Starbucks Corp. (a) 2,200 66,022 Starwood Hotels & Resorts Worldwide, Inc. 575 36,720 ------------ 264,598 MERCHANDISING-3.3% eBay, Inc. (a) 7,900 341,674 Limited Brands, Inc. 2,500 55,875 Lowe's Cos., Inc. 4,100 273,306 Office Depot, Inc. (a) 2,200 69,080 Target Corp. 5,650 310,580 ------------ 1,050,515 RECREATION & OTHER CONSUMER-0.2% Mattel, Inc. 3,100 49,042 ------------ TEXTILES & APPAREL-0.1% Jones Apparel Group, Inc. 1,500 46,080 ------------ 2,017,128 ENERGY-5.5% ENERGY EQUIPMENT & SERVICES-2.0% ENSCO International, Inc. 1,200 53,220 GlobalSantaFe Corp. 2,100 101,115 Halliburton Co. 5,900 365,564 Rowan Cos., Inc. (a) 1,300 46,332 Schlumberger Ltd. 700 68,005 ------------ 634,236 ENERGY SOURCES-3.5% ChevronTexaco Corp. 3,775 214,307 ConocoPhillips 3,050 177,449 Exxon Mobil Corp. 10,425 585,572 Marathon Oil Corp. 1,200 73,164 Occidental Petroleum Corp. 1,000 79,880 ------------ 1,130,372 ------------ 1,764,608 MEDICAL-5.5% HEALTH & PERSONAL CARE-5.5% Amgen, Inc. (a) 2,100 165,606 Bristol-Myers Squibb Co. 3,200 73,536 Caremark Rx, Inc. (a) 2,200 113,938 Eli Lilly & Co. 1,150 65,079 Genentech, Inc. (a) 4,075 376,937 Gilead Sciences, Inc. (a) 2,675 140,785 HCA, Inc. 900 45,450 Medco Health Solutions, Inc. (a) 600 33,480 Merck & Co., Inc. 4,475 142,350 Pfizer, Inc. 12,100 282,172 St. Jude Medical, Inc. (a) 4,400 220,880 Tenet Healthcare Corp. (a) 2,300 17,618 Ventas, Inc. 500 16,010 Wyeth 1,200 55,284 ------------ 1,749,125 CONSUMER STAPLES-4.5% BEVERAGES & TOBACCO-1.3% Altria Group, Inc. 2,800 209,216 Kraft Foods, Inc. 800 22,512 PepsiCo, Inc. 900 53,172 The Coca-Cola Co. 2,550 102,791 UST, Inc. 1,000 40,830 ------------ 428,521 FOOD & HOUSEHOLD PRODUCTS-3.2% Conagra Foods, Inc. 3,100 62,868 General Mills, Inc. 1,200 59,184 Kellogg Co. 500 21,610 Safeway, Inc. 2,300 54,418 SUPERVALU, Inc. 1,300 42,224 The Clorox Co. 1,000 56,890 The Kroger Co. (a) 3,000 56,640 The Procter & Gamble Co. 8,050 465,934 Walgreen Co. 2,000 88,520 Whole Foods Market, Inc. 1,300 100,607 ------------ 1,008,895 ------------ 1,437,416 CONSTRUCTION & HOUSING-4.3% BUILDING MATERIALS-0.2% Martin Marietta Materials, Inc. 325 24,934 Vulcan Materials Co. 700 47,425 ------------ 72,359 REAL ESTATE-4.1% Alexandria Real Estate Equities, Inc. 545 43,873 Archstone-Smith Trust 1,100 46,079 AvalonBay Communities, Inc. 450 40,163 Boston Properties, Inc. 675 50,038 Brookfield Properties Co. 1,475 43,395 Camden Property Trust 350 20,272 CarrAmerica Realty Corp. 350 12,121 Corporate Office Properties Trust 1,300 46,202 Cousins Properties, Inc. 300 8,490 Developers Diversified Realty Corp. 755 35,500 8 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Company Shares U.S. $ Value - ------------------------------------------------------------------------------- Digital Realty Trust, Inc. 400 $9,052 EastGroup Properties, Inc. 750 33,870 Equity Office Properties Trust 650 19,715 Equity Residential 1,500 58,679 Essex Property Trust, Inc. 175 16,135 Federal Realty Investment Trust 450 27,293 First Potomac Realty Trust 600 15,960 General Growth Properties, Inc. 2,025 95,154 Kimco Realty Corp. 1,450 46,516 LaSalle Hotel Properties 400 14,688 Maguire Properties, Inc. 850 26,265 Mid-America Apartment Communities, Inc. 525 25,463 Pan Pacific Retail Properties, Inc. 350 23,412 ProLogis 1,825 85,263 Public Storage, Inc. 975 66,026 Reckson Associates Realty Corp. 350 12,593 Regency Centers Corp. 750 44,213 Simon Property Group, Inc. 1,500 114,944 SL Green Realty Corp. 500 38,195 Sovran Self Storage, Inc. 200 9,394 Strategic Hotel Capital, Inc. 200 4,116 Sunstone Hotel Investors, Inc. 1,075 28,563 Tanger Factory Outlet Centers, Inc. 650 18,681 The Macerich Co. 325 21,821 United Dominion Realty Trust, Inc. 900 21,096 Vornado Realty Trust 700 58,428 Windrose Medical Properties Trust 650 9,659 ------------ 1,291,327 ------------ 1,363,686 CAPITAL EQUIPMENT-4.0% AEROSPACE & DEFENSE-1.3% Goodrich Corp. 1,000 41,100 Lockheed Martin Corp. 700 44,541 Northrop Grumman Corp. 1,525 91,668 The Boeing Co. 3,300 231,792 ------------ 409,101 AUTOMOBILES-0.5% Autoliv, Inc. 1,000 45,420 BorgWarner, Inc. 800 48,504 Cooper Tire & Rubber Co. 700 10,724 Johnson Controls, Inc. 450 32,810 Lear Corp. 800 22,768 ------------ 160,226 INDUSTRIAL COMPONENTS-0.2% Eaton Corp. 800 53,672 ------------ MULTI-INDUSTRY-2.0 % Crane Co. 700 24,689 Emerson Electric Co. 400 29,880 General Electric Co. 13,450 471,422 Hubbell, Inc. Cl. B 900 40,608 SPX Corp. 800 36,616 Textron, Inc. 600 46,188 ------------ 649,403 ------------ 1,272,402 TELECOMMUNICATIONS-1.5% American Tower Corp. Cl. A (a) 700 18,970 AT&T, Inc. 2,700 66,123 BellSouth Corp. 900 24,390 Crown Castle International Corp. (a) 2,000 53,820 Sprint Nextel Corp. 5,800 135,488 Verizon Communications, Inc. 6,075 182,979 ------------ 481,770 INDUSTRIAL COMMODITIES-0.9% CHEMICAL-0.5% E.I. Du Pont de Nemours & Co. 1,100 46,750 PPG Industries, Inc. 1,125 65,138 The Lubrizol Corp. 800 34,744 ------------ 146,632 FOREST & PAPER-0.3% Kimberly-Clark Corp. 1,275 76,053 Smurfit-Stone Container Corp. (a) 1,800 25,506 ------------ 101,559 MISCELLANEOUS MATERIALS-0.1% Owens-Illinois, Inc. (a) 1,900 39,976 ------------ 288,167 UTILITIES-0.8% ELECTRIC & GAS UTILITY-0.8% American Electric Power Co., Inc. 1,100 40,799 Entergy Corp. 1,050 72,082 Exelon Corp. 175 9,300 Northeast Utilities 1,600 31,504 Pinnacle West Capital Corp. 1,200 49,620 Wisconsin Energy Corp. 1,200 46,872 ------------ 250,177 9 WEALTH APPRECIATION STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Company Shares U.S. $ Value - ------------------------------------------------------------------------------- TRANSPORTATION-0.6% TRANSPORTATION - ROAD & RAIL-0.6% Burlington Northern Santa Fe Corp. 500 $35,410 CSX Corp. 1,200 60,924 Norfolk Southern Corp. 1,800 80,694 Union Pacific Corp. 300 24,153 ------------ 201,181 Total United States Investments (cost $17,668,567) 19,936,233 ------------ FOREIGN INVESTMENTS-35.7% AUSTRALIA-1.3% Aristocrat Leisure Ltd. 4,572 41,069 Centro Properties Group 2,900 13,413 DB Rreef Trust 14,407 14,640 General Property Trust 8,700 26,102 Macquarie CountryWide Trust 7,591 10,991 Macquarie Goodman Group 6,607 23,116 QBE Insurance Group Ltd. 3,332 47,590 Rinker Group Ltd. 3,001 35,906 Stockland 4,452 21,151 Valad Property Group 13,479 13,297 Westfield Group 11,869 157,463 ------------ 404,738 BELGIUM-0.3% Delhaize Group 1,400 91,654 ------------ BERMUDA-1.5% Marvell Technology Group Ltd. (a) 5,400 302,886 Nabors Industries Ltd. (a) 2,550 193,163 ------------ 496,049 BRAZIL-0.5% Petroleo Brasileiro, SA (ADR) (a) 2,200 145,754 ------------ CANADA-1.2% Allied Properties Real Estate Investment Trust 1,300 18,956 Boardwalk Real Estate Investment Trust 825 15,039 Borealis Retail Real Estate Investment Trust 1,750 24,599 Canadian Apartment Properties Real Estate 900 12,504 Canadian Natural Resources Ltd. 1,900 94,195 Canadian Real Estate Investment Trust 1,300 25,196 Cominar Real Estate Investment Trust 1,300 21,550 Dundee Real Estate Investment Trust 400 8,843 H&R Real Estate Investment Trust 1,850 33,103 InnVest Real Estate Investment Trust 700 7,551 RioCan Real Estate Investment Trust 3,650 71,559 Summit Real Estate Investment Trust 1,700 35,932 ------------ 369,027 FINLAND-0.0% Sponda Oyj 1,850 17,423 ------------ FRANCE-4.6% Arcelor 4,700 116,395 Assurance Generales de France 1,000 99,062 Bail Investissement Fonciere 500 26,329 BNP Paribas, SA 1,375 111,076 Business Objects, SA (a) 1,599 64,733 CapGemini, SA (a) 1,784 71,801 Credit Agricole, SA 2,260 71,053 European Aeronautic Defence and Space Co. 2,090 78,817 Klepierre 750 70,405 Renault, SA 1,600 130,277 Sanofi Aventis 1,400 122,566 Societe Generale 600 73,736 Total, SA 879 221,661 Unibail 1,125 149,642 Vinci, SA 681 58,655 ------------ 1,466,208 GERMANY-1.3% Continental AG 1,300 115,140 E.On AG (a) 1,000 103,409 MAN AG 1,000 53,327 Muenchener Rueckversicherungs- Gesellschaft AG 700 94,886 SAP AG 255 45,953 ------------ 412,715 GREECE-0.2% EFG Eurobank Ergasias 1,133 35,791 National Bank of Greece, SA 835 35,536 ------------ 71,327 HONG KONG-0.7% Esprit Holdings Ltd. 1,500 10,640 Henderson Land Development Co., Ltd. 5,000 23,475 Kerry Properties Ltd. 16,800 44,532 Li & Fung Ltd. 14,000 26,938 Sun Hung Kai Properties Ltd. 11,700 113,634 ------------ 219,219 HUNGARY-0.2% Mol Magyar Olaj-es Gazipari Rt 600 56,308 10 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Company Shares U.S. $ Value - ------------------------------------------------------------------------------- INDIA-0.2% Infosys Technologies Ltd. 939 $62,521 ------------ IRELAND-0.5% Anglo Irish Bank Corp., Plc 3,950 59,785 CRH Plc 3,019 88,688 ------------ 148,473 ISRAEL-1.0% Teva Pharmaceutical Industries Ltd. (ADR) 7,800 335,478 ------------ ITALY-0.9% Beni Stabili SpA 12,300 11,865 Buzzi Unicem SpA 1,300 20,368 Eni S.p.A. 6,878 192,188 Luxottica Group SpA 2,298 58,385 ------------ 282,806 JAPAN-6.7% Aeon Credit Service Co., Ltd. 600 56,776 Canon, Inc. 1,800 105,660 Denso Corp. 2,600 90,014 East Japan Railway Co. 5 34,323 Honda Motor Co., Ltd. 2,100 121,198 Hoya Corp. 3,200 115,020 Japan Retail Fund Investment Corp. 6 46,536 Japan Tobacco, Inc. 6 87,727 JFE Holdings, Inc. 3,500 117,123 Mitsubishi Corp. 6,400 141,304 Mitsubishi UFJ Financial Group, Inc. 8 108,942 Mitsui & Co. Ltd. 5,000 64,243 Mitsui Fudosan Co., Ltd. 5,900 119,450 Nippon Building Fund, Inc. 9 75,718 Nitto Denko Corp. 1,200 93,495 Nomura Holdings, Inc. 6,300 121,273 Orix Corp. 500 127,265 Shimamura Co., Ltd. 400 55,275 Sumitomo Electric Industries Ltd. 2,700 41,011 Sumitomo Mitsui Financial Group, Inc. 19 200,723 Takeda Pharmaceutical Co., Ltd. 900 48,766 Toyota Motor Corp. 1,800 94,039 Yamada Denki Co., Ltd. 700 87,508 ------------ 2,153,389 MEXICO-0.5% America Movil, SA de C.V. Series L (ADR) 2,300 67,298 Grupo Televisa, SA (ADR) 700 56,350 Wal-Mart de Mexico, SA de CV 5,400 29,965 ------------ 153,613 NETHERLANDS-1.1% Eurocommercial Properties NV 310 10,637 ING Groep NV 8,001 277,554 Rodamco Europe NV 655 54,560 Wereldhave NV 125 11,774 ------------ 354,525 NORWAY-0.1% Norsk Hydro ASA 290 29,840 ------------ PANAMA-0.2% Carnival Corp. 1,100 58,817 ------------ PEOPLES REPUBLIC OF CHINA-0.2% China Petroleum & Chemical Corp. 94,000 46,841 China Shenhua Energy Co., Ltd. (a) 18,000 19,826 ------------ 66,667 SINGAPORE-0.9% Ascendas Real Estate Investment Trust Cl. A (a) 58,595 68,657 CapitaMall Trust (a) 49,800 67,030 Flextronics International Ltd. (a) 6,200 64,728 Singapore Telecommunications Ltd. 63,000 98,655 ------------ 299,070 SOUTH AFRICA-0.3% Naspers Ltd. 2,179 38,644 Standard Bank Group Ltd. 4,000 48,006 ------------ 86,650 SOUTH KOREA-0.8% Kookmin Bank (a) 1,230 92,701 Posco 320 63,668 Samsung Electronics Co., Ltd. 80 51,469 Shinhan Financial Group Co., Ltd. (a) 1,340 53,895 ------------ 261,733 SPAIN-0.5% Banco Bilbao Vizcaya 3,652 65,202 Inmobiliaria Colonial 300 17,021 Repsol YPF, SA 3,000 87,818 ------------ 170,041 SWEDEN-0.4% Atlas Copco AB CI. A 2,109 46,979 Svenska Cellulosa AB CI. B 1,100 41,119 Telefonaktiebolaget LM Ericsson 12,878 44,371 ------------ 132,469 11 WEALTH APPRECIATION STRATEGY PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Shares or Principal Amount Company (000) U.S. $ Value - ------------------------------------------------------------------------------- SWITZERLAND-4.1% Alcon, Inc. 2,600 $336,961 Compagnie Financiere Richemont AG 1,640 71,395 Credit Suisse Group 4,401 224,182 Nestle, SA CI. B 499 149,021 Nobel Biocare Holding AG 271 59,655 Novartis AG 2,706 141,930 Roche Holding AG 972 145,742 Swiss Reinsurance 554 40,483 UBS AG 1,405 133,546 ------------ 1,302,915 TAIWAN-0.5% Hon Hai Precision Industry 1,174 6,451 Quanta Computer, Inc. (GDR) 5,200 36,495 Taiwan Semiconductor Manufacturing Co., Ltd. 17,499 33,342 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) 7,600 75,316 ------------ 151,604 UNITED KINGDOM-5.0% A & J Mucklow Group Plc 700 5,046 Aviva Plc 7,500 90,925 BAE Systems Plc 16,295 107,113 Barclays Plc 9,100 95,465 Billiton Plc 4,095 67,019 BP Plc 4,500 48,183 BRITISH AMERICAN TOBACCO PLC 5,200 116,200 British Land Co. Plc 2,831 51,955 Brixton Plc 1,950 14,493 Capital & Regional Plc 1,516 22,582 Derwent Valley Holdings Plc 800 19,815 Enterprise Inns Plc 3,531 56,985 Friends Provident Plc 13,180 42,944 GlaxoSmithKline Plc 3,751 94,692 Hammerson Plc 2,350 41,344 HBOS Plc 5,730 97,760 J. Sainsbury Plc 14,200 76,995 Land Securities Group Plc 2,361 67,629 Liberty International Plc 1,100 18,573 Marks & Spencer Group Plc 7,483 64,991 Persimmon Plc 2,000 43,216 Prudential Plc 1,400 13,261 Royal Bank of Scotland Group Plc 3,900 117,691 SABMiller Plc 2,369 43,167 Slough Estates Plc 3,000 30,852 Vodafone Group Plc 40,500 87,153 Wolseley Plc 430 9,067 Xstrata Plc 2,940 68,777 ------------ 1,613,893 Total Foreign Investments (cost $9,937,573) 11,414,926 ------------ Total Common Stocks (cost $27,606,140) 31,351,159 ------------ SHORT-TERM INVESTMENT-2.1% TIME DEPOSIT-2.1% The Bank of New York 3.25% 1/03/06 (cost $674,000) $674 674,000 ------------ TOTAL INVESTMENTS-100.2% (cost $28,280,140) 32,025,159 Other assets less liabilities-(0.2%) (67,329) ------------ NET ASSETS-100% $31,957,830 ------------ FORWARD EXCHANGE CURRENCY CONTRACTS (see Note D)
U.S. $ Contract Value on U.S. $ Amount Origination Current Unrealized (000) Date Value Depreciation - --------------------------------------------------------------------------------------- Sale Contract Swedish Krona, settling 3/15/06 240 $30,318 $30,364 $(46)
(a) Non-income producing security. Glossary of Terms: ADR-American Depositary Receipt GDR-Global Depositary Receipt See Notes to Financial Statements. 12 WEALTH APPRECIATION STRATEGY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $28,280,140) $32,025,159 Cash 679 Foreign cash, at value (cost $77,502) 77,433(a) Receivable for investment securities sold and foreign currency contracts 72,592 Dividends and interest receivable 38,125 Receivable for capital stock sold 24,454 ------------ Total assets 32,238,442 ------------ LIABILITIES Unrealized depreciation of forward exchange currency contracts 46 Payable for investment securities purchased and foreign currency contracts 166,308 Advisory fee payable 11,296 Distribution fee payable 5,328 Foreign capital gain tax payable 1,141 Transfer agent fee payable 53 Accrued expenses 96,440 ------------ Total liabilities 280,612 ------------ NET ASSETS $31,957,830 ------------ COMPOSITION OF NET ASSETS Capital stock, at par $2,719 Additional paid-in capital 27,683,591 Distributions in excess of net investment income (132,148) Accumulated net realized gain on investment and foreign currency transactions 660,161 Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 3,743,507 ------------ $31,957,830 ------------ Class A Shares Net assets $6,537,583 ------------ Shares of capital stock outstanding 554,644 ------------ Net asset value per share $11.79 ------------ Class B Shares Net assets $25,420,247 ------------ Shares of capital stock outstanding 2,164,357 ------------ Net asset value per share $11.74 ------------ (a) An amount of U.S. $6,275 has been segregated as collateral for the forward exchange currency contracts outstanding at December 31, 2005. See Notes to Financial Statements. 13 WEALTH APPRECIATION STRATEGY PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $16,343) $378,691 Interest 32,203 ------------ Total investment income 410,894 ------------ EXPENSES Advisory fee 166,503 Distribution fee--Class B 49,066 Custodian 304,485 Administrative 75,250 Audit 41,750 Printing 14,657 Legal 3,456 Directors' fees 1,000 Transfer agency 794 Miscellaneous 19,814 ------------ Total expenses 676,775 Less: expenses waived and reimbursed by the Adviser (see Note B) (320,371) ------------ Net expenses 356,404 ------------ Net investment income 54,490 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 274,336 Futures 461,323 Foreign currency transactions (163,247) Net change in unrealized appreciation/depreciation of: Investments 2,744,772(a) Futures (34,289) Foreign currency denominated assets and liabilities 804 ------------ Net gain on investment and foreign currency transactions 3,283,699 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $3,338,189 ------------ (a) Net of accrued foreign gains taxes of $1,141. See Notes to Financial Statements. 14 WEALTH APPRECIATION STRATEGY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ July 1, Year Ended 2004(a) to December 31, December 31, 2005 2004 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $54,490 $24,150 Net realized gain on investment and foreign currency transactions 572,412 77,873 Net change in unrealized appreciation/ depreciation of investments and foreign currency denominated assets and liabilities 2,711,287 1,032,220 ------------ ------------ Net increase in net assets from operations 3,338,189 1,134,243 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A (25,300) -0- Class B (75,981) -0- Net realized gain on investment and foreign currency transactions Class A (23,650) -0- Class B (75,981) -0- CAPITAL STOCK TRANSACTIONS Net increase 12,528,034 15,158,276 ------------ ------------ Total increase 15,665,311 16,292,519 NET ASSETS Beginning of period 16,292,519 -0- ------------ ------------ End of period (including (distributions in excess)/undistributed of net investment income of ($132,148) and $55,406, respectively) $31,957,830 $16,292,519 ------------ ------------ (a) Commencement of operations. See Notes to Financial Statements. 15 WEALTH APPRECIATION STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2005 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE A: Significant Accounting Policies The AllianceBernstein Wealth Appreciation Strategy Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio is diversified as defined under the Investment company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio commenced operations on July 1, 2004. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 16 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. Income and Expenses All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. 7. Repurchase Agreements It is the policy of the Portfolio that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of an investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .65% of the first $2.5 billion, ..55% of the next $2.5 billion and .50% in excess of $5 billion, of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. 17 WEALTH APPRECIATION STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2005 the Adviser waived fees and reimbursed expenses in the amount of $245,121. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. Due to the Adviser's agreement to limit total operating expenses as described above, the Adviser waived reimbursement for such services in the amount of $75,250 for the year ended December 31, 2005. Brokerage commissions paid on investment transactions for the year ended December 31, 2005, amounted to $60,214, of which $3,878 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $794 for the year ended December 31, 2005. NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2005 were as follows: Purchases Sales ------------ ------------ Investment securities (excluding U.S. government securities) $28,701,107 $13,771,053 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures and foreign currency transactions) are as follows: Cost $28,532,739 ------------ Gross unrealized appreciation $3,927,355 Gross unrealized depreciation (434,935) ------------ Net unrealized appreciation $3,492,420 ------------ 18 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 1. Financial Futures Contracts The Portfolio may buy or sell financial futures contracts for the purpose of hedging its portfolio against adverse affects of anticipated movements in the market. The Portfolio bears the market risk that arises from changes in the value of these financial instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of a contract. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. 2. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as net unrealized appreciation or depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 3. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. 19 WEALTH APPRECIATION STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ NOTE E: Capital Stock There are 1,000,000,000 share of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT --------------------------- ------------------------------ July 1, July 1 Year Ended 2004(a) to Year Ended 2004(a) to December 31, December 31, December 31, December 31, 2005 2004 2005 2004 ------------ ------------ -------------- -------------- Class A Shares sold -0- 550,000 $-0- $5,499,146 Shares issued in reinvestment of dividends and distributions 4,644 -0- 48,950 -0- ------------ ------------ -------------- -------------- Net increase 4,644 550,000 $48,950 $5,499,146 ------------ ------------ -------------- -------------- Class B Shares sold 1,628,590 985,580 $17,366,123 $9,756,067 Shares issued in reinvestment of dividends and distributions 14,445 -0- 151,963 -0- Shares redeemed (454,754) (9,504) (5,039,002) (96,937) ------------ ------------ -------------- -------------- Net increase 1,188,281 976,076 $12,479,084 $9,659,130 ------------ ------------ -------------- -------------- (a) Commencement of operations. NOTE F: Risk Involved in Investing in the Portfolio Foreign Securities Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification of Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2005. NOTE H: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2005 and December 31, 2004 were as follows: 2005 2004 ------------ ------------ Distributions paid from: Ordinary income $193,961 $-0- Net long-term capital gains 6,951 -0- ------------ ------------ Total distributions paid $200,912 $-0- 20 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $514,687 Undistributed long-term capital gain 271,849 Accumulated capital and other losses (5,970)(a) Unrealized appreciation/(depreciation) 3,490,954(b) ------------ Total accumulated earnings/(deficit) $4,271,520 ------------ (a) Net foreign currency losses and passive foreign investment company losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred until January 1, 2006, post-October foreign currency losses of $3,305, and post-October passive foreign investment company losses of $2,665. (b) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the realization for tax purposes of gains/losses on certain derivative instruments, the tax character of dividends received, and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies. During the current fiscal year, permanent differences, primarily due to the tax treatment of foreign currency gains and losses and the tax character of gains/losses on disposition of passive foreign investment companies, resulted in a net decrease in undistributed net investment income and a net increase in accumulated net realized gain on investment and foreign currency transactions. These reclassifications had no effect on net assets. NOTE I: Legal Proceedings As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee with respect to certain AllianceBernstein funds, including certain of the Fund's portfolios. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee for those portfolios. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. 21 WEALTH APPRECIATION STRATEGY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAGOrder. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. 22 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 23 WEALTH APPRECIATION STRATEGY PORTFOLIO FINANCIAL HIGHLIGHTS AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period CLASS A -------------------------------- July 1, Year Ended 2004(a) to December 31, December 31, 2005 2004 ----------- ----------- Net asset value, beginning of period $10.69 $10.00 -------- -------- Income From Investment Operations Net investment income (b)(c) .04 .01 Net realized and unrealized gain on investment and foreign currency transactions 1.15 .68 -------- -------- Net increase in net asset value from operations 1.19 .69 -------- -------- Less: Dividends and Distributions Dividends from net investment income (.05) -0- Distributions from net realized gain on investment and foreign currency transactions (.04) -0- -------- -------- Total dividends and distributions (.09) -0- -------- -------- Net asset value, end of period $11.79 $10.69 -------- -------- Total Return Total investment return based on net asset value (d) 11.22% 6.90% Ratios/Supplemental Data Net assets, end of period (000's omitted) $6,538 $5,877 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.20% 1.20%(e) Expenses, before waivers and reimbursements 2.45% 4.33%(e) Net investment income (c) .42% .25%(e) Portfolio turnover rate 61% 14% See footnote summary on page 25. 24 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period CLASS B -------------------------------- July 1, Year Ended 2004(a) to December 31, December 31, 2005 2004 ----------- ----------- Net asset value, beginning of period $10.67 $10.00 -------- -------- Income From Investment Operations Net investment income (b)(c) .02 .03 Net realized and unrealized gain on investment and foreign currency transactions 1.13 .64 -------- -------- Net increase in net asset value from operations 1.15 .67 -------- -------- Less: Dividends and Distributions Dividends from net investment income (.04) -0- Distributions from net realized gain on investment and foreign currency transactions (.04) -0- -------- -------- Total dividends and distributions (.08) -0- -------- -------- Net asset value, end of period $11.74 $10.67 -------- -------- Total Return Total investment return based on net asset value (d) 10.93% 6.70% Ratios/Supplemental Data Net assets, end of period (000's omitted) $25,420 $10,416 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.45% 1.45%(e) Expenses, before waivers and reimbursements 2.70% 4.78%(e) Net investment income (c) .15% .71%(e) Portfolio turnover rate 61% 14% (a) Commencement of operations. (b) Based on average shares outstanding. (c) Net of expenses waived and reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ To the Shareholders and Board of Directors of AllianceBernstein Variable Products Series Fund, Inc. AllianceBernstein Wealth Appreciation Strategy Portfolio: We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Wealth Appreciation Strategy Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statements of operations and changes in net assets, and the financial highlights for each of the two periods in the year then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Wealth Appreciation Strategy Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations, the changes in its net assets, and the financial highlights for each of the two periods in the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (unaudited) For corporate shareholders, 49% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 26 WEALTH APPRECIATION STRATEGY PORTFOLIO RESULTS OF SHAREHOLDER MEETING (unaudited) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Wealth Appreciation Strategy Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. Voted For Withheld Authority - ------------------------------------------------------------------------------- Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
Voted For Voted Against Abstained Broker Non-Votes ---------- ------------- --------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
Voted For Voted Against Abstained Broker Non-Votes ---------- ------------- --------- ---------------- 3.A. Diversification 2,502,161 0 145,734 0 3.B. Issuing Senior Securities 2,479,137 23,025 145,734 0 and Borrowing Money 3.D. Concentration of Investments 2,644,430 0 3,466 0 3.E. Real Estate and Companies that 2,479,137 23,025 145,734 0 Deal in Real Estate 3.F. Commodities, Commodity 2,479,137 23,025 145,734 0 Contracts and Futures Contracts 3.G. Loans 2,479,137 23,025 145,734 0 3.I. Exercising Control 2,502,161 0 145,734 0 3.N. Pledging, Hypothecating, 2,479,137 23,025 145,734 0 Mortgaging, or Otherwise Encumbering Assets 4.A. The reclassification of the 2,472,872 23,025 151,999 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
27 WEALTH APPRECIATION STRATEGY PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ BOARD OF DIRECTORS William H. Foulk, Jr.(1), Chairman Marc O. Mayer, President Ruth Block(1) David H. Dievler(1) John H. Dobkin(1) Michael J. Downey(1) D. James Guzy(1) Marshall C. Turner, Jr.(1) OFFICERS Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Seth J. Masters(2), Vice President Emilie D. Wrapp, Secretary Mark D. Gersten, Treasurer and Chief Financial Officer Thomas R. Manley, Controller CUSTODIAN The Bank of New York One Wall Street New York, NY 10286 DISTRIBUTOR AllianceBernstein Investment Research and Management, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Blend Investment Policy Team, comprised of senior Blend portfolio managers. Day-to-day responsibilities for coordinating the Portfolio's investments resides with Seth J. Masters, the Chief Investment Officer of the Blend Investment Policy Team. 28 WEALTH APPRECIATION STRATEGY PORTFOLIO MANAGEMENT OF THE FUND AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance Capital 106 SCB Partners, Inc.; 1345 Avenue of the Americas Management Corporation ("ACMC") since SCB, Inc. New York, NY 10105 2001 and Chairman of the Board of 10/2/57 AllianceBernstein Investment Research (2005) and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been CHAIRMAN OF THE BOARD associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. Prior 10/23/29 to joining ACMC in 1984, he was Chief Financial (1990) Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. BOX 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC.
29 WEALTH APPRECIATION STRATEGY PORTFOLIO MANAGEMENT OF THE FUND (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Attn: Philip L. Kirstein Fund Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers Inc., (semi-conductors); Glenbrook, NV 89413 with which he has been associated since prior Cirrus Logic Corporation 3/7/36 to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi- conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. 106 Toppan Photomasks, Inc.; 220 Montgomery Street (semi-conductor manufacturing services), the George Lucas Penthouse 10 Austin, Texas, from 2003 to present, and Educational Foundation; San Francisco, CA 94104-3402 President since company acquired in 2005, and Chairman of the 10/10/41 and name changed from DuPont Photomasks. Board of the (2005) Prior to the company's sale in 2005, he was Smithsonian's National Chairman and CEO. He has also been Principal Museum of Natural of Turner Venture Associates since 1993. History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 30 WEALTH APPRECIATION STRATEGY PORTFOLIO AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ Officer Information(1) Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President, and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President Senior Vice President and Independent Compliance 5/29/45 and Independent Officer of the AllianceBernstein Funds, with which he Compliance Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Seth J. Masters Vice President Executive Vice President of ACMC** and Chief 6/4/59 Investment Officer of Style Blend and Core Equity Services and head of the U.S. and Global Style Blend teams since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABRIM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800)227-4618 for a free prospectus or SAI. 31 WEALTH APPRECIATION STRATEGY PORTFOLIO CONTINUANCE DISCLOSURE AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Wealth Appreciation Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the continuance of the Advisory Agreement between the Fund and the Adviser in respect of the Portfolio at a meeting held on December 14, 2005. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors also reviewed an independent evaluation from the Fund's Senior Officer (who is also the Fund's Independent Compliance Officer) of the reasonableness of the advisory fees in the Fund's Advisory Agreement in respect of the Portfolio (as contemplated by the September 2004 Assurance of Discontinuance between the Adviser and the New York Attorney General) wherein the Senior Officer concluded that such fees were reasonable. In addition, the directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. The directors noted that the Senior Officer's evaluation considered the following factors: management fees charged to institutional and other clients of the Adviser for like services; management fees charged by other mutual fund companies for like services; cost to the Adviser and its affiliates of supplying services pursuant to the Advisory Agreement, excluding any intra-corporate profit; profit margins of the Adviser and its affiliates from supplying such services; possible economies of scale as the Portfolio grows larger; and nature and quality of the Adviser's services including the performance of the Portfolio. Prior to voting, the directors reviewed the proposed continuance of the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed continuance. The directors also discussed the proposed continuance in four private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to continuance of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of the Portfolio to other investment companies with similar investment objectives and to an index; 2. the nature, extent and quality of investment, compliance, administrative and other services rendered by the Adviser; 3. payments received by the Adviser from all sources in respect of the Portfolio and all investment companies in the AllianceBernstein Funds complex; 4. the costs borne by, and profitability of, the Adviser and its affiliates in providing services to the Portfolio and to all investment companies in the AllianceBernstein Funds complex; 5. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 6. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 7. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 8. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the Portfolio; 9. portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 10. fall-out benefits that the Adviser and its affiliates receive from their relationships with the Portfolio; 32 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ 11. the Adviser's representation that there are no institutional products managed by the Adviser which have a substantially similar investment style as the Portfolio; 12. the Senior Officer's evaluation of the reasonableness of the fee payable to the Adviser in the Advisory Agreement; 13. the professional experience and qualifications of the Portfolio's portfolio management team and other senior personnel of the Adviser; and 14. the terms of the Advisory Agreement. The directors also considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser's integrity and competence they have gained from that experience and the Adviser's responsiveness to concerns raised by them in the past, including the Adviser's willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AllianceBernstein Funds. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the continuance of the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should continue to be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. Nature, extent and quality of services provided by the Adviser The directors noted that, under the Advisory Agreement, the Adviser, subject to the control of the directors, administers the Portfolio's business and other affairs. The Adviser manages the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement, the Adviser also provides the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors also considered that the Advisory Agreement provides that the Portfolio will reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements are approved by the directors on a quarterly basis and (to the extent requested and paid) result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors noted that the Adviser had waived reimbursement payments in recent periods from the Portfolio in light of the expense caps currently in effect for the Portfolio. The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser is responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Portfolio. The quality of administrative and other services, including the Adviser's role in coordinating the activities of the Portfolio's other service providers, also were considered. The directors also considered the Adviser's response to recent regulatory compliance issues affecting a number of the investment companies in the AllianceBernstein Funds complex. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement. 33 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ WEALTH APPRECIATION STRATEGY PORTFOLIO CONTINUANCE DISCLOSURE (continued) Costs of Services Provided and Profitability to the Adviser The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for July 1, 2004 (inception) to December 31, 2004. The directors also reviewed information for the same period that had been prepared with a revised expense allocation methodology. The directors noted that the revised expense allocation methodology would be used in 2005, and that it differed in various respects from the methodology used in prior years. The directors reviewed the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data, and noted the Adviser's representation to them that it believed that the methods of allocation used in preparing the profitability information were reasonable and appropriate and that the Adviser had previously discussed with the directors that there is no generally accepted allocation methodology for information of this type. The directors recognized that it is difficult to make comparisons of profitability from fund advisory contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser's capital structure and cost of capital. In considering profitability information, the directors considered the effect of fall-out benefits on the Adviser's expenses, as well as the "revenue sharing" arrangements the Adviser has entered into with certain entities that distribute shares of the Portfolio. The directors focused on the profitability of the Adviser's relationship with the Portfolio before taxes and distribution expenses. The directors noted that the Adviser's relationship with the Portfolio was not profitable to it. Fall-Out Benefits The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its clients on an agency basis. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements, from time to time and had made a special presentation to the directors in May 2005 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements, including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser, receives 12b-1 fees from the Portfolio in respect of Class B Shares of the Portfolio and may retain a portion of the 12b-1 fees from the Portfolio (although they understand that in fact the Distributor pays out all such fees to third parties). The directors also noted that certain affiliates of the Adviser distribute shares of the Portfolio and receive compensation in that connection, that a subsidiary of the Adviser provides transfer agency services to the Portfolio and receives compensation from the Portfolio for such services, and that brokers who are affiliated with the Adviser are permitted to execute brokerage transactions for the Portfolio subject to satisfaction of certain requirements and receive brokerage commissions from the Portfolio and liquidity rebates from electronic communication networks ("ECNs") in connection with such transactions. The directors noted that the Adviser had made a recent presentation to the directors detailing liquidity rebates that Sanford C. Bernstein & Co. LLC receives in respect of transactions effected through ECNs. The directors recognized that the Adviser's profitability would be somewhat lower if it did not receive research for soft dollars or if the Adviser's affiliates did not receive the other benefits described above. The directors understood that the Adviser might derive reputational and other benefits from its association with the Portfolio. Investment Results In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for the Portfolio at each regular Board meeting during the year. At the meeting, the directors reviewed information from a report prepared by Lipper showing performance of the Class A Shares of the Portfolio as compared to a group of 8 funds in its Lipper category selected by Lipper (the "Performance Group") and as compared to a universe of 14 funds in its Lipper category selected by Lipper (the "Performance Universe") for periods ended September 30, 2005 over the 1-year period, and as compared to a composite index (consisting of 70% Standard & Poor's 500 Stock Index and 30% Morgan Stanley Capital International Europe, Australasia and Far East Index) (the "Index") for periods ended September 30, 2005 over the year to date ("YTD"), 1-year and since inception periods (July 2004 inception). The directors noted that in the Performance Group and Performance Universe comparisons the Portfolio was in the 4th quintile in the 1-year period. The comparative information showed that the Portfolio outperformed its 34 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ benchmark in the YTD and 1-year periods and underperformed its benchmark in the since inception period. Based on their review, the directors concluded that the Portfolio's relative performance over time was satisfactory. Advisory Fees and Other Expenses The directors considered the advisory fee rate paid by the Portfolio to the Adviser and information prepared by Lipper concerning fee rates paid by other funds in the same Lipper category as the Portfolio at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors reviewed information in the Adviser's Form ADV and noted that it charged institutional clients lower fees for advising comparably sized accounts using strategies that differ from those of the Portfolio but which involve investments in securities of the same type that the Portfolio invests in (i.e., equity securities). They had previously received an oral presentation from the Adviser that supplemented the information in the Form ADV. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to the Portfolio. For example, the Advisory Agreement requires the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to the Portfolio by non-affiliated service providers and is responsible for the compensation of the Fund's Independent Compliance Officer and certain related expenses. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that many of these services normally are not provided to non-investment company clients and that fees charged to the Portfolio reflect the costs and risks of the additional obligations. The Adviser also noted that since the Portfolio is constantly issuing and redeeming its shares, it is more difficult to manage than an institutional account, where the assets are relatively stable. In light of these facts, the directors did not place significant weight on these fee comparisons. The directors also considered the total expense ratio of the Class A shares of the Portfolio in comparison to the fees and expenses of funds within two comparison groups created by Lipper: an Expense Group and an Expense Universe. Lipper described an Expense Group as a representative sample of comparable funds and an Expense Universe as a broader group, consisting of all funds in the Portfolio's investment classification/ objective with a similar load type as the Portfolio. The Class A expense ratio of the Portfolio was based on the Portfolio's latest fiscal year expense ratio. The directors recognized that the expense ratio information for the Portfolio potentially reflected on the Adviser's provision of services, as the Adviser is responsible for coordinating services provided to the Portfolio by others. The directors noted that it was likely that the expense ratios of some funds in the Portfolio's Lipper category also were lowered by waivers or reimbursements by those funds' investment advisers, which in some cases were voluntary and perhaps temporary. The directors noted that the Portfolio's at approximate current size contractual effective fee rate of 65 basis points was significantly lower than the Expense Group median. The directors noted that in the Portfolio's latest fiscal year, the administrative expense reimbursement of 66 basis points had been waived by the Adviser. The directors also noted that the Adviser advises another AllianceBernstein fund with a similar investment objective and strategies as the Portfolio for the same fee rate as the Portfolio. The directors further noted that the Portfolio's total expense ratio, which had been capped by the Adviser, was somewhat higher than the Expense Group median and significantly higher than the Expense Universe median. The directors noted that the Portfolio's expense ratio was affected by its small size (the Portfolio's net asset value was approximately $31 million as of September 30, 2005). The directors also noted that the Adviser had recently reviewed with them steps being taken that are intended to reduce expenses of the AllianceBernstein Funds. The directors concluded that the Portfolio's expense ratio was acceptable. The directors requested that the Adviser review the administrative expense reimbursement arrangements for the Fund in light of the significant impact of such reimbursements on smaller Portfolios such as the Portfolio. Economies of Scale The directors noted that the advisory fee schedule for the Portfolio contains breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. The directors also considered a presentation by an independent consultant discussing economies of scale issues in the mutual fund industry. The directors believe that economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no uniform methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may real- 35 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ WEALTH APPRECIATION STRATEGY PORTFOLIO CONTINUANCE DISCLOSURE (continued) ize in its overall mutual fund business or those components of it which directly or indirectly affect the Portfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of a fund's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Portfolio's breakpoint arrangements would result in a sharing of economies of scale in the event of a very significant increase in the Portfolio's net assets. 36 WEALTH APPRECIATION STRATEGY PORTFOLIO SENIOR OFFICER FEE EVALUATION AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Wealth Appreciation Strategy Portfolio (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE CAPS, REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(2)
ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ---------------------------------------------------------------------------------------- Blend 65 bp on 1st $2.5 billion Wealth Appreciation 55 bp on next $2.5 billion Strategy Portfolio 50 bp on the balance
1 It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. 2 Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 37 WEALTH APPRECIATION STRATEGY PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ The Adviser is reimbursed as specified in the Investment Advisory Agreement for certain clerical, legal, accounting, administrative and other services provided to the Fund. Indicated below is the reimbursement amount which the Adviser received from the Fund during the Fund's most recently completed fiscal year: As a % of average Fund Amount(3) daily net assets - ------------------------------------------------------------------------------- Wealth Appreciation Strategy Portfolio(4) $34,500 0.66% The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's most recent fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. The gross expense ratios of the Fund during the most recently completed fiscal year are also listed below.
Expense Cap Pursuant Gross to Expense Limitation Expense Fund Undertaking Ratio Fiscal Year End - -------------------------------------------------------------------------------------------- Wealth Appreciation Class A 1.20% 4.33% December 31 Strategy Portfolio Class B 1.45% 4.78%
I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. However, with respect to the Fund, the Adviser represented that there are no institutional products which have a substantially similar investment style as the Fund. The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. 3 The Fund commenced operations on July 1, 2004. Therefore, the reimbursement amount to the Advisor is for a 6 month period. 4 The expense reimbursement has been waived by the Adviser. 38 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Lipper, Inc., an analytical service that is not affiliated with the Adviser, compared the fee charged to the Fund with fees charged to other investment companies linked to variable insurance for similar services by other investment advisers. Lipper's analysis included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund.(5) EFFECTIVE LIPPER MANAGEMENT GROUP FUND FEE MEDIAN RANK - ------------------------------------------------------------------------------- Wealth Appreciation Strategy Portfolio 0.650 0.908 2/8 Lipper also analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group(6) and Lipper Expense Universe(7). Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. The results of that analysis are set forth below: LIPPER LIPPER LIPPER LIPPER EXPENSE UNIVERSE UNIVERSE GROUP GROUP FUND RATIO (%)(8) MEDIAN (%) RANK MEDIAN (%) RANK - ------------------------------------------------------------------------------- Wealth Appreciation Strategy Portfolio 1.200 0.934 11/14 1.127 6/8 Based on this analysis, the Fund has a more favorable ranking on a management fee basis than it does on a total expense ratio basis. III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. The profitability information for the Fund prepared by the Adviser for the Board of Directors was reviewed by the Senior Officer. Based on the information provided, the Adviser did not earn a profit during calendar 2004 primarily as a result of the Adviser having to reimburse the Fund for additional expenses incurred above the Fund's expense cap limitation. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide 5 It should be noted that "effective management fee" is calculated by Lipper using the Fund's contractual management fee rate at a hypothetical asset level. The hypothetical asset level is based on the combined net assets of all classes of the Fund, rounded up to the next $25 million. Lipper's total expense ratio information is based on the most recent annual report except as otherwise noted. A ranking of "1" means that the Fund has the lowest effective fee rate in the Lipper peer group. It should be noted that the effective management fee rate does not reflect the fee waiver or expense reimbursement that effectively reduce the contractual fee rates. In addition, the effective management fee rate does not reflect the expense reimbursements made by the Fund to the Adviser for the provision of administrative services, which have an adverse effect on the expense ratio of the Fund. 6 Lipper uses the following criteria in screening funds to be included in the Fund's expense group: variable product, fund type, investment classification/objective, load type and similar 12b-1/non-12b-1 service fees, asset (size) comparability, and expense components and attributes. A Lipper Expense Group will typically consist of seven to twenty funds. 7 Except for asset (size) comparability and load type, Lipper uses the same criteria for selecting a Lipper Expense Group when selecting a Lipper Expense Universe. Unlike the Lipper Expense Group, the Lipper Expense Universe allows for the same adviser to be represented by more than just one fund. 8 Most recent fiscal year end Class A share total expense ratio. 39 WEALTH APPRECIATION STRATEGY PORTFOLIO SENIOR OFFICER FEE EVALUATION (continued) AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. The Fund has adopted a distribution plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. During the fiscal year ended December 31, 2004, ABIRM received the amount set forth below in Rule 12b-1 fees from the Fund: FUND 12b-1 FEE RECEIVED - ------------------------------------------------------------------------------ Wealth Appreciation Strategy Portfolio $6,185 The Adviser makes payments for distribution services to ABIRM, which in turn may pay part or all of such compensation to brokers and other persons for their distribution assistance. During the fiscal year ended December 31, 2004, the Adviser determined that it made the following payments on behalf of the Fund to ABIRM: ADVISER PAYMENTS TO FUND ABIRM - ------------------------------------------------------------------------------ Wealth Appreciation Strategy Portfolio $119,088 Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(9) For the fiscal year ended December 31, 2004, the Fund paid a fee of $409 to AGIS. AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund effected brokerage transactions through the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"), and paid commissions during the Fund's recent fiscal year. The Adviser represented that SCB's profitability from business conducted with the Fund is comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of 9 It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. 40 AllianceBernstein Variable Products Series Fund _______________________________________________________________________________ scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. The information prepared by Lipper showed the 1 year performance rankings of the Fund(10) relative to its Lipper Performance Group(11) and Lipper Performance Universe(12) for the period ended September 30, 2005. Wealth Appreciation Strategy Portfolio Group Universe - ------------------------------------------------------------------------------- 1 year 6/8 10/14 Set forth below are the 1 year and since inception performance returns of the Fund (in bold)(13) versus its benchmark(14). PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE - ------------------------------------------------------------------------------- Fund 1 Year Since Inception - ------------------------------------------------------------------------------- Wealth Appreciation Strategy Portfolio 16.64 15.01 S&P 500 Index 12.25 11.82 MSCI EAFE Index (Net) 25.80 24.93 70% S&P 500 Index, 30% MSCI EAFE Index (Net) 16.31 15.75 CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 10 The performance rankings are for the Class A shares of the Fund. 11 The Lipper Performance Group is identical to the Lipper Expense Group. 12 For the Lipper Performance Universe, Lipper included the Fund and all of the funds of the same Lipper Classification/Objective, regardless of asset size or primary distribution channel. 13 The performance returns are for the Class A shares of the Fund. 14 The Adviser provided Fund and benchmark performance return information for periods through September 30, 2005 in order to maintain consistency with Lipper's performance rankings in the analysis. 41 [LOGO] ALLIANCEBERNSTEIN (R) Investment Research and Management ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ANNUAL REPORT DECEMBER 31, 2005 > ALLIANCEBERNSTEIN GLOBAL RESEARCH GROWTH PORTFOLIO ANNUAL REPORT INVESTMENT PRODUCTS OFFERED - --------------------------- > ARE NOT FDIC INSURED > MAY LOSE VALUE > ARE NOT BANK GUARANTEED - --------------------------- YOU MAY OBTAIN A DESCRIPTION OF THE FUND'S PROXY VOTING POLICIES AND PROCEDURES, AND INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, WITHOUT CHARGE. SIMPLY VISIT THE SECURITIES AND EXCHANGE COMMISSION'S (THE "COMMISSION") WEB SITE AT WWW.SEC.GOV, OR CALL ALLIANCEBERNSTEIN AT (800) 227-4618. THE FUND FILES ITS COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE COMMISSION FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q. THE FUND'S FORMS N-Q ARE AVAILABLE ON THE COMMISSION'S WEB SITE AT WWW.SEC.GOV. THE FUND'S FORMS N-Q MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC; INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING (800) SEC-0330. GLOBAL RESEARCH GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ LETTER TO INVESTORS February 9, 2006 The following is an update of AllianceBernstein Variable Products Series Fund AllianceBernstein Global Research Growth Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2005. INVESTMENT OBJECTIVE AND POLICIES This Portfolio seeks long-term growth of capital. The Portfolio invests primarily in a global portfolio of equity securities of companies within various market sectors selected by Alliance for their growth potential. Examples of the types of market sectors into which Alliance may invest the Portfolio's assets include, but are not limited to, communications and information technology, health care, financial services, infrastructure, energy and consumer growth. Alliance will allocate the Portfolio's investments among selected market sectors based on its assessment of both current and forecasted economic and investment conditions. Within each sector, stock selection will emphasize investment in companies representing the industry analyst groups' top picks for their respective sectors. The Portfolio expects to invest, under normal circumstances, in the equity securities of companies based in at least three countries (and normally substantially more), one of which may be the United States. The Portfolio also invests in securities of companies in emerging markets. INVESTMENT RESULTS The table on page 3 shows the Portfolio's performance compared to its benchmarks, the Morgan Stanley Capital International (MSCI) World Index and the MSCI World Growth Index, since the Portfolio's inception on May 2, 2005 through December 31, 2005. The Portfolio generated strong returns and outperformed its benchmarks since its inception. Most of the outperformance was a result of successful stock selection. The Portfolio's stock selection in the energy and natural resources sectors made the most important contribution to outperformance versus the benchmarks. The Portfolio also experienced notably good stock selection in the financial, health care and technology sectors. Several areas of the Portfolio made notable contributions to performance. Within the energy and natural resources sector, the Portfolio benefited from a large position in the oil services industry. The Portfolio also benefited from exposure to oil producers. In addition, the Portfolio had a number of holdings in Japanese companies that performed very well in the period since the Portfolio's inception. MARKET REVIEW AND INVESTMENT STRATEGY Global stock markets generally performed well during the reporting period with growth stocks performing slightly better than the overall stock market. The global economy appears to have remained healthy in spite of high energy prices and the U.S. Federal Reserve's continued efforts to increase short-term interest rates. Two of the sectors held by the Portfolio deserve special comment because of their exposure to these macroeconomic factors. First, the Portfolio has arguably benefited from current high energy prices. The Portfolio's management team (the "Team") has generally believed that demand for oil and gas would continue to be strong, and that growing demand would create a favorable environment for companies in the oil and oil services industries. The Team wanted the Portfolio to have a meaningful position in the energy sector, and particularly in the oil service industry, which the Team thought would benefit from efforts to produce oil and gas. The Team's optimistic outlook regarding energy prices and energy stocks has been correct over the last several months. The Portfolio's positions in energy stocks have been an important source of the Portfolio's performance during the reporting period. It is also worth discussing the U.S. Federal Reserve's policies, and how these policies have influenced the Team's position in financial stocks. The U.S. Federal Reserve's interest rate policies often have an important impact on the economy, the stock market and on stocks in the financial sector. When the Federal Reserve raises interest rates, it tends to make things more difficult for the economy, the stock market and financial stocks to perform well. At the time of the Portfolio's inception, the Portfolio was underweighted in the financial sector. This decision reflected the Team's concern that the Federal Reserve's interest rate policies could make it harder for financial stocks to perform well relative to the overall stock market. More recently, however, the Team has added to the Portfolio's financial holdings with the expectation that the Federal Reserve may be nearing the end of its tightening cycle. The Team's expectation was that the environment for financial stocks could improve as investors began to anticipate an end to increases in short-term interest rates. The Team has also identified a number of increasingly attractive ideas in the financial sector. The Portfolio is still underweighted in financial stocks, but the underweight position has been meaningfully reduced. 1 GLOBAL RESEARCH GROWTH PORTFOLIO HISTORICAL PERFORMANCE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ AN IMPORTANT NOTE ABOUT THE VALUE OF HISTORICAL PERFORMANCE THE PERFORMANCE SHOWN ON THE FOLLOWING PAGE REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE INFORMATION SHOWN. PLEASE CONTACT YOUR FINANCIAL ADVISOR OR INSURANCE AGENT REPRESENTATIVE AT YOUR FINANCIAL INSTITUTION TO OBTAIN PORTFOLIO PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH-END. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO WILL FLUCTUATE, SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. YOU SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE PORTFOLIO CAREFULLY BEFORE INVESTING. FOR A FREE COPY OF THE PORTFOLIO'S PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CALL YOUR FINANCIAL ADVISOR OR (800) 984-7654. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. Returns are annualized for periods longer than one year. All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio's quoted performance would be lower. Performance assumes reinvestment of distributions and does not account for taxes. BENCHMARK DISCLOSURE NEITHER THE UNMANAGED MSCI WORLD INDEX NOR THE UNMANAGED MSCI WORLD GROWTH INDEX REFLECTS FEES AND EXPENSES ASSOCIATED WITH THE ACTIVE MANAGEMENT OF A MUTUAL FUND PORTFOLIO. The MSCI World Index is a market capitalization-weighted index that measures the performance of stock markets in 23 countries. The MSCI World Growth Index includes those components of the MSCI World Index with an above average growth orientation. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including AllianceBernstein Global Research Growth Portfolio. A WORD ABOUT RISK The Portfolio concentrates its investments in a limited number of industry sectors and issues, and an investment in the Portfolio is therefore subject to greater risk and volatility than investments in a more diversified portfolio. The Portfolio may invest a significant portion of its assets in foreign securities including those in emerging markets, which can be more volatile than U.S. securities due to changes in foreign exchange rates and the possibility of substantial volatility due to political and economic uncertainties in foreign countries. Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. If a growth stock company should fail to meet these high earnings expectations, the price of these stocks can be severely negatively affected. While the Portfolio invests principally in common stocks and other equity securities, in order to achieve its investment objectives, it may at times use certain types of investment derivatives, such as options, futures, forwards and swaps. These instruments involve risks different from, and in certain cases, greater than, the risks presented by more traditional investments. These risks are fully discussed in the Variable Products prospectus. THERE ARE ADDITIONAL FEES AND EXPENSES ASSOCIATED WITH ALL VARIABLE PRODUCTS. THESE FEES CAN INCLUDE MORTALITY AND EXPENSE RISK CHARGES, ADMINISTRATIVE CHARGES, AND OTHER CHARGES THAT CAN SIGNIFICANTLY REDUCE INVESTMENT RETURNS. THOSE FEES AND EXPENSES ARE NOT REFLECTED IN THIS ANNUAL REPORT. YOU SHOULD CONSULT YOUR VARIABLE PRODUCTS PROSPECTUS FOR A DESCRIPTION OF THOSE FEES AND EXPENSES AND SPEAK TO YOUR INSURANCE AGENT OR FINANCIAL REPRESENTATIVE IF YOU HAVE ANY QUESTIONS. YOU SHOULD READ THE PROSPECTUS BEFORE INVESTING OR SENDING MONEY. (Historical Performance continued on next page) 2 GLOBAL RESEARCH GROWTH PORTFOLIO HISTORICAL PERFORMANCE (continued from previous page) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ RETURNS THE PORTFOLIO VS. ITS BENCHMARKS ---------------- PERIOD ENDED DECEMBER 31, 2005 SINCE INCEPTION* - ------------------------------------------------------------------------------- AllianceBernstein Global Research Growth Portfolio Class A 21.10% - ------------------------------------------------------------------------------- AllianceBernstein Global Research Growth Portfolio Class B 20.90% - ------------------------------------------------------------------------------- MSCI World Index 12.95% - ------------------------------------------------------------------------------- MSCI World Growth Index 14.03% - ------------------------------------------------------------------------------- * Since inception of the Portfolio's Class A and Class B shares on 5/2/05. ALLIANCEBERNSTEIN GLOBAL RESEARCH GROWTH PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 5/2/05*-12/31/05 ALLIANCEBERNSTEIN GLOBAL RESEARCH GROWTH PORTFOLIO CLASS A: $12,111 MSCI WORLD INDEX: $11,295 MSCI WORLD GROWTH INDEX: $11,402 AllianceBernstein Global Research Growth MSCI World MSCI World Portfolio Class A Index Growth Index - ------------------------------------------------------------------------------- 5/2/05* $ 10,000 $ 10,000 $ 10,000 5/31/05 $ 10,310 $ 10,157 $ 10,236 6/30/05 $ 10,450 $ 10,245 $ 10,284 7/31/05 $ 10,930 $ 10,603 $ 10,710 8/31/05 $ 11,180 $ 10,682 $ 10,805 9/30/05 $ 11,621 $ 10,960 $ 11,044 10/31/05 $ 11,341 $ 10,694 $ 10,809 11/30/05 $ 11,841 $ 11,050 $ 11,159 12/31/05 $ 12,111 $ 11,295 $ 11,402 * Since inception of the Portfolio's Class A shares on 5/2/05. This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Global Research Growth Portfolio Class A shares (from 5/2/05* to 12/31/05) as compared to the performance of the Portfolio's benchmarks. The chart assumes the reinvestment of dividends and capital gains. SEE HISTORICAL PERFORMANCE AND BENCHMARK DISCLOSURES ON PREVIOUS PAGE. 3 GLOBAL RESEARCH GROWTH PORTFOLIO FUND EXPENSES ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED GLOBAL RESEARCH GROWTH PORTFOLIO JULY 1, 2005 DECEMBER 31, 2005 DURING PERIOD** EXPENSE RATIO - -------------------------------- --------------- ------------------ -------------- -------------- CLASS A Actual $1,000 $1,158.85 $6.53 1.20% Hypothetical (5% return before expenses) $1,000 $1,019.16 $6.11 1.20% CLASS B Actual $1,000 $1,158.04 $7.89 1.45% Hypothetical (5% return before expenses) $1,000 $1,017.90 $7.38 1.45%
* Expenses are equal to each classes' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 4 GLOBAL RESEARCH GROWTH PORTFOLIO TEN LARGEST HOLDINGS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COMPANY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Citigroup, Inc. $ 228,091 3.2% Halliburton Co. 210,664 2.9 General Electric Co. 178,755 2.5 Schlumberger Ltd. 165,155 2.3 Noble Energy, Inc. 152,173 2.1 Nabors Industries Ltd. 151,500 2.1 American International Group, Inc. 150,106 2.1 Petroleo Brasileiro, SA 135,177 1.9 JPMorgan Chase & Co. 123,039 1.7 The Procter & Gamble Co. 115,760 1.6 ------------ ----- $ 1,610,420 22.4% SECTOR DIVERSIFICATION DECEMBER 31, 2005 PERCENT OF SECTOR U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- Finance $ 1,615,815 22.5% Energy 1,059,433 14.8 Health Care 986,221 13.7 Technology 863,118 12.0 Consumer Services 484,637 6.8 Consumer Staples 455,023 6.3 Capital Goods 384,007 5.3 Consumer Manufacturing 328,657 4.6 Basic Industry 311,825 4.3 Multi-Industry Companies 115,126 1.6 Aerospace & Defense 96,032 1.3 Transportation 58,169 0.8 Utilities 47,523 0.7 ------------ ----- Total Investments 6,805,586 94.7 Cash and receivables, net of liabilities 378,903 5.3 ------------ ----- Net Assets $ 7,184,489 100.0% Please Note: The sector classifications presented herein are based on the sector categorization methodology of the Adviser. 5 GLOBAL RESEARCH GROWTH PORTFOLIO COUNTRY DIVERSIFICATION DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ PERCENT OF COUNTRY U.S. $ VALUE NET ASSETS - ------------------------------------------------------------------------------- United States $ 3,523,136 49.0% Japan 589,088 8.2 Switzerland 547,732 7.6 United Kingdom 489,490 6.8 Bermuda 219,562 3.1 Netherlands 175,758 2.5 France 156,893 2.2 Brazil 149,589 2.1 China 139,411 2.0 Russia 87,612 1.2 Hong Kong 80,996 1.1 South Korea 74,579 1.0 Australia 73,731 1.0 Ireland 72,908 1.0 Other * 425,101 5.9 ------------ ----- Total Investments 6,805,586 94.7 Cash and receivables, net of liabilities 378,903 5.3 ------------ ----- Net Assets $ 7,184,489 100.0% * The Portfolio's country breakdown is expressed as a percentage of net assets and may vary over time. "Other" represents less than 1% weightings in the following countries: Cayman Islands, Egypt, Germany, Greece, India, Israel, Italy, Mexico, Norway, Spain, Sweden and Taiwan. 6 GLOBAL RESEARCH GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- COMMON STOCKS-94.7% FINANCE-22.5% BANKING - MONEY CENTER-6.8% Banco Bilbao Vizcaya Argentaria, SA (Spain) 3,033 $ 54,150 Banco Itau Holding Financeira, SA (ADR) (Brazil) 600 14,412 Credit Suisse Group (Switzerland) 1,480 75,390 JPMorgan Chase & Co. 3,100 123,039 Kookmin Bank (ADR) (South Korea) 625 46,694 Standard Chartered Plc (United Kingdom) 3,062 68,135 UBS AG (Switzerland) 1,120 106,457 ------------ 488,277 ------------ BANKING - REGIONAL-1.5% Allied Irish Banks Plc (Ireland) 1,686 36,187 China Construction Bank(China) (a)(b) 105,000 36,563 Commerce Bancorp, Inc. 1,000 34,410 ------------ 107,160 ------------ BROKERAGE & MONEY MANAGEMENT-3.7% Franklin Resources, Inc. 500 47,005 Man Group Plc (United Kingdom) 1,099 36,116 Nomura Holdings, Inc. (Japan) 6,000 115,498 The Charles Schwab Corp. 4,700 68,949 ------------ 267,568 ------------ INSURANCE-5.0% American International Group, Inc. 2,200 150,106 Axis Capital Holdings Ltd. (Bermuda) 1,100 34,408 Prudential Plc (United Kingdom) 7,418 70,262 QBE Insurance Group Ltd. (Australia) 2,686 38,364 Swiss Reinsurance (Switzerland) 950 69,420 ------------ 362,560 ------------ MORTGAGE BANKING-1.6% Fannie Mae 2,300 112,263 ------------ MISCELLANEOUS-3.9% Citigroup, Inc. 4,700 228,091 State Street Corp. 900 49,896 ------------ 277,987 ------------ 1,615,815 ------------ ENERGY-14.8% DOMESTIC PRODUCERS-2.1% Noble Energy, Inc. 3,776 152,173 ------------ INTERNATIONAL-3.8% China Petroleum & Chemical Corp. (China) 62,000 30,895 Lukoil Holdings (ADR) (Russia) 1,296 77,112 Norsk Hydro ASA (Norway) 267 27,473 Petroleo Brasileiro, SA (ADR) (Brazil) 2,100 135,177 ------------ 270,657 ------------ OIL SERVICE-8.9% FMC Technologies, Inc. (a) 1,200 51,504 GlobalSantaFe Corp. (Cayman Islands) 1,200 57,780 Halliburton Co. 3,400 210,664 Nabors Industries Ltd. (Bermuda) (a) 2,000 151,500 Schlumberger Ltd. (Netherlands) 1,700 165,155 ------------ 636,603 ------------ 1,059,433 ------------ HEALTH CARE-13.7% BIOTECHNOLOGY-2.0% Amgen, Inc. (a) 300 23,658 Genentech, Inc. (a) 800 74,000 Gilead Sciences, Inc. (a) 700 36,841 MedImmune, Inc. (a) 300 10,506 ------------ 145,005 ------------ DRUGS-5.8% Allergan, Inc. 400 43,184 AstraZeneca Plc (ADR) (United Kingdom) 200 9,720 Cephalon, Inc. (a) 300 19,422 Eli Lilly & Co. 300 16,977 Forest Laboratories, Inc. (a) 500 20,340 Merck & Co., Inc. 500 15,905 Novartis AG (Switzerland) 868 45,527 Ranbaxy Laboratories Ltd. (GDR) (India) 1,043 8,397 Roche Holding AG-Genusschin (Switzerland) 487 73,021 Sanofi-Aventis, SA (France) 483 42,285 Shionogi & Co., Ltd. (Japan) 2,000 28,118 Takeda Pharmaceutical Co., Ltd. (Japan) 400 21,674 Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 1,400 60,214 Wyeth 300 13,821 ------------ 418,605 ------------ 7 GLOBAL RESEARCH GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- MEDICAL PRODUCTS-2.5% Alcon, Inc. (Switzerland) 500 $ 64,800 Bausch & Lomb, Inc. 200 13,580 Dade Behring Holdings, Inc. 400 16,356 Nobel Biocare Holding AG (Switzerland) 134 29,498 St. Jude Medical, Inc. (a) 700 35,140 Zimmer Holdings, Inc. (a) 300 20,232 ------------ 179,606 ------------ MEDICAL SERVICES-3.4% Caremark Rx, Inc. (a) 400 20,716 Medco Health Solutions, Inc. (a) 200 11,160 UnitedHealth Group, Inc. 1,600 99,423 WellPoint, Inc. (a) 1,400 111,706 ------------ 243,005 ------------ 986,221 ------------ TECHNOLOGY-12.0% COMMUNICATION EQUIPMENT-1.6% Corning, Inc. (a) 600 11,796 Juniper Networks, Inc. (a) 1,100 24,530 Motorola, Inc. 1,000 22,590 QUALCOMM, Inc. 1,100 47,388 Telefonaktiebolaget LM Ericsson (Sweden) 2,849 9,816 ------------ 116,120 ------------ COMPUTER HARDWARE/STORAGE-1.6% Apple Computer, Inc. (a) 400 28,756 EMC Corp. (a) 2,800 38,136 International Business Machines Corp. (IBM) 600 49,320 ------------ 116,212 ------------ COMPUTER PERIPHERALS-0.1% QLogic Corp. (a) 300 9,753 ------------ COMPUTER SERVICES-0.7% Cap Gemini, SA (France) (a) 287 11,551 Fiserv, Inc. (a) 400 17,308 Infosys Technologies Ltd. (ADR) (India) 300 24,258 ------------ 53,117 ------------ CONTRACT MANUFACTURING-0.2% Hon Hai Precision Industry Co., Ltd. (GDR) (Taiwan) 1,041 11,411 ------------ ELECTRONIC COMPONENTS-0.1% LG. Philips LCD Co., Ltd. (ADR) (South Korea) (a) 400 8,584 ------------ INTERNET MEDIA-1.4% Google, Inc. Cl. A (a) 140 58,080 Yahoo!, Inc. (a) 1,000 39,180 ------------ 97,260 ------------ INTERNET INFRASTRUCTURE-0.2% Fastweb (Italy) (a) 281 12,840 ------------ SEMICONDUCTOR CAPITAL EQUIPMENT-0.5% Applied Materials, Inc. 700 12,558 ASML Holding NV (Netherlands) (a) 529 10,603 KLA-Tencor Corp. 300 14,799 ------------ 37,960 ------------ SEMICONDUCTOR COMPONENTS-1.9% Advanced Micro Devices, Inc. (a) 400 12,240 Broadcom Corp. Cl. A (a) 700 33,005 Marvell Technology Group Ltd. (Bermuda) (a) 600 33,654 Samsung Electronics Co., Ltd. (South Korea) 30 19,301 Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (Taiwan) 1,554 15,400 Texas Instruments, Inc. 700 22,449 ------------ 136,049 ------------ SOFTWARE-2.4% Autodesk, Inc. 500 21,475 Business Objects, SA (ADR) (France) (a) 100 4,041 Business Objects, SA (France) (a) 337 13,643 McAfee, Inc. (a) 300 8,139 Microsoft Corp. 2,900 75,835 Oracle Corp. (a) 1,000 12,210 SAP AG (ADR) (Germany) 800 36,056 ------------ 171,399 ------------ MISCELLANEOUS-1.3% Canon, Inc. (Japan) 600 35,220 Hoya Corp. (Japan) 800 28,755 Keyence Corp. (Japan) 100 28,438 ------------ 92,413 ------------ 863,118 ------------ CONSUMER SERVICES-6.8% ADVERTISING-0.7% WPP Group Plc (United Kingdom) 4,322 46,758 ------------ 8 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- BROADCASTING & CABLE-1.3% Time Warner, Inc. 4,000 $ 69,760 Univision Communications, Inc. (a) 900 26,451 ------------ 96,211 ------------ CELLULAR COMMUNICATIONS-0.7% America Movil, S.A. de CV Series L (ADR) (Mexico) 1,100 32,186 Mobile Telesystems (ADR) (Russia) 300 10,500 Orascom Telecom Holdings SAE (GDR) (Egypt) 128 6,725 ------------ 49,411 ------------ ENTERTAINMENT/LEISURE-0.5% Greek Organisation of Football Prognostics, SA (Greece) 950 32,754 ------------ RESTAURANT & LODGING-0.6% Accor, SA (France) 832 45,753 ------------ RETAIL - GENERAL MERCHANDISE-3.0% eBay, Inc. (a) 200 8,650 Lowe's Cos., Inc. 1,300 86,658 Target Corp. 800 43,976 The Home Depot, Inc. 1,200 48,576 Williams-Sonoma, Inc. (a) 600 25,890 ------------ 213,750 ------------ 484,637 ------------ CONSUMER STAPLES-6.3% BEVERAGES-0.9% SABMiller Plc (United Kingdom) 3,611 65,799 ------------ FOOD-2.0% Kellogg Co. 500 21,610 Nestle, SA (Switzerland) 280 83,619 Wm. Wrigley Jr. Co. 600 39,894 ------------ 145,123 ------------ HOUSEHOLD PRODUCTS-2.1% Colgate-Palmolive Co. 700 38,395 The Procter & Gamble Co. 2,000 115,760 ------------ 154,155 ------------ RETAIL - FOOD & DRUG-1.0% Tesco Plc (United Kingdom) 12,186 69,460 ------------ MISCELLANEOUS-0.3% Punch Taverns Plc (United Kingdom) 1,402 20,486 ------------ 455,023 ------------ CAPITAL GOODS-5.3% ELECTRICAL EQUIPMENT-1.5% Atlas Copco AB (Sweden) 1,600 35,640 Emerson Electric Co. 700 52,290 Sumitomo Electric Industries Ltd. (Japan) 1,400 21,265 ------------ 109,195 ------------ MISCELLANEOUS-3.8% General Electric Co. 5,100 178,755 Nitto Denko Corp. (Japan) 300 23,374 United Technologies Corp. 1,300 72,683 ------------ 274,812 ------------ 384,007 ------------ CONSUMER MANUFACTURING-4.6% AUTO & RELATED-2.0% Denso Corp. (Japan) 1,400 48,469 Toyota Motor Corp. (Japan) 1,800 94,039 ------------ 142,508 ------------ BUILDING RELATED-2.5% American Standard Cos., Inc. 1,200 47,940 CRH Plc (Ireland) 1,250 36,721 Pulte Homes, Inc. 500 19,680 Rinker Group Ltd. (Australia) 2,956 35,367 Vinci, SA (France) 460 39,620 ------------ 179,328 ------------ TEXTILE PRODUCTS-0.1% Building Materials Holding Corp. 100 6,821 ------------ 328,657 ------------ BASIC INDUSTRY-4.3% CHEMICALS-2.0% Air Products and Chemicals, Inc. 1,700 100,623 Hitachi Chemical Co., Ltd. (Japan) 1,800 47,564 ------------ 148,187 ------------ MINING AND METALS-2.3% Aluminum Corp. of China Ltd. (Hong Kong) 64,000 48,683 BHP Billiton Plc (United Kingdom) 2,986 48,869 China Shenhua Energy Co., Ltd. Cl. H (China) (a) 60,000 66,086 ------------ 163,638 ------------ 311,825 ------------ 9 GLOBAL RESEARCH GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ COMPANY SHARES U.S. $ VALUE - ------------------------------------------------------------------------------- MULTI-INDUSTRY COMPANIES-1.6% Danaher Corp. 700 $ 39,046 Mitsubishi Corp. (Japan) 1,700 37,534 Mitsui & Co., Ltd. (Japan) 3,000 38,546 ------------ 115,126 ------------ AEROSPACE & DEFENSE-1.3% AEROSPACE-1.3% Bae Systems Plc (United Kingdom) 8,198 53,888 The Boeing Co. 600 42,144 ------------ 96,032 ------------ TRANSPORTATION-0.8% AIR FREIGHT-0.5% United Parcel Service, Inc. Cl. B 500 37,575 ------------ RAILROAD-0.3% East Japan Railway Co. (Japan) 3 20,594 ------------ 58,169 ------------ UTILITIES-0.7% ELECTRIC & GAS UTILITY-0.5% Datang International Power Generation Co., Ltd. (Hong Kong) 44,000 32,313 ------------ TELEPHONE UTILITY-0.2% China Telecom Corp., Ltd. Cl. H (China) 16,000 5,866 Sprint Corp. (Fon Group) 400 9,344 ------------ 15,210 ------------ 47,523 ------------ Total Common Stocks (cost $5,842,014) 6,805,586 ------------ TOTAL INVESTMENTS-94.7% (cost $5,842,014) 6,805,586 Other assets less liabilities-5.3% 378,903 ------------ NET ASSETS-100% $ 7,184,489 ============ (a) Non-income producing security. (b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security is considered liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2005, the market value of this security amounted to $36,563 or 0.5% of net assets. Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt See Notes to Financial Statements. 10 GLOBAL RESEARCH GROWTH PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $5,842,014) $ 6,805,586 Cash 179,063 Foreign cash, at value (cost $233,655) 232,484 Receivable due from Adviser 25,095 Receivable for capital stock sold 14,800 Dividends receivable 6,331 Receivable for investment securities sold and foreign currency contracts 3,118 ------------ Total assets 7,266,477 ------------ LIABILITIES Payable for investment securities purchased and foreign currency contracts 11,142 Distribution fee payable 1,472 Transfer agent fee payable 65 Accrued expenses 69,309 ------------ Total liabilities 81,988 ------------ NET ASSETS $ 7,184,489 ============ COMPOSITION OF NET ASSETS Capital stock, at par $ 594 Additional paid-in capital 6,074,020 Net investment loss (1,536) Accumulated net realized gain on investment and foreign currency transactions 149,035 Net unrealized appreciation of investments and foreign currency denominated assets and liabilities 962,376 ------------ $ 7,184,489 ============ CLASS A SHARES Net assets $ 121,080 ============ Shares of capital stock outstanding 10,000 ============ Net asset value per share $ 12.11 ============ CLASS B SHARES Net assets $ 7,063,409 ============ Shares of capital stock outstanding 584,340 ============ Net asset value per share $ 12.09 ============ See Notes to Financial Statements. 11 GLOBAL RESEARCH GROWTH PORTFOLIO STATEMENT OF OPERATIONS MAY 2, 2005(A) TO DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $2,881) $ 50,574 Interest 1,072 ------------ Total investment income 51,646 ------------ EXPENSES Advisory fee 29,587 Distribution fee -- Class B 9,677 Custodian 134,994 Administrative 52,000 Audit 41,750 Legal 15,246 Printing 13,618 Directors' fees 581 Transfer agency 522 Miscellaneous 6,938 ------------ Total expenses 304,913 Less: expenses waived and reimbursed by the Adviser (see Note B) (247,901) ------------ Net expenses 57,012 ------------ Net investment loss (5,366) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 165,437 Foreign currency transactions (12,572) Net change in unrealized appreciation/depreciation of: Investments 963,572 Foreign currency denominated assets and liabilities (1,196) ------------ Net gain on investment and foreign currency transactions 1,115,241 ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,109,875 ============ (a) Commencement of operations. See Notes to Financial Statements. 12 GLOBAL RESEARCH GROWTH PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MAY 2, 2005(a) TO DECEMBER 31, 2005 ============ INCREASE IN NET ASSETS FROM OPERATIONS Net investment loss $ (5,366) Net realized gain on investment and foreign currency transactions 152,865 Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities 962,376 ------------ Net increase in net assets from operations 1,109,875 CAPITAL STOCK TRANSACTIONS Net increase 6,074,614 ------------ Total increase 7,184,489 NET ASSETS Beginning of period -0- ------------ End of period (including a net investment loss of $1,536) $ 7,184,489 ============ (a) Commencement of operations. See Notes to Financial Statements. 13 GLOBAL RESEARCH GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE A: SIGNIFICANT ACCOUNTING POLICIES The AllianceBernstein Global Research Growth Portfolio (the "Portfolio") is a series of AllianceBernstein Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers twenty-three separately managed pools of assets which have differing investment objectives and policies. The Portfolio commenced operations on May 2, 2005. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Additional information about some of the items discussed in these Notes to Financial Statements is contained in the Fund's Statement of Additional Information, which is available upon request. The following is a summary of significant accounting policies followed by the Portfolio. 1. SECURITY VALUATION Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at "fair value" as determined in accordance with procedures established by and under the general supervision of the Fund's Board of Directors. In general, the market value of securities which are readily available and deemed reliable are determined as follows. Securities listed on a national securities exchange or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities not listed on an exchange but traded on The NASDAQ Stock Market, Inc. ("NASDAQ") are valued in accordance with the NASDAQ Official Closing Price; listed put or call options are valued at the last sale price. If there has been no sale on that day, such securities will be valued at the closing bid prices on that day; open futures contracts and options thereon are valued using 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 day of valuation, the last available closing settlement price is used; securities traded in the over-the-counter market, ("OTC") (but excluding securities traded on NASDAQ) are valued at the mean of the current bid and asked prices as reported by the National Quotation Bureau or other comparable sources; U.S. Government securities and other debt instruments having 60 days or less remaining until maturity are valued at amortized cost if their original maturity was 60 days or less; or by amortizing their fair value as of the 61st day prior to maturity if their original term to maturity exceeded 60 days; fixed-income securities, including mortgage backed and asset backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker/dealers. In cases where broker/dealer quotes are obtained, Alliance Capital Management, L.P. (the "Adviser") may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security; and OTC and other derivatives are valued on the basis of a quoted bid price or spread from a major broker/dealer in such security. Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer's financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because, most foreign markets close well before the Fund 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 and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. 14 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. TAXES It is the policy of the Portfolio to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned. 4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the trade date securities are purchased or sold. Investment gains and losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 5. INCOME AND EXPENSES All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged to each Portfolio in proportion to net assets. 6. DIVIDENDS AND DISTRIBUTIONS The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. generally accepted accounting principles. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of an investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, ..65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio's average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis to 1.20% and 1.45% of the daily average net assets for Class A and Class B shares, respectively. For the period ended December 31, 2005 the Adviser waived fees in the amount of $195,901. 15 GLOBAL RESEARCH GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. Due to the Adviser's agreement to limit total operating expenses as described above, the Adviser waived reimbursement for such services in the amount of $52,000 for the period ended December 31, 2005. Brokerage commissions paid on investment transactions for the period ended December 31, 2005, amounted to $15,307, none of which was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $522 for the period ended December 31, 2005. NOTE C: DISTRIBUTION PLAN The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investment Research and Management, Inc., (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limits payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's Class B shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. NOTE D: INVESTMENT TRANSACTIONS Purchases and sales of investment securities (excluding short-term investments) for the period ended December 31, 2005 were as follows: PURCHASES SALES ============= ============= Investment securities (excluding U.S. government securities) $ 8,183,922 $ 2,509,734 U.S. government securities -0- -0- The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Cost $ 5,843,174 ============= Gross unrealized appreciation $ 998,915 Gross unrealized depreciation (36,503) ------------- Net unrealized appreciation $ 962,412 ============= 1. FINANCIAL FUTURES CONTRACTS The Portfolio may buy or sell financial futures contracts for the purpose of hedging its portfolio against adverse effects of anticipated movements in the market. The Portfolio bears the market risk that arises from changes in the value of these financial instruments and the imperfect correlation between movements in the price of the futures contracts and movements in the price of the securities hedged or used for cover. 16 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ At the time the Portfolio enters into a futures contract, the Portfolio deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. 2. FORWARD EXCHANGE CURRENCY CONTRACTS The Portfolio may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as net unrealized appreciation or depreciation by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having a value at least equal to the aggregate amount of the Portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of the counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Portfolio has in that particular currency contract. 3. OPTION TRANSACTIONS For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign government securities and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. For the year ended December 31, 2005, the Portfolio had no transactions in written options. 17 GLOBAL RESEARCH GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE E: CAPITAL STOCK There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: SHARES AMOUNT ============ ============ MAY 2, 2005(a) MAY 2, 2005(a) TO DECEMBER 31, TO DECEMBER 31, 2005 2005 ============ ============ CLASS A Shares sold 10,000 $ 100,000 ------------ ------------ Net increase 10,000 $ 100,000 ============ ============ CLASS B Shares sold 584,843 $ 5,980,435 Shares redeemed (503) (5,821) ------------ ------------ Net increase 584,340 $ 5,974,614 ============ ============ (a) Commencement of operations. NOTE F: RISKS INVOLVED IN INVESTING IN THE PORTFOLIO Concentration of Risk--Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. Indemnification Risk--In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio's maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. NOTE G: JOINT CREDIT FACILITY A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $250 million revolving credit facility (the "Facility") intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the period ended December 31, 2005. NOTE H: COMPONENTS OF ACCUMULATED EARNINGS As of December 31, 2005, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income $ 150,195 Accumulated capital and other losses (1,536)(a) Unrealized appreciation/(depreciation) 961,216(b) ------------ Total accumulated earnings/(deficit) $ 1,109,875 ============ (a) Net capital losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2005, the Portfolio deferred until January 1, 2006, post-October capital losses of $1,536 (b) The difference between book basis and tax basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. During the current fiscal year, permanent diferences, primarily due to tax treatment of foreign currency gains and losses, and net operating losses, resulted in a decrease in net investment loss, and a decrease in accumulated net realized gain on investment and foreign currency transactions. These reclassifications had no effect on net assets. 18 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ NOTE I: LEGAL PROCEEDINGS As has been previously reported, the staff of the U.S. Securities and Exchange Commission ("SEC") and the NYAG have been investigating practices in the mutual fund industry identified as "market timing" and "late trading" of mutual fund shares. Certain other regulatory authorities have also been conducting investigations into these practices within the industry and have requested that the Adviser provide information to them. The Adviser has been cooperating and will continue to cooperate with all of these authorities. On December 18, 2003, the Adviser confirmed that it had reached terms with the SEC and the NYAG for the resolution of regulatory claims relating to the practice of "market timing" mutual fund shares in some of the AllianceBernstein Mutual Funds. The agreement with the SEC is reflected in an Order of the Commission ("SEC Order"). The agreement with the NYAG is memorialized in an Assurance of Discontinuance dated September 1, 2004 ("NYAG Order"). Among the key provisions of these agreements are the following: (i) The Adviser agreed to establish a $250 million fund (the "Reimbursement Fund") to compensate mutual fund shareholders for the adverse effects of market timing attributable to market timing relationships described in the SEC Order. According to the SEC Order, the Reimbursement Fund is to be paid, in order of priority, to fund investors based on (i) their aliquot share of losses suffered by the fund due to market timing, and (ii) a proportionate share of advisory fees paid by such fund during the period of such market timing; (ii) The Adviser agreed to reduce the advisory fees it receives from some of the AllianceBernstein long-term, open-end retail funds until December 31, 2008; and (iii) The Adviser agreed to implement changes to its governance and compliance procedures. Additionally, the SEC Order and the NYAG Order contemplate that the Adviser's registered investment company clients, including the Fund, will introduce governance and compliance changes. In anticipation of final, definitive documentation of the NYAG Order and effective January 1, 2004, the Adviser began waiving a portion of its advisory fee with respect to certain AllianceBernstein funds, including certain of the Fund's portfolios. On September 7, 2004, the Fund's investment advisory agreement was amended to reflect the reduced advisory fee for those portfolios. A special committee of the Adviser's Board of Directors, comprised of the members of the Adviser's Audit Committee and the other independent member of the Adviser's Board, is continuing to direct and oversee an internal investigation and a comprehensive review of the facts and circumstances relevant to the SEC's and the NYAG's investigations. In addition, the Independent Directors of the Fund ("the Independent Directors") have initiated an investigation of the above-mentioned matters with the advice of an independent economic consultant and independent counsel. The Independent Directors have formed a special committee to supervise the investigation. On October 2, 2003, a purported class action complaint entitled Hindo, et al. v. AllianceBernstein Growth & Income Fund, et al. ("Hindo Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P. ("Alliance Holding"), Alliance Capital Management Corporation, AXA Financial, Inc., the AllianceBernstein Funds, certain officers of the Adviser ("Alliance defendants"), and certain other defendants not affiliated with the Adviser, as well as unnamed Doe defendants. The Hindo Complaint was filed in the United States District Court for the Southern District of New York by alleged shareholders of two of the AllianceBernstein Funds. The Hindo Complaint alleges that certain of the Alliance defendants failed to disclose that they improperly allowed certain hedge funds and other unidentified parties to engage in "late trading" and "market timing" of AllianceBernstein Fund securities, violating Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Sections 206 and 215 of the Advisers Act. Plaintiffs seek an unspecified amount of compensatory damages and rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts. Since October 2, 2003, numerous additional lawsuits making factual allegations generally similar to those in the Hindo Complaint were filed in various federal and state courts against the Adviser and certain other defendants, and others may be filed. The plaintiffs in such lawsuits have asserted a variety of theories for recovery including, but not limited to, violations of the Securities Act, the Exchange Act, the Advisers Act, the Investment Company Act, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), certain state securities laws and common law. On February 20, 19 GLOBAL RESEARCH GROWTH PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ 2004, the Judicial Panel on Multidistrict Litigation transferred all federal actions, and removed all state court actions, to the United States District Court for the District of Maryland (the "Mutual Fund MDL"). The plaintiffs in the removed actions have since moved for remand, and that motion is pending. On September 29, 2004, plaintiffs filed consolidated amended complaints with respect to four claim types: mutual fund shareholder claims; mutual fund derivative claims; derivative claims brought on behalf of Alliance Holding; and claims brought under ERISA by participants in the Profit Sharing Plan for Employees of the Adviser. All four complaints include substantially identical factual allegations, which appear to be based in large part on the SEC Order and the NYAG Order. The claims in the mutual fund derivative consolidated amended complaint are generally based on the theory that all fund advisory agreements, distribution agreements and 12b-1 plans between the Adviser and the AllianceBernstein Funds should be invalidated, regardless of whether market timing occurred in each individual fund, because each was approved by fund trustees on the basis of materially misleading information with respect to the level of market timing permitted in funds managed by the Adviser. The claims asserted in the other three consolidated amended complaints are similar to those that the respective plaintiffs asserted in their previous federal lawsuits. All of these lawsuits seek an unspecified amount of damages. The Alliance defendants have moved to dismiss the complaints, and those motions are pending. On February 10, 2004, the Adviser received (i) a subpoena duces tecum from the Office of the Attorney General of the State of West Virginia and (ii) a request for information from West Virginia's Office of the State Auditor, Securities Commission (the "West Virginia Securities Commission") (together, the "Information Requests"). Both Information Requests require the Adviser to produce documents concerning, among other things, any market timing or late trading in the Adviser's sponsored mutual funds. The Adviser responded to the Information Requests and has been cooperating fully with the investigation. On April 11, 2005, a complaint entitled The Attorney General of the State of West Virginia v. AIM Advisors, Inc., et al. ("WVAG Complaint") was filed against the Adviser, Alliance Holding, and various other defendants not affiliated with the Adviser. The WVAG Complaint was filed in the Circuit Court of Marshall County, West Virginia by the Attorney General of the State of West Virginia. The WVAG Complaint makes factual allegations generally similar to those in the Hindo Complaint. On May 31, 2005, defendants removed the WVAG Complaint to the United States District Court for the Northern District of West Virginia. On July 12, 2005, plaintiff moved to remand. On October 19, 2005, the WVAG Complaint was transferred to the Mutual Fund MDL. On August 30, 2005, the deputy commissioner of securities of the West Virginia Securities Commission signed a "Summary Order to Cease and Desist, and Notice of Right to Hearing" addressed to the Adviser and Alliance Holding. The Summary Order claims that the Adviser and Alliance Holding violated the West Virginia Uniform Securities Act, and makes factual allegations generally similar to those in the Commission Order and the NYAG Order. The Adviser intends to vigorously defend against the allegations in the WVAG Complaint. On June 22, 2004, a purported class action complaint entitled Aucoin, et al. v. Alliance Capital Management L.P., et al. ("Aucoin Complaint") was filed against the Adviser, Alliance Capital Management Holding L.P., Alliance Capital Management Corporation, AXA Financial, Inc., AllianceBernstein Investment Research & Management, Inc., certain current and former directors of the AllianceBernstein Mutual Funds, and unnamed Doe defendants. The Aucoin Complaint names certain of the AllianceBernstein mutual funds as nominal defendants. The Aucoin Complaint was filed in the United States District Court for the Southern District of New York by an alleged shareholder of an AllianceBernstein mutual fund. The Aucoin Complaint alleges, among other things, (i) that certain of the defendants improperly authorized the payment of excessive commissions and other fees from fund assets to broker-dealers in exchange for preferential marketing services, (ii) that certain of the defendants misrepresented and omitted from registration statements and other reports material facts concerning such payments, and (iii) that certain defendants caused such conduct as control persons of other defendants. The Aucoin Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the Investment Company Act, Sections 206 and 215 of the Advisers Act, breach of common law fiduciary duties, and aiding and abetting breaches of common law fiduciary duties. Plaintiffs seek an unspecified amount of compensatory damages and punitive damages, rescission of their contracts with the Adviser, including recovery of all fees paid to the Adviser pursuant to such contracts, an accounting of all fund-related fees, commissions and soft dollar payments, and restitution of all unlawfully or discriminatorily obtained fees and expenses. 20 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Since June 22, 2004, numerous additional lawsuits making factual allegations substantially similar to those in the Aucoin Complaint were filed against the Adviser and certain other defendants, and others may be filed. On October 19, 2005, the District Court granted in part, and denied in part, defendants' motion to dismiss the Aucoin Complaint and as a result the only claim remaining was plaintiffs' Section 36(b) claim. On January 11, 2006, the District Court dismissed the remaining claim. It is possible that these matters and/or other developments resulting from these matters could result in increased redemptions of the AllianceBernstein Mutual Funds' shares or other adverse consequences to the AllianceBernstein Mutual Funds. This may require the AllianceBernstein Mutual Funds to sell investments held by those funds to provide for sufficient liquidity and could also have an adverse effect on the investment performance of the AllianceBernstein Mutual Funds. However, the Adviser believes that these matters are not likely to have a material adverse effect on its ability to perform advisory services relating to the AllianceBernstein Mutual Funds. 21 GLOBAL RESEARCH GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD CLASS A =============== MAY 2, 2005(a) TO DECEMBER 31, 2005 =============== Net asset value, beginning of period $10.00 ------ INCOME FROM INVESTMENT OPERATIONS Net investment income (b)(c) .01 Net realized and unrealized gain on investment and foreign currency transactions 2.10 ------ Net increase in net asset value from operations 2.11 ------ Net asset value, end of period $12.11 ------ TOTAL RETURN Total investment return based on net asset value (d) 21.10% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $121 Ratio to average net assets of: Expenses, net of waivers and reimbursements (e) 1.20% Expenses, before waivers and reimbursements (e) 7.47% Net investment income (c)(e) .13% Portfolio turnover rate 43% See footnote summary on page 23. 22 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT THE PERIOD CLASS B =============== MAY 2, 2005(a) TO DECEMBER 31, 2005 =============== Net asset value, beginning of period $10.00 ------ INCOME FROM INVESTMENT OPERATIONS Net investment loss (b)(c)(.01) Net realized and unrealized gain on investment and foreign currency transactions 2.10 ------ Net increase in net asset value from operations 2.09 ------ Net asset value, end of period $12.09 ====== TOTAL RETURN Total investment return based on net asset value (d) 20.90% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $7,063 Ratio to average net assets of: Expenses, net of waivers and reimbursements (e) 1.45% Expenses, before waivers and reimbursements (e) 7.73% Net investment loss (c)(e) (.14)% Portfolio turnover rate 43% (a) Commencement of operations. (b) Based on average shares outstanding. (c) Net of expenses waived and reimbursed by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. ALLIANCEBERNSTEIN GLOBAL RESEARCH GROWTH PORTFOLIO We have audited the accompanying statement of assets and liabilities of the AllianceBernstein Global Research Growth Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. (the "Portfolio"), including the portfolio of investments, as of December 31, 2005, and the related statements of operations and changes in net assets, and the financial highlights for the period from May 2, 2005 (commencement of operations) to December 31, 2005. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Portfolio's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005 by correspondence with the custodian and others, or by other appropriate auditing procedures where replies from others were not received. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the AllianceBernstein Global Research Growth Portfolio of the AllianceBernstein Variable Products Series Fund, Inc. at December 31, 2005, the results of its operations, the changes in its net assets, and the financial highlights for the period from May 2, 2005 (commencement of operations) to December 31, 2005, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York February 6, 2006 TAX INFORMATION (UNAUDITED) For corporate shareholders, 19% of the total ordinary income distribution paid during the current fiscal year ended December 31, 2005 qualifies for the corporate dividends received deduction. 24 GLOBAL RESEARCH GROWTH PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (UNAUDITED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ A Special Shareholder Meeting of the AllianceBernstein Variable Products Series Fund, Inc. - AllianceBernstein Global Research Growth Portfolio (the "Portfolio") was held on November 15, 2005 and adjourned until December 6, 2005. At the December 6, 2005 Meeting, each item of business was approved. A description of each proposal and number of shares voted at the Meeting is as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund's proxy statement): 1. The election of the Directors, each such Director to serve a term of an indefinite duration and until his or her successor is duly elected and qualifies. VOTED FOR WITHHELD AUTHORITY ----------------- ------------------ Ruth Block 340,957,741 10,273,156 David H. Dievler 340,333,752 10,897,144 John H. Dobkin 340,541,359 10,689,538 Michael J. Downey 340,895,582 10,335,314 William H. Foulk, Jr. 340,477,311 10,753,585 D. James Guzy 340,313,267 10,917,629 Marc O. Mayer 340,857,320 10,373,576 Marshall C. Turner, Jr. 340,480,301 10,750,596 2. The amendment and restatement of the Fund's charter, which repealed in its entirety all currently existing charter provisions and substituted in lieu thereof new provisions set forth in the Form of Articles of Amendment and Restatement attached to the Fund's Proxy Statement as Appendix D.
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 329,393,925 7,649,880 14,187,089 0
3. The amendment, elimination, or reclassification as non-fundamental of the fundamental investment restrictions regarding:
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 3.A. Diversification 525,570 0 0 0 3.B. Issuing Senior Securities 525,570 0 0 0 and Borrowing Money 3.C. Underwriting Securities 525,570 0 0 0 3.D. Concentration of 525,570 0 0 0 Investments 3.E. Real Estate and 525,570 0 0 0 Companies that Deal in Real Estate 3.F. Commodity Contracts 525,570 0 0 0 and Futures Contracts 3.G. Loans 525,570 0 0 0 3.J. Other Investment 525,570 0 0 0 Companies 3.N. Pledging, Hypothecating, 525,570 0 0 0 Mortgaging, or Otherwise Encumbering Assets
25 GLOBAL RESEARCH GROWTH PORTFOLIO RESULTS OF SHAREHOLDERS MEETING (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTES --------------- ------------- -------------- ---------------- 4.A. The reclassification of the 525,570 0 0 0 Portfolio's fundamental investment objective as non-fundamental with no change to the investment objective.
26 GLOBAL RESEARCH GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ BOARD OF DIRECTORS WILLIAM H. FOULK, JR.(1), Chairman MARC O. MAYER, President RUTH BLOCK(1) DAVID H. DIEVLER(1) JOHN H. DOBKIN(1) MICHAEL J. DOWNEY(1) D. JAMES GUZY(1) MARSHALL C. TURNER, JR.(1) OFFICERS PHILIP L. KIRSTEIN, Senior Vice President and Independent Compliance Officer THOMAS J. BARDONG, Vice President NORMAN M. FIDEL(2), Vice President GINA M. GRIFFIN(2), Vice President THOMAS A SCHMITT(2), Vice President JANE E. SCHNEIROV(2), Vice President FRANCIS X. SUOZZO(2), Vice President JANET A. WALSH(2), Vice President EMILIE D. WRAPP, Secretary MARK D. GERSTEN, Treasurer and Chief Financial Officer THOMAS R. MANLEY, Controller CUSTODIAN THE BANK OF NEW YORK One Wall Street New York, NY 10286 DISTRIBUTOR ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT, INC. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL SEWARD & KISSEL LLP One Battery Park Plaza New York, NY 10004 TRANSFER AGENT ALLIANCE GLOBAL INVESTOR SERVICES, INC. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-free 1-(800) 221-5672 (1) Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. (2) The management of and investment decisions for the Portfolio's portfolio are made by the Adviser's Global Research Growth sector analyst-managers with oversight by the Adviser's Global Research Growth Oversight Group. Mr. Norman M. Fidel, Ms. Gina M. Griffin, Mr. Thomas A. Schmitt, Ms. Jane E. Schneirov, Mr. Francis X. Suozzo and Ms. Janet A. Walsh are the sector analyst-managers with the most significant responsibility for the day-to-day management of the Portfolio's portfolio. 27 GLOBAL RESEARCH GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ MANAGEMENT OF THE FUND BOARD OF DIRECTORS INFORMATION The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR Marc O. Mayer, + Executive Vice President of Alliance 106 SCB Partners, Inc.; 1345 Avenue of the Americas Capital Management Corporation SCB, Inc. New York, NY 10105 ("ACMC") since 2001 and Chairman of 10/2/57 the Board of AllianceBernstein Investment (2005) Research and Management, Inc. ("ABIRM") since 2000; prior thereto, Chief Executive Officer of Sanford C. Bernstein & Co., LLC (institutional research and brokerage arm of Bernstein & Co. LLC ("SCB & Co.")) and its predecessor since prior to 2001. DISINTERESTED DIRECTORS William H. Foulk, Jr., #, ** Investment adviser and an independent 108 None 2 Sound View Drive consultant. He was formerly Senior Manager Suite 100 of Barrett Associates, Inc., a registered Greenwich, CT 06830 investment adviser, with which he had been Chairman of the Board associated since prior to 2001. He was formerly 9/7/32 Deputy Comptroller and Chief Investment (1990) Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Ruth Block, #, *** Formerly Executive Vice President and Chief 106 None 500 SE Mizner Blvd. Insurance Officer of The Equitable Life Boca Raton, FL 33432 Assurance Society of the United States; 11/7/30 Chairman and Chief Executive Officer of Evlico (1992) (insurance); Director of Avon, BP (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation; Governor at Large, National Association of Securities Dealers, Inc. David H. Dievler, # Independent consultant. Until December 1994, 107 None P.O. Box 167 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. 10/23/29 Prior to joining ACMC in 1984, he was (1990) Chief Financial Officer of Eberstadt Asset Management since 1968. Prior to that, he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953.
28 GLOBAL RESEARCH GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIP DATE OF BIRTH, OCCUPATION(S) OVERSEEN BY HELD BY (YEAR ELECTED*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (CONTINUED) John H. Dobkin, # Consultant. Formerly President of Save Venice, 106 None P.O. Box 12 Inc. (preservation organization) from 2001-2002, Annandale, NY 12504 Senior Advisor from June 1999-June 2000 2/19/42 and President of Historic Hudson Valley (historic (1992) preservation) from December 1989-May 1999. Previously, Director of the National Academy of Design and during 1988-1992, Director and Chairman of the Audit Committee of ACMC. Michael J. Downey, # Consultant since January 2004. Formerly 106 Asia Pacific Fund, Inc., c/o Alliance Capital managing partner of Lexington Capital, LLC and The Merger Fund Management L.P. (investment advisory firm) from December 1345 Avenue of the Americas 1997 until December 2003. Prior thereto, New York, NY 10105 Chairman and CEO of Prudential Mutual Attn: Philip L. Kirstein Fund Management from 1987 to 1993. 1/26/44 (2005) D. James Guzy, # Chairman of the Board of PLX Technology 106 Intel Corporation P.O. Box 128 (semi-conductors) and of SRC Computers (semi-conductors); Glenbrook, NV 89413 Inc., with which he has been associated since Cirrus Logic Corporation 3/7/36 prior to 2001. He is also President of the Arbor (semi-conductors); (2005) Company (private family investments). Novellus Corporation (semi-conductor equipment); Micro Component Technology (semi-conductor equipment); the Davis Selected Advisors Group of Mutual Funds; and LogicVision Marshall C. Turner, Jr., # CEO of Toppan Photomasks, Inc. (semi- 106 Toppan Photomasks, Inc.; 220 Montgomery Street conductor manufacturing services), Austin, the George Lucas Penthouse 10 Texas, from 2003 to present, and President Educational San Francisco, CA 94104-3402 since company acquired in 2005, and name Foundation; and 10/10/41 changed from DuPont Photomasks. Prior to Chairman of the Board (2005) the company's sale in 2005, he was Chairman of the Smithsonian's and CEO. He has also been Principal of National Museum of Turner Venture Associates since 1993. Natural History
* 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. ** Member of the Fair Value Pricing Committee. *** Ms. Block was an "interested person", as defined in the 1940 Act, from July 22, 1992 until October 21, 2004 by reason of her ownership of equity securities of a control person of the Adviser. Ms. Block received shares of The Equitable Companies Incorporated ("Equitable") as part of the demutualization of The Equitable Life Assurance Society of the United States in 1992. Ms. Block's Equitable shares were subsequently converted through a corporate action into American Depositary Shares of AXA, which were sold for approximately $2,400 on October 21, 2004. Equitable and AXA are control persons of the Adviser. + Mr. Mayer is an "interested director", as defined in the 1940 Act, due to his position as an Executive Vice President of ACMC. 29 GLOBAL RESEARCH GROWTH PORTFOLIO ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND DATE OF BIRTH WITH FUND DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------- Marc O. Mayer President and Chief See biography above. 10/2/57 Executive Officer Philip L. Kirstein Senior Vice President and Senior Vice President and Independent Compliance 5/29/45 Independent Compliance Officer of the AllianceBernstein Funds, with which he Officer has been associated since October 2004. Prior thereto, he was Of Counsel to Kirkpatrick & Lockhart, LLP from October 2003 to October 2004, and General Counsel of Merrill Lynch Investment Managers, L.P. since prior to 2001 until March 2003. Norman M. Fidel Vice President Senior Vice President of ACMC**, with which he has 9/17/45 been associated since prior to 2001. Thomas J. Bardong Vice President Senior Vice President of ACMC**, with which he has 4/28/45 been associated since prior to 2001. Gina M. Griffin Vice President Senior Vice President of ACMC**, with which she has 10/9/59 been associated since prior to 2001. Thomas A. Schmitt, Vice President Senior Vice President of ACMC**, with which he has 7/13/57 been associated since prior to 2001. Jane E. Schneirov Vice President Senior Vice President of ACMC**, with which she has 3/26/70 been associated since prior to 2001. Francis X. Suozzo Vice President Senior Vice President of ACMC**, with which he has 5/31/57 been associated since prior to 2001. Janet A. Walsh Vice President Senior Vice President of ACMC**, with which she has 2/2/62 been associated since prior to 2001. Emilie D. Wrapp Secretary Senior Vice President, Assistant General Counsel and 11/13/55 Assistant Secretary of ABIRM**, with which she has been associated since prior to 2001. Mark D. Gersten Treasurer and Chief Senior Vice President of Alliance Global Investor 10/4/50 Financial Officer Services, Inc. ("AGIS")** and Vice President of ABIRM**, with which he has been associated since prior to 2001. Thomas R. Manley Controller Vice President of ACMC**, with which he has been 8/3/51 associated since prior to 2001.
* The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, ABIRM, AGIS and SCB & Co. are affiliates of the Fund. The Fund's Statement of Additional Information ("SAI") has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at (800) 227-4618 for a free prospectus or SAI. 30 GLOBAL RESEARCH GROWTH PORTFOLIO ADVISORY AGREEMENT APPROVAL DISCLOSURE ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE PORTFOLIO'S ADVISORY AGREEMENT In this disclosure, the term "Fund" refers to AllianceBernstein Variable Products Series Fund, Inc., and the term "Portfolio" refers to AllianceBernstein Global Research Growth Portfolio. The Fund's disinterested directors (the "directors") unanimously approved the proposed amendment to the Advisory Agreement between the Fund and the Adviser (as so amended, the "Advisory Agreement") in respect of the Portfolio at a meeting held on February 7-10, 2005. The directors noted that the Portfolio would be a clone of AllianceBernstein Global Research Growth Fund, Inc. ("AGRGF"), formerly known as Alliance Global Growth Trends Fund, Inc., which commenced operations in July 2002, and that the Portfolio would be managed to track the investment performance of AGRGF, although investment results may differ between the Portfolio and AGRGF due to differences in their expense ratios. The directors also noted that the advisory fee rate schedule for the Portfolio is the same as the fee rate paid by AGRGF. In preparation for the meeting, the directors had requested from the Adviser and evaluated extensive materials, including performance and expense information for other investment companies with similar investment objectives as the Portfolio derived from data compiled by Lipper Inc. ("Lipper"), which is not affiliated with the Adviser. The directors received a presentation from the Adviser and had an opportunity to ask representatives of the Adviser various questions relevant to the proposed approval. Prior to voting, the directors reviewed the Advisory Agreement in respect of the Portfolio with management and with experienced counsel who are independent of the Adviser and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approval. The directors also discussed the proposed approval in two private sessions at which only the directors, their independent counsel and the Fund's Independent Compliance Officer were present. In reaching their determinations relating to approval of the Advisory Agreement in respect of the Portfolio, the directors considered all factors they believed relevant, including the following: 1. information comparing the performance of AGRGF to other investment companies with similar investment objectives and to securities indices; 2. the nature, extent and quality of investment, compliance, administrative and other services to be rendered by the Adviser; 3. comparative fee and expense data for the Portfolio and other investment companies with similar investment objectives; 4. the extent to which economies of scale would be realized to the extent the Portfolio grows and whether fee levels reflect any economies of scale for the benefit of investors; 5. the Adviser's policies and practices regarding allocation of portfolio transactions of the Portfolio, including the extent to which the Adviser benefits from soft dollar arrangements; 6. information about "revenue sharing" arrangements that the Adviser has entered into in respect of the open-end AllianceBernstein Funds, including the Fund, previously provided to the directors as directors or trustees of such funds; 7. expected portfolio turnover rates for the Portfolio compared to other investment companies with similar investment objectives; 8. fall-out benefits that the Adviser and its affiliates expect to receive from their relationships with the Portfolio; 9. information about fees charged by the Adviser to other clients with similar investment objectives as the Portfolio; 10. the professional experience and qualifications of the Portfolio's proposed portfolio management team and other senior personnel of the Adviser; and 11. the terms of the Advisory Agreement. Since the Portfolio had not yet commenced operations, the directors were not in a position to consider the Portfolio's historical performance or the quality of services previously provided pursuant to the Advisory Agreement. Instead they considered the Adviser's expertise as a manager of AGRGF and the quality of its services generally, which they were familiar with in their capacity as directors or trustees of the Fund, AGRGF and other funds advised by the Adviser. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and the directors attributed different weights to the various factors. 31 GLOBAL RESEARCH GROWTH PORTFOLIO ADVISORY AGREEMENT APPROVAL DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The directors determined that the overall arrangements between the Portfolio and the Adviser, as provided in the Advisory Agreement, were fair and reasonable in light of the services to be performed, expenses to be incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors reaching their determinations to approve the Advisory Agreement in respect of the Portfolio (including their determinations that the Adviser should be the investment adviser for the Portfolio, and that the fees payable to the Adviser in respect of the Portfolio pursuant to the Advisory Agreement are appropriate) were separately discussed by the directors. NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY THE ADVISER The directors noted that, under the Advisory Agreement in respect of the Portfolio, the Adviser, subject to the control of the directors, will administer the Portfolio's business and other affairs. The Adviser will manage the investment of the assets of the Portfolio, including making purchases and sales of portfolio securities consistent with the Portfolio's investment objective and policies. Under the Advisory Agreement in respect of the Portfolio, the Adviser will provide the Portfolio with such office space, administrative and other services (exclusive of, and in addition to, any such services to be provided by any others who will be retained by the Portfolio) and executive and other personnel as are necessary for the Portfolio's operations. The Adviser pays all of the compensation of directors of the Fund who are affiliated persons of the Adviser and of the officers of the Fund. The directors noted that the Advisory Agreement includes a provision requiring the Portfolio to reimburse the Adviser for the cost of certain clerical, accounting, administrative and other services provided at the Portfolio's request by employees of the Adviser or its affiliates. Requests for these "at no more than cost" reimbursements will require the directors' approval on a quarterly basis and (to the extent requested and paid) will result in a higher rate of total compensation from the Portfolio to the Adviser than the fee rates stated in the Portfolio's Advisory Agreement. The directors considered the scope and quality of services to be provided by the Adviser under the Advisory Agreement and noted that the scope of services provided by advisers of funds had expanded over time as a result of regulatory and other developments. The directors noted, for example, that the Adviser will be responsible for maintaining and monitoring its own and, to varying degrees, the Portfolio's compliance programs, and that mutual fund compliance programs have recently been refined and enhanced in light of new regulatory requirements. The directors considered the quality of the in-house investment research capabilities of the Adviser and the other resources available to the Adviser as a result of securities transactions effected by certain of its investment advisory clients. The directors concluded that the investment, regulatory compliance and administrative resources to be devoted by the Adviser to the Portfolio appeared appropriate to provide high quality investment advice and other services to the Portfolio under the Advisory Agreement. The directors also considered the business reputation of the Adviser and its managerial and financial resources and concluded that it would be able to meet any reasonably foreseeable obligations under the Advisory Agreement. The directors noted that the standard of care applicable to the Adviser under the Advisory Agreement was comparable to that found in most mutual fund investment advisory agreements. In considering the quality of the services to be provided by the Adviser to the Portfolio, the directors also considered the record of the Adviser with respect to regulatory compliance, including the code of ethics of the Adviser (regulating the personal trading of its officers and employees), the procedures by which the Adviser allocates trades among its various investment advisory clients, including the existing portfolios of the Fund, the integrity of the systems in place designed to ensure compliance with the foregoing and the record of the Adviser in these matters. The directors also considered oversight by the Adviser of the non-advisory services to be provided to the Portfolio by persons other than the Adviser by reference to, among other things, their overall knowledge of, and experience with, such service providers. Based on their review, the directors concluded that the Adviser was qualified to provide services to the Portfolio pursuant to the Advisory Agreement that were satisfactory in scope and quality. COSTS OF SERVICES TO BE PROVIDED AND PROFITABILITY TO THE ADVISER The directors did not consider historical information about the profitability of the Portfolio to the Adviser since the Portfolio had not yet commenced operations. However, the Adviser agreed to provide the directors with profitability information similar to what they receive in respect of the existing portfolios of the Fund. They also considered the costs to be borne by the Adviser in providing services to the Portfolio and that the Portfolio was unlikely to be profitable to the Adviser unless it achieves material levels of net assets. 32 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ FALL-OUT BENEFITS The directors considered that the Adviser benefits from soft dollar arrangements whereby it receives brokerage and research services from many of the brokers and dealers that execute purchases and sales of securities on behalf of its various investment advisory clients. They noted that the Adviser makes presentations to the directors regarding its trading practices and brokerage allocation policies, including its policies with respect to soft dollar arrangements from time to time and had made a special presentation to the directors in April 2004 on this subject. The directors noted that the Adviser has represented to them that all of its soft dollar arrangements are consistent with applicable legal requirements including the achievement of best execution. The directors also considered that the Distributor, which is a wholly-owned subsidiary of the Adviser: will receive 12b-1 fees from the Portfolio in respect of Class B shares held in accounts for which there is no other broker of record; and may retain a portion of the 12b-1 fees from the Portfolio. The directors also noted that a broker-dealer subsidiary of the Adviser will receive compensation for effecting brokerage transactions for the Portfolio, and that they will receive and review quarterly reports concerning commissions paid to such affiliate by the Portfolio. In addition, certain affiliates of the Adviser will distribute shares of the Portfolio and will receive compensation in that connection and that a subsidiary of the Adviser will provide transfer agency services to the Portfolio and receive compensation from the Portfolio in that capacity. The directors recognized that the Adviser's future profitability would be somewhat lower if it did not receive research for soft dollars or, if the Adviser's subsidiaries did not receive the other benefits described above. The directors believed that the Adviser would derive reputational and other benefits from serving as investment adviser to the Portfolio. INVESTMENT RESULTS In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed comparative performance information for AGRGF at each regular Board meeting during the year. Since the Portfolio had not commenced operations, the directors were not in a position to consider the Portfolio's historical performance. Instead, the directors considered the investment results of Class A shares of AGRGF as compared to investment companies with similar investment objectives as determined by Lipper and with two selected securities indices. At the meeting, the directors reviewed information showing performance of AGRGF compared to other funds in the Lipper Global Large Growth Average, the MSCI World Growth Index and the MSCI World Index. The directors noted that AGRGF's performance was somewhat below the Lipper medians for the 1-month and 1-year periods, significantly below the Lipper median for the 3-month period and significantly above the Lipper median for the since inception period (July 2002 inception). Based on their review, the directors concluded that AGRGF's relative investment performance over time had been satisfactory. The directors noted that although the Portfolio would be a clone of AGRGF, its investment results may differ somewhat from those of AGRGF due to differences in their expense ratios. They also noted that the Portfolio and AGRGF would be in different Lipper categories. ADVISORY FEES AND OTHER EXPENSES With respect to the proposed advisory fee, the disinterested directors requested and reviewed Lipper information giving an overview of the advisory fees of all funds in Lipper's Global Growth Funds category and Lipper's Global Large-Cap Growth Funds category. The information reviewed by the directors showed that the proposed advisory fee for the Portfolio for the first $2.5 billion of net assets was below the Lipper median and average in each Lipper category. The directors recognized that the Adviser's total compensation pursuant to the Advisory Agreement would be increased by amounts paid pursuant to the expense reimbursement provision in the Advisory Agreement, and that the impact of such expense reimbursement would depend on the size of the Portfolio and the extent to which the Adviser requests reimbursements pursuant to this provision. The directors also noted that the Portfolio's expense ratio will be capped by the Adviser pursuant to an undertaking effective May 1, 2005 that automatically extends for additional one year terms unless terminated by the Adviser upon written notice to the Portfolio at least 60 days prior to May 1. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors also considered the fees the Adviser charges other clients with investment objectives similar to those of the Portfolio. For this purpose, the directors reviewed the Adviser's institutional client fee schedule for the category with accounts that have comparable investment styles to that proposed for the Portfolio. The directors noted that the institu- 33 GLOBAL RESEARCH GROWTH PORTFOLIO ADVISORY AGREEMENT APPROVAL DISCLOSURE (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ tional fee schedule had much lower breakpoints than the proposed fee schedule in the Advisory Agreement. The application of such fee schedule to AGRGF (which has the same fee schedule as that proposed for the Portfolio) would result in a fee rate that would be significantly lower than that in AGRGF's Advisory Agreement or the Portfolio's Advisory Agreement. The directors noted that the Adviser may, in some cases, negotiate lower institutional fee rates than those indicated. The Adviser reviewed with the directors the significant differences in the scope of services it provides to institutional clients and to mutual funds. For example, the advisory agreements for mutual funds, including the Portfolio, require the Adviser to provide, in addition to investment advice, office facilities and officers (including officers to provide required certifications). The Adviser also coordinates the provision of services to mutual funds by nonaffiliated service providers and is responsible for the compensation of the mutual funds' Independent Compliance Officer. The provision of these non-advisory services involves costs and exposure to liability. The Adviser explained that these services normally are not provided to non-investment company clients or to investment company clients when the Adviser acts in a pure sub-advisory capacity, and that fees charged to mutual funds reflect the costs and risks of the additional obligations. The Adviser also noted that since mutual funds are constantly issuing and redeeming their shares, they are more difficult to manage than an institutional account, where the assets are relatively stable. Accordingly, the directors did not place significant weight on these fee comparisons. ECONOMIES OF SCALE The directors noted that the Advisory Agreement provides for breakpoints so that, if assets were to increase over the breakpoint levels, the fee rates would be reduced on the incremental assets. There is no direct relationship between the economies of scale to be realized by the Portfolio and those to be realized by the Adviser as assets increase, largely because economies of scale are realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors do not believe there is a uniformly accepted methodology for establishing breakpoints that give effect to fund-specific services provided by the Adviser and to the economies of scale that the Adviser may realize in its overall mutual fund business or those components of it which will directly or indirectly affect the Porfolio's operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Portfolio, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age and size of a particular fund and its adviser's cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different advisers have different cost structures and service models, it is difficult to draw meaningful conclusions from the comparison of the Portfolio's advisory fee breakpoints with those of comparable funds. The directors also noted that the advisory agreements for many competitor funds do not have breakpoints at all. 34 GLOBAL RESEARCH GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ THE FOLLOWING IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS SUMMARY OF SENIOR OFFICER'S EVALUATION OF INVESTMENT ADVISORY AGREEMENT(1) The following is a summary of the evaluation of the investment advisory agreement between Alliance Capital Management L.P. (the "Adviser") and AllianceBernstein Variable Products Series Fund, Inc. on behalf of AllianceBernstein Global Research Growth Portfolio(2) (the "Fund"), prepared by Philip L. Kirstein, the Senior Officer, for the independent directors of the Fund, as required by an August 2004 agreement between the Adviser and the New York State Attorney General. The Senior Officer's evaluation of the investment advisory agreement is not meant to diminish the responsibility or authority of the Board of Directors of the Fund to perform its duties pursuant to Section 15 of the Investment Company Act of 1940 (the "40 Act") and applicable state law. The purpose of the summary is to provide shareholders with a synopsis of the independent evaluation of the reasonableness of the advisory fees which was provided to the independent directors in connection with their review of the proposed continuance of the investment advisory agreement. The Senior Officer's evaluation considered the following factors: 1. Management fees charged to institutional and other clients of the Adviser for like services. 2. Management fees charged by other mutual fund companies for like services. 3. Costs to the Adviser and its affiliates of supplying services pursuant to the advisory agreement, excluding any intra-corporate profit. 4. Profit margins of the Adviser and its affiliates from supplying such services. 5. Possible economies of scale as the Fund grows larger. 6. Nature and quality of the Adviser's services including the performance of the Fund. FUND ADVISORY FEES, EXPENSE REIMBURSEMENTS & RATIOS The table below describes the Fund's advisory fees pursuant to the Investment Advisory Agreement. The fee schedule below, implemented in January 2004 in connection with the Adviser's settlement with the New York State Attorney General in December 2003 is based on a master schedule that contemplates eight categories of Funds with almost all Funds in each category having the same advisory fee schedule.(3)
ADVISORY FEE BASED ON % OF AVERAGE CATEGORY DAILY NET ASSETS FUND - ---------------------------------------------------------------------------------------- International 75 bp on 1st $2.5 billion Global Research Growth Portfolio 65 bp on next $2.5 billion 60 bp on the balance
The Adviser agreed to waive that portion of its management fees and/or reimburse a portion of the Fund's total operating expenses to the degree necessary to limit the Fund's expenses to the amounts set forth below during the Fund's first fiscal year. The waiver is terminable by the Adviser on May 1st of each year upon at least 60 days written notice. EXPENSE CAP PURSUANT TO EXPENSE LIMITATION FUND UNDERTAKING FISCAL YEAR END - ------------------------------------------------------------------------------- Global Research Growth Class A 1.20% December 31 Portfolio Class B 1.45% (1) It should be noted that the information in the fee summary was completed on December 7, 2005 and presented to the Board of Directors on December 14, 2005 in accordance with the Assurance of Discontinuance between the New York State Attorney General and the Adviser. It also should be noted that references in the fee summary pertaining to performance and expense ratios refer to Class A shares of the Fund. (2) The Fund commenced operations on May 2, 2005. (3) Most of the AllianceBernstein Mutual Funds, which the Adviser manages, were affected by the Adviser's settlement with the New York State Attorney General. 35 GLOBAL RESEARCH GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ I. MANAGEMENT FEES CHARGED TO INSTITUTIONAL AND OTHER CLIENTS The management fees charged to investment companies which the Adviser manages and sponsors are normally higher than those charged to similar sized institutional accounts, including pension plans and sub-advised investment companies. The fee differential reflects, among other things, different services provided to such clients, and different liabilities assumed. Services provided by the Adviser to the Fund that are not provided to non-investment company clients include providing office space and personnel to serve as Fund Officers, who among other responsibilities make the certifications required under the Sarbanes-Oxley Act of 2002, and coordinating with and monitoring the Funds' third party service providers such as Fund counsel, auditors, custodians, transfer agents and pricing services. The accounting, administrative, legal and compliance requirements for the Fund are more costly than those for institutional assets due to the greater complexities and time required for investment companies, although as previously noted, a portion of these expenses are reimbursed by the Fund to the Adviser. In addition, managing the cash flow of an investment company may be more difficult than that of a stable pool of assets, such as an institutional account with little cash movement in either direction, particularly, if the Fund is in net redemption and the Adviser is frequently forced to sell securities to raise cash for redemptions. However, managing a Fund with positive cash flow may be easier at times than managing a stable pool of assets. Finally, in recent years, investment advisers have been sued by institutional clients and have suffered reputational damage both by the attendant publicity and outcomes other than complete victories. Accordingly, the legal and reputational risks associated with institutional accounts are greater than previously thought, although still not equal to those related to the mutual fund industry. Notwithstanding the Adviser's view that managing an investment company is not comparable to managing other institutional accounts because the services provided are different, it is worth considering information regarding the advisory fees charged to institutional accounts with a substantially similar investment style as the Fund. In addition to the Alliance institutional fee schedule, set forth below are what would have been the effective advisory fee of the Fund if the Alliance institutional fee schedule were applied to the Fund. NET ASSETS EFFECTIVE ALLIANCE 09/30/05 ALLIANCE INSTITUTIONAL INSTITUTIONAL FUND ($MIL) FEE SCHEDULE ADVISORY FEE - ------------------------------------------------------------------------------- Global Research $6.2 Global Research Growth 0.800% Growth Portfolio Schedule 80 bp on 1st $25m 65 bp on next $25m 55 bp on next $50m 45 bp on next $100m 40 bp on the balance minimum account size $50m The other AllianceBernstein Mutual Funds, which the Adviser manages, were also affected by the Adviser's settlement with the New York State Attorney General. Accordingly, another AllianceBernstein Mutual Fund that has the same investment objective and policies as the Fund has the same advisory fee schedule as the Fund. The Adviser also manages and sponsors retail mutual funds which are organized in jurisdictions outside the United States, generally Luxembourg, and sold to non-United States resident investors. None of these off-shore funds have breakpoints in the advisory fee schedule. Set forth below is the fee that the Adviser charges to an offshore mutual fund with a similar investment style as the Fund: ASSET CLASS FEE(4) - ---------------------------------------------------------- Global Growth 1.00% (4) The fee charged to the fund includes a 0.10% fee for administrative services provided by the Adviser or its affiliates. 36 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ The Alliance Capital Investment Trust Management mutual funds ("ACITM"), which are offered to investors in Japan, have an "all-in" fee without breakpoints in its fee schedule to compensate the Adviser for investment advisory as well as fund accounting and administration related services. The fee schedule of the ACITM mutual fund with a similar investment style as the Fund is as follows: FUND ACITM MUTUAL FUND(5) FEE - ------------------------------------------------------------------------------- Global Research Growth Alliance Global Research 0.30% Portfolio Growth (Sumitomo)(6) The Adviser represented that it does not sub-advise any registered investment companies with a similar investment style as the Fund. II. MANAGEMENT FEES CHARGED BY OTHER MUTUAL FUND COMPANIES FOR LIKE SERVICES. Since the Fund has been operating for less than a year, it is difficult to reasonably assess the Fund's management fees and total expenses in comparison to its peers. As a result, no comparative analysis(7) was provided by Lipper, Inc.(8) As noted above, the Fund has the same fee schedule as another AllianceBernstein Mutual Fund advised by the Adviser. The other AllianceBernstein Mutual Fund is in a different Lipper category than the Fund, but the fee evaluation prepared to it noted that it had the lowest advisory fee rate in its Peer Group.(9) III. COSTS TO THE ADVISER AND ITS AFFILIATES OF SUPPLYING SERVICES PURSUANT TO THE MANAGEMENT FEE ARRANGEMENT, EXCLUDING ANY INTRA-CORPORATE PROFIT. Members of the Adviser's Controller's Office presented to the Board of Directors the Adviser's revenue and expenses associated with providing services to the Fund. The presentation included an update on the Adviser's work with an independent consultant to align the Adviser's two profitability systems. The alignment, which now is complete, produces profitability information at the Fund level which reflects the Adviser's management reporting approach. See discussion below in Section IV. IV. PROFIT MARGINS OF THE ADVISER AND ITS AFFILIATES FOR SUPPLYING SUCH SERVICES. Since the Fund commenced operations on May 2, 2005, no 2004 calendar year profitability information of the Adviser is available for the Fund. In addition to the Adviser's direct profits from managing the Fund, certain of the Adviser's affiliates have business relationships with the Fund and may earn a profit from providing other services to the Fund. The courts have referred to this type of business opportunity as "fall-out benefits" to the Adviser and indicated that they should be factored into the evaluation of the total relationship between the Fund and the Adviser. Neither case law nor common business practice precludes the Adviser's affiliates from earning a reasonable profit on this type of relationship. These affiliates provide transfer agent, distribution, and brokerage related services to the Fund and receive transfer agent fees, Rule 12b-1 payments and commissions for providing brokerage services. In addition, the Adviser benefits from soft dollar arrangements which offset expenses the Adviser would otherwise incur. Additional information regarding distribution related fees can be found in the prospectus of the Fund. (5) The name in parenthesis is the distributor of the fund. (6) The ACITM fund is not a retail fund. (7) Hypothetically, if the Fund had been operating for at least a year, Lipper's comparative analysis would have included the Fund's ranking with respect to the proposed management fee relative to the Lipper group median at the approximate current asset level of the Fund. In addition, Lipper would have analyzed the total expense ratio of the Fund in comparison to its Lipper Expense Group and Lipper Expense Universe. Lipper describes a Lipper Expense Group as a representative sample of comparable funds and a Lipper Expense Universe as a broader group, consisting of all funds in the same investment classification/objections with a similar load type as the subject Fund. (8) Lipper, Inc. is an analytical service provider that is not affiliated with the Adviser. (9) The Fund is compared to other variable products of the same investment classification/objective while the other AllianceBernstein Mutual Fund is compared to other non-variable products of the same of the same investment classification/objective. 37 GLOBAL RESEARCH GROWTH PORTFOLIO SENIOR OFFICER FEE EVALUATION (CONTINUED) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ Financial intermediaries market and sell shares of the Fund and typically receive compensation from ABIRM, the Adviser and/or the Fund for selling shares of the Fund. Payments related to providing contract-holder record keeping and/or administrative services will generally not exceed 0.35% of the average daily net assets of the Fund attributable to the firm over the year. The transfer agent of the Fund is Alliance Global Investor Services, Inc. ("AGIS"), an affiliate of the Adviser.(10) AGIS' after-tax profitability decreased in 2004 in comparison to 2003. The Fund may effect brokerage transactions through and pay commissions to the Adviser's affiliate, Sanford C. Bernstein & Co. LLC, and/or its U.K. based affiliate, Sanford C. Bernstein Ltd., (collectively "SCB"). The Adviser represented that SCB's profitability from any future transaction conducted with the Fund would be comparable to the profitability of SCB's dealings with other similar third party clients. In the ordinary course of business, SCB receives and pays liquidity rebates from electronic communications networks ("ECNs") derived from trading for its clients, including the Fund. These credits and charges are not being passed on to any SCB client. V. POSSIBLE ECONOMIES OF SCALE The Adviser has indicated that the breakpoints in the fee schedule in the Investment Advisory Agreement reflect a sharing of economies of scale to the extent the breakpoints are reached. Based on some of the professional literature that has considered economies of scale in the mutual fund industry it is thought that to the extent economies of scale exist, they may more often exist across a fund family as opposed to a specific fund. This is because the costs incurred by the Adviser, such as investment research or technology for trading or compliance systems can be spread across a greater asset base as the fund family increases in size. It is also possible that as the level of services required to operate a successful investment company has increased over time, and advisory firms have made such investments in their business to provide improved services, there may be a sharing of economies of scale without a reduction in advisory fees. An independent consultant made a presentation to the Board of Directors and the Senior Officer regarding possible economies of scale or scope in the mutual fund industry. Based on the presentation, it was evident that fund management companies benefit from economies of scale. However, due to lack of cost data, researchers had to infer facts about the costs from the behavior of fund expenses; there was a lack of consensus among researchers as to whether economies of scale were being passed on to the shareholders. It is contemplated that additional work will be performed to determine if the benefits of economies of scale or scope are being passed to shareholders by the Adviser. In the meantime, it is clear that to the extent the Fund's assets exceed the initial breakpoint its shareholders benefit from a lower fee rate. VI. NATURE AND QUALITY OF THE ADVISER'S SERVICES INCLUDING THE PERFORMANCE OF THE FUND. With assets under management of $550 billion as of October 31, 2005, the Adviser has the investment experience to manage and provide non-investment services (described in Section II) to the Fund. Set forth below are the since inception performance returns of the Fund (in bold)(11) and its benchmarks. It should be noted that although the performance return of the Fund is higher than its benchmarks, the Fund has been in existence for less than a year.(12) PERIODS ENDING SEPTEMBER 30, 2005 ANNUALIZED PERFORMANCE FUND SINCE INCEPTION - ------------------------------------------------------------------------------- GLOBAL RESEARCH GROWTH PORTFOLIO 16.20 MSCI World Growth Index (Net) 7.89 MSCI World Index (Net) 7.91 (10) It should be noted that the insurance companies to which the Fund is linked provide additional shareholder services, including record keeping, administration and customer service for contract holders. (11) The performance returns are for the Class A shares of the Fund. (12) The Fund commenced operations on May 2, 2005. 38 ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND _______________________________________________________________________________ CONCLUSION: Based on the factors discussed above the Senior Officer's conclusion is that the proposed fee for the Fund is reasonable and within the range of what would have been negotiated at arms-length in light of all the surrounding circumstances. This conclusion in respect of the Fund is based on an evaluation of all of these factors and no single factor was dispositive. Dated: January 13, 2006 39 (This page left intentionally blank.) (This page left intentionally blank.) ITEM 2. CODE OF ETHICS. (a) The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the registrant's code of ethics is filed herewith as Exhibit 12(a)(1). (b) During the period covered by this report, no material amendments were made to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Directors has determined that independent directors David H. Dievler and William H. Foulk, Jr. qualify as audit committee financial experts. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) - (c) The following table sets forth the aggregate fees billed by the independent registered public accounting firm Ernst & Young LLP, for each of the Portfolios of the Fund's last two fiscal years for professional services rendered for: (i) the audit of the Fund's annual financial statements included in the Fund's annual report to stockholders; (ii) assurance and related services that are reasonably related to the performance of the audit of the Fund's financial statements and are not reported under (i), which include multi-class distribution testing, advice and education on accounting and auditing issues, and consent letters; and (iii) tax compliance, tax advice and tax return preparation.
Audit-Related Audit Fees Fees Tax Fees ---------- ------------- -------- AllianceBernstein Americas Government Income Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Balanced Wealth Strategy Portfolio 2004 $26,000 $1,843 $ 7,283 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Global Bond Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Global Dollar Government Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Global Research Growth Portfolio 2004 $ 0 $ 0 $ 0 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Global Technology Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Growth Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Growth and Income Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein High Yield Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein International Portfolio 2004 $26,000 $2,310 $ 7,609 2005 $27,500 $ 963 $ 8,158 AllianceBernstein International Value Portfolio 2004 $26,000 $2,310 $ 7,809 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Large Cap Growth Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Money Market Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Real Estate Investment Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Small Cap Growth Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Small Cap Value Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Total Return Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein U.S. Government / 2004 $26,000 $2,310 $ 7,282 High Grade Securities Portfolio 2005 $27,500 $ 963 $ 8,158 AllianceBernstein U.S. Large Cap 2004 $26,000 $2,310 $ 7,282 Blended Style Portfolio 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Utility Income Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Value Portfolio 2004 $26,000 $2,310 $ 7,282 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Wealth Appreciation Strategy Portfolio 2004 $26,000 $2,310 $ 7,283 2005 $27,500 $ 963 $ 8,158 AllianceBernstein Worldwide Privatization Portfolio 2004 $26,000 $2,310 $11,789 2005 $27,500 $ 963 $ 8,158
(d) Not applicable. (e) (1) Beginning with audit and non-audit service contracts entered into on or after May 6, 2003, the Fund's Audit Committee policies and procedures require the pre-approval of all audit and non-audit services provided to the Fund by the Fund's independent registered public accounting firm. The Fund's Audit Committee policies and procedures also require pre-approval of all audit and non-audit services provided to the Adviser and Service Affiliates to the extent that these services are directly related to the operations or financial reporting of the Fund. (e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in the table under Item 4 (a) - (c) are for services pre-approved by the Fund's Audit Committee. (f) Not applicable. (g) The following table sets forth the aggregate non-audit services provided to the Fund, the Fund's Adviser and entities that control, are controlled by or under common control with the Adviser that provide ongoing services to the Fund, which include conducting an annual internal control report pursuant to Statement on Auditing Standards No. 70 ("Service Affiliates"):
Pre-approved by the All Fees for Audit Committee Non-Audit Services (Portion Comprised of Provided to the Audit Related Fees) Portfolio, the Adviser (Portion Comprised of and Service Affiliates Tax Fees) ---------------------- --------------------- AllianceBernstein Americas Government 2004 $967,310 $ 84,592 ($ 77,310) Income Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Balance Wealth 2004 $966,844 $ 84,126 ($ 76,843) Strategy Portfolio ($ 7,283) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Global Bond Portfolio 2004 $967,310 $ 84,592 ($ 77,310) ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Global Dollar 2004 $967,310 $ 84,592 ($ 77,310) Government Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Global Research 2004 $ 0 $ 0 $ 0 Growth Portfolio $ 0 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Global Technology 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Growth Portfolio 2004 $967,310 $ 84,592 ($ 77,310) ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Growth and Income 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein High Yield Portfolio 2004 $967,310 $ 84,592 ($ 77,310) ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein International 2004 $967,310 $ 84,919 ($ 77,310) Portfolio ($ 7,609) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein International Value 2004 $967,310 $ 85,119 ($ 77,310) Portfolio ($ 7,809) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Large Cap Growth 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Money Market 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Real Estate 2004 $967,310 $ 84,592 ($ 77,310) Investment Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Small Cap Growth 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Small Cap Value 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Total Return 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein U.S. Government / 2004 $967,310 $ 84,592 ($ 77,310) High Grade Securities Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein U.S. Large Cap 2004 $967,310 $ 84,592 ($ 77,310) Blended Style Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Utility Income 2004 $967,310 $ 84,592 ($ 77,310) Portfolio ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Value Portfolio 2004 $967,310 $ 84,592 ($ 77,310) ($ 7,282) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Wealth Appreciation 2004 $966,844 $ 84,126 ($ 76,843) Strategy Portfolio ($ 7,283) 2005 $835,161 $179,121 ($170,963) ($ 8,158) AllianceBernstein Worldwide 2004 $971,817 $ 89,099 ($ 77,310) Privatization Portfolio ($ 11,789) 2005 $835,161 $179,121 ($170,963) ($ 8,158)
(h) The Audit Committee of the Fund has considered whether the provision of any non-audit services not pre-approved by the Audit Committee provided by the Fund's independent registered public accounting firm to the Adviser and Service Affiliates is compatible with maintaining the auditor's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to the registrant. ITEM 6. SCHEDULE OF INVESTMENTS. Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to the registrant. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to the registrant. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund's Board of Directors since the Fund last provided disclosure in response to this item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. (b) There were no significant changes in the registrant's internal controls over financial reporting that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 12. EXHIBITS. The following exhibits are attached to this Form N-CSR: EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 12 (a) (1) Code of ethics that is subject to the disclosure of Item 2 hereof 12 (b) (1) Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12 (b) (2) Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12 (c) Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant): AllianceBernstein Variable Products Series Fund, Inc. By: /s/ Marc O. Mayer ------------------- Marc O. Mayer President Date: February 28, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Marc O. Mayer ------------------- Marc O. Mayer President Date: February 28, 2006 By: /s/ Mark D. Gersten ------------------- Mark D. Gersten Treasurer and Chief Financial Officer Date: February 28, 2006 EX-99.CODE ETH 2 edg11630_ethics.txt Exhibit 12 (a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers/Purpose of the Code The AllianceBernstein Mutual Fund Complex's code of ethics (this "Code") for the investment companies within the complex (collectively, the "Funds" and each, a "Company") applies to each Company's Principal Executive Officer, Principal Financial and Accounting Officer and Controller (the "Covered Officers," each of whom is set forth in Exhibit A) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Company; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the Company. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Company. For the purposes of this Code, members of the Covered Officer's family include his or her spouse, children, stepchildren, financial dependents, parents and stepparents. Certain conflicts of interest arise out of the relationships between Covered Officers and the Company and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Company because of their status as "affiliated persons" of the Company. The Company's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Company and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Company or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Company. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Company and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Company. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Company's Board of Directors or Trustees (the "Directors") that the Covered Officers may also be officers or employees of one or more of the other Funds or of other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Company. Each Covered Officer must: o not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Officer would benefit personally to the detriment of the Company; o not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Company; o not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; There are some conflict of interest situations, whether involving a Covered Officer directly or a member of his family, that should always be discussed with the General Counsel of Alliance Capital Management L.P.(the "General Counsel"), if material. Examples of these include: o service as a director on the board of directors or trustees of any public or private company (other than a not-for-profit organization); o the receipt of any non-nominal gifts; o the receipt of any entertainment from any company with which the Company has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements and disclosure controls and procedures generally applicable to the Company; o each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company's directors and auditors, and to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the General Counsel that he has received, read, and understands the Code; o annually thereafter affirm to the General Counsel that he has complied with the requirements of the Code; o complete at least annually a questionnaire relating to affiliations or other relationships that may give rise to conflicts of interest; o not retaliate against any other Covered Officer or any employee of the Company or their affiliated persons for reports of potential violations that are made in good faith; and o notify the General Counsel promptly if he knows of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, waivers sought by a Covered Officer will be considered by the Company's Audit Committee (the "Committee"). The Company will follow these procedures in investigating and enforcing this Code: o the General Counsel will take all appropriate action to investigate any potential violations reported to him; o if, after such investigation, the General Counsel believes that no material violation has occurred, the General Counsel is not required to take any further action; o any matter that the General Counsel believes is a material violation will be reported to the Committee; o if the Committee concurs that a material violation has occurred, it will inform and make a recommendation to the Directors, who will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o the Committee will be responsible for granting waivers, as appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Company for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Company, the Company's adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, it is understood that this Code is in all respects separate and apart from, and operates independently of, any such policies and procedures. In particular, the Company's and its investment adviser's and principal underwriter's codes of ethics under Rule 17j-l under the Investment Company Act are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Directors, including a majority of independent directors. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Directors, the investment adviser, their counsel, counsel to the Company and, if deemed appropriate by the Directors of the Company, to the Directors of the other Funds. VIII. Internal Use The Code is intended solely for internal use by the Funds and does not constitute an admission, by or on behalf of any Company, as to any fact, circumstance, or legal conclusion. Date: December 8, 2003 Exhibit A Persons Covered by this Code of Ethics Marc O. Mayer, Principal Executive Officer Mark Gersten, Principal Financial and Accounting Officer Thomas R. Manley, Controller EX-99.CERT 3 edg11630_ex12b-302.txt Exhibit 12(b)(1) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Marc O. Mayer, President of AllianceBernstein Variable Products Series Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of AllianceBernstein Variable Products Series Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2006 /s/ Marc O. Mayer ------------------- Marc O. Mayer President Exhibit 12(b)(2) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Mark D. Gersten, Treasurer and Chief Financial Officer of AllianceBernstein Variable Products Series Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of AllianceBernstein Variable Products Series Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2006 /s/ Mark D. Gersten ------------------- Mark D. Gersten Treasurer and Chief Financial Officer EX-99.906 CERT 4 edg11630_ex12c-906.txt EXHIBIT 12(c) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to 18 U.S.C. 1350, each of the undersigned, being the Principal Executive Officer and Principal Financial Officer of AllianceBernstein Variable Products Series Fund, Inc. (the "Registrant"), hereby certifies that the Registrant's report on Form N-CSR for the period ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 28, 2006 By: /s/ Marc O. Mayer --------------------- Marc O. Mayer President By: /s/ Mark D. Gersten --------------------- Mark D. Gersten Treasurer and Chief Financial Officer This certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----