AB Variable Products Series Fund, Inc. - Small/Mid Cap Value Portfolio - Class A
VARIABLE PRODUCTS SERIES FUND
PROSPECTUS | MAY 2, 2011
AllianceBernstein Variable Products Series Fund, Inc.
Class A Prospectus
AllianceBernstein VPS
[graphic]Small/Mid Cap Value Portfolio
This Prospectus describes the Portfolio that is available as an underlying
investment through your variable contract. For information about your variable
contract, including information about insurance-related expenses, see the
prospectus for your variable contract which accompanies this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
[LOGO]
AB
ALLIANCEBERNSTEIN
INVESTMENT PRODUCTS OFFERED
.. ARE NOT FDIC INSURED
.. MAY LOSE VALUE
.. ARE NOT BANK GUARANTEED
TABLE OF CONTENTS
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Page
SUMMARY INFORMATION................................................ 4
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S RISKS AND INVESTMENTS. 8
INVESTING IN THE PORTFOLIO......................................... 13
MANAGEMENT OF THE PORTFOLIO........................................ 16
DIVIDENDS, DISTRIBUTIONS AND TAXES................................. 17
GLOSSARY........................................................... 18
FINANCIAL HIGHLIGHTS............................................... 19
APPENDIX A--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION........ A-1
SUMMARY INFORMATION
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ALLIANCEBERNSTEIN VPS SMALL/MID CAP VALUE PORTFOLIO
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INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. The operating expenses information below is designed
to assist Contractholders of variable products that invest in the Portfolio in
understanding the fees and expenses that they may pay as an investor. Because
the information does not reflect deductions at the separate account level or
contract level for any charges that may be incurred under a contract,
Contractholders that invest in the Portfolio should refer to the variable
contract prospectus for a description of fees and expenses that apply to
Contractholders. Inclusion of these charges would increase the fees and
expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
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Management Fees .75%
Other Expenses .09%
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Total Portfolio Operating Expenses .84%
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EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
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After 1 Year $ 86
After 3 Years $ 268
After 5 Years $ 466
After 10 Years $1,037
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PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 54% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of small- to mid-capitalization U.S. companies, generally representing 60 to
125 companies. Under normal circumstances, the Portfolio invests at least 80%
of its net assets in securities of small- to mid-capitalization companies. For
these purposes, "small- and mid-capitalization companies" are generally those
companies that, at the time of investment, fall within the lowest 25% of the
total U.S. equity market capitalization (excluding, for purposes of this
calculation, companies with market capitalizations of less than $10 million).
As of December 31, 2010, there were approximately 4,401 companies within the
lowest 25% of the total U.S. equity market capitalization (excluding companies
with market capitalizations of less than $10 million) with market
capitalizations ranging from $10 million to $11.9 billion. In the future, the
Portfolio may define small- and mid-capitalization companies using a different
classification system.
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The Portfolio invests in companies that are determined by the Adviser to be
undervalued, using the Adviser's Bernstein unit's ("Bernstein") fundamental
value approach. In selecting securities for the Portfolio's portfolio,
Bernstein uses its fundamental and quantitative research to identify companies
whose long-term earnings power is not reflected in the current market price of
their securities.
In selecting securities for the Portfolio's portfolio, Bernstein looks for
companies with attractive valuation (for example, with low price to book
ratios) and compelling success factors (for example, momentum and return on
equity). Bernstein then uses this information to calculate an expected return.
Returns and rankings are updated on a daily basis. The rankings are used to
determine prospective candidates for further fundamental research and,
subsequently, possible addition to the portfolio. Typically, Bernstein's
fundamental research analysts focus their research on the most attractive 20%
of the universe.
The Adviser typically projects a company's financial performance over a full
economic cycle, including a trough and a peak, within the context of forecasts
for real economic growth, inflation and interest rate changes. Bernstein
focuses on the valuation implied by the current price, relative to the earnings
the company will be generating five years from now, or "normalized" earnings,
assuming average mid-economic cycle growth for the fifth year.
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover. The
team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable. Typically, growth in the size of a company's market
capitalization relative to other domestically traded companies will not cause
the Portfolio to dispose of the security.
Bernstein seeks to manage overall portfolio volatility relative to the universe
of companies that comprise the lowest 20% of the total U.S. market
capitalization by favoring promising securities that offer the best balance
between return and targeted risk. At times, the Portfolio may favor or disfavor
a particular sector compared to that universe of companies. The Portfolio may
invest significantly in companies involved in certain sectors that constitute a
material portion of the universe of small- and mid-capitalization companies,
such as financial services and consumer services.
The Portfolio may invest in securities issued by non-U.S. companies and enter
into forward commitments. The Portfolio may enter into derivatives
transactions, such as options, futures, forwards, and swap agreements.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as value, may underperform the
market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-cap companies. Investments in
small-cap companies may have additional risks because these companies have
limited product lines, markets or financial resources.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. INDUSTRY/SECTOR RISK: Investments in a particular industry or group of
related industries may have more risk because market or economic factors
affecting that industry could have a significant effect on the value of the
Portfolio's investments.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
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BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over the life of
the Portfolio; and
.. how the Portfolio's average annual returns for one and five years and over
the life of the Portfolio compare to those of a broad-based securities
market index.
You may obtain updated performance information on the Portfolio's website at
www.AllianceBernstein.com (click on "Pricing & Performance").
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
---- ------ ------ ------ ------ ------ ------ ------ ------ ------
n/a -6.20% 41.26% 19.30% 6.91% 14.42% 1.71% -35.58% 42.86% 26.91%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.75%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-26.95%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2010)
SINCE
1 YEAR 5 YEARS INCEPTION
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Portfolio (Inception Date: May 2, 2001) 26.91% 6.33% 10.25%
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Russell 2500(R) Value Index (reflects no deduction for fees, expenses, or taxes) 24.82% 3.85% 8.36%
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Russell 2500(R) Index (reflects no deduction for fees, expenses, or taxes) 26.71% 4.86% 7.15%
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INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
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James W. MacGregor Since 2005 Senior Vice President of the Adviser
Joseph G. Paul Since 2002 Senior Vice President of the Adviser
Andrew J. Weiner Since 2005 Senior Vice President of the Adviser
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. PURCHASE AND SALE OF PORTFOLIO SHARES
The Portfolio offers its shares through the separate accounts of life insurance
companies ("Insurers"). You may only purchase and sell shares through these
separate accounts. See the prospectus of the separate account of the
participating insurance company for information on the purchase and sale of the
Portfolio's shares.
. TAX INFORMATION
The Portfolio may make income dividends or capital gains distribution. The
income and capital gains distribution are expected to be made in shares of the
Portfolio. See the prospectus of the separate account of the participating
insurance company for federal income tax information.
. PAYMENTS TO INSURERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of the Portfolio through an Insurer or other financial
intermediary, the Portfolio and its related companies may pay the intermediary
for the sale of Portfolio shares and related services. These payments may
create a conflict of interest by influencing the Insurer or other financial
intermediary and your salesperson to recommend the Portfolio over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
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ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S RISKS AND INVESTMENTS
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This section of the Prospectus provides additional information about the
Portfolio's investment practices and risks. Most of these investment practices
are discretionary, which means that the Adviser may or may not decide to use
them. This Prospectus does not describe all of the Portfolio's investment
practices and additional descriptions of the Portfolio's strategies,
investments, and risks can be found in the Portfolio's Statement of Additional
Information ("SAI").
DERIVATIVES
The Portfolio may, but is not required to, use derivatives for risk management
purposes or as part of its investment strategies. Derivatives are financial
contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate or index. The Portfolio may use derivatives to
earn income and enhance returns, to hedge or adjust the risk profile of a
portfolio, to replace more traditional direct investments and to obtain
exposure to otherwise inaccessible markets.
There are four principal types of derivatives, including options, futures,
forwards and swaps, which are described below. Derivatives may be
(i) standardized, exchange-traded contracts or (ii) customized, privately
negotiated contracts. Exchange-traded derivatives tend to be more liquid and
subject to less credit risk than those that are privately negotiated.
The Portfolio's use of derivatives may involve risks that are different from,
or possibly greater than, the risks associated with investing directly in
securities or other more traditional instruments. These risks include the risk
that the value of a derivative instrument may not correlate perfectly, or at
all, with the value of the assets, reference rates, or indices that they are
designed to track. Other risks include: the possible absence of a liquid
secondary market for a particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible
to close out a position when desired; and the risk that the counterparty will
not perform its obligations. Certain derivatives may have a leverage component
and involve leverage risk. Adverse changes in the value or level of the
underlying asset, note or index can result in a loss substantially greater than
the Portfolio's investment (in some cases, the potential loss is unlimited).
The Portfolio's investments in derivatives may include, but are not limited to,
the following:
.. FORWARD CONTRACTS. A forward contract is an agreement that obligates one
party to buy, and the other party to sell, a specific quantity of an
underlying commodity or other tangible asset for an agreed-upon price at a
future date. A forward contract is either settled by physical delivery of
the commodity or tangible asset to an agreed-upon location at a future date,
rolled forward into a new forward contract or, in the case of a
non-deliverable forward, by a cash payment at maturity. The Portfolio's
investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. The Portfolio may purchase or sell
forward currency exchange contracts for hedging purposes to minimize the
risk from adverse changes in the relationship between the U.S. Dollar and
other currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions". The Portfolio, for
example, may enter into a forward contract as a transaction hedge (to "lock
in" the U.S. Dollar price of a non-U.S. Dollar security), as a position
hedge (to protect the value of securities the Portfolio owns that are
denominated in a foreign currency against substantial changes in the value
of the foreign currency) or as a cross-hedge (to protect the value of
securities the Portfolio owns that are denominated in a foreign currency
against substantial changes in the value of that foreign currency by
entering into a forward contract for a different foreign currency that is
expected to change in the same direction as the currency in which the
securities are denominated).
.. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A futures contract is an
agreement that obligates the buyer to buy and the seller to sell a specified
quantity of an underlying asset (or settle for cash the value of a contract
based on an underlying asset, rate or index) at a specific price on the
contract maturity date. Options on futures contracts are options that call
for the delivery of futures contracts upon exercise. The Portfolio may
purchase or sell futures contracts and options thereon to hedge against
changes in interest rates, securities (through index futures or options) or
currencies. The Portfolio may also purchase or sell futures contracts for
foreign currencies or options thereon for non-hedging purposes as a means of
making direct investments in foreign currencies, as described below under
"Other Derivatives and Strategies--Currency Transactions".
.. OPTIONS. An option is an agreement that, for a premium payment or fee, gives
the option holder (the buyer) the right but not the obligation to buy (a
"call option") or sell (a "put option") the underlying asset (or settle for
cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Investments in options are considered speculative. The Portfolio may lose
the premium paid for them if the price of the underlying security or other
asset decreased or remained the same (in the case of a call option) or
increased or remained the same (in the case of a put option). If a put or
call option purchased by the Portfolio were permitted to expire without
being sold or exercised, its premium would represent a loss to the
Portfolio. The Portfolio's investments in options include the following:
- Options on Foreign Currencies. The Portfolio may invest in options on
foreign currencies that are privately negotiated or traded on U.S. or
foreign exchanges for hedging purposes to protect against declines in the
U.S. Dollar value of foreign currency denominated securities held by the
Portfolio and against increases in the U.S. Dollar cost of securities to be
acquired. The purchase of an option on
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a foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, the Portfolio may forfeit
the entire amount of the premium plus related transaction costs. The
Portfolio may also invest in options on foreign currencies for non-hedging
purposes as a means of making direct investments in foreign currencies, as
described below under "Other Derivatives and Strategies--Currency
Transactions".
- Options on Securities. The Portfolio may purchase or write a put or call
option on securities. The Portfolio will only exercise an option it
purchased if the price of the security was less (in the case of a put
option) or more (in the case of a call option) than the exercise price. If
the Portfolio does not exercise an option, the premium it paid for the
option will be lost. The Portfolio may write covered options, which means
writing an option for securities the Portfolio owns, and uncovered options.
- Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than taking or making delivery
of a security at a specified price, an option on a securities index gives
the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option.
.. SWAP TRANSACTIONS. A swap is an agreement that obligates two parties to
exchange a series of cash flows at specified intervals (payment dates) based
upon, or calculated by reference, to changes in specified prices or rates
(interest rates in the case of interest rate swaps, currency exchange rates
in the case of currency swaps) for a specified amount of an underlying asset
(the "notional" principal amount). Except for currency swaps, the notional
principal amount is used solely to calculate the payment stream, but is not
exchanged. Swaps are entered into on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments). The Portfolio's
investments in swap transactions include the following:
- Currency Swaps. The Portfolio may invest in currency swaps for hedging
purposes to protect against adverse changes in exchange rates between the
U.S. Dollar and other currencies or for non-hedging purposes as a means of
making direct investments in foreign currencies, as described below under
"Other Derivatives and Strategies--Currency Transactions". Currency swaps
involve the individually negotiated exchange by the Portfolio with another
party of a series of payments in specified currencies. Actual principal
amounts of currencies may be exchanged by the counterparties at the
initiation, and again upon the termination, of the transaction. Therefore,
the entire principal value of a currency swap is subject to the risk that
the swap counterparty will default on its contractual delivery obligations.
If there is a default by the counterparty to the transaction, the Portfolio
will have contractual remedies under the transaction agreements.
.. OTHER DERIVATIVES AND STRATEGIES.
- Currency Transactions. The Portfolio may invest in non-U.S.
Dollar-denominated securities on a currency hedged or unhedged basis. The
Adviser may actively manage the Portfolio's currency exposures and may seek
investment opportunities by taking long or short positions in currencies
through the use of currency-related derivatives, including forward currency
exchange contracts, futures and options on futures, swaps and options. The
Adviser may enter into transactions for investment opportunities when it
anticipates that a foreign currency will appreciate or depreciate in value
but securities denominated in that currency are not held by the Portfolio
and do not present attractive investment opportunities. Such transactions
may also be used when the Adviser believes that it may be more efficient
than a direct investment in a foreign currency-denominated security. The
Portfolio may also conduct currency exchange contracts on a spot basis
(i.e., for cash at the spot rate prevailing in the currency exchange market
for buying or selling currencies).
CONVERTIBLE SECURITIES
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities which generally provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they offer investors the potential to benefit from increases in the
market prices of the underlying common stock. Convertible debt securities that
are rated Baa3 or lower by Moody's or BBB- or lower by S&P or Fitch and
comparable unrated securities may share some or all of the risks of debt
securities with those ratings.
FORWARD COMMITMENTS
Forward commitments for the purchase or sale of securities may include
purchases on a when-issued basis or purchases or sales on a delayed delivery
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring or approval of a
proposed financing by appropriate authorities (i.e., a "when, as and if issued"
trade).
The Portfolio may invest in TBA-mortgage-backed securities. A TBA or "To Be
Announced" trade represents a contract for the purchase or sale of
mortgage-backed securities to be delivered at a future agreed-upon date;
however, the specific mortgage pool numbers or the number of pools that will be
delivered to fulfill the trade obligation or terms of the contract are unknown
at the time of the trade. Mortgage pools (including fixed rate or variable rate
mortgages) guaranteed by
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the Government National Mortgage Association, or GNMA, the Federal National
Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation,
or FHLMC, are subsequently allocated to the TBA transactions.
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Securities purchased or sold under a forward
commitment are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. There is a risk of loss
if the value of either a purchased security declines before the settlement date
or the security sold increases before the settlement date. The use of forward
commitments helps the Portfolio to protect against anticipated changes in
interest rates and prices.
ILLIQUID SECURITIES
Under current Securities and Exchange Commission ("Commission") guidelines, the
Portfolio limits its investments in illiquid securities to 15% of its net
assets. The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount the Portfolio has valued the securities. The Portfolio
may not be able to sell illiquid securities and may not be able to realize
their full value upon sale. Restricted securities (securities subject to legal
or contractual restrictions on resale) may be illiquid. Some restricted
securities (such as securities issued pursuant to Rule 144A under the
Securities Act of 1933 (the "Securities Act") or certain commercial paper) may
be treated as liquid, although they may be less liquid than registered
securities traded on established secondary markets.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Portfolio may invest in other investment companies as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act") or the rules and
regulations thereunder. The Portfolio intends to invest uninvested cash
balances in an affiliated money market fund as permitted by Rule 12d1-1 under
the 1940 Act. If the Portfolio acquires shares in investment companies,
shareholders would bear, indirectly, the expenses of such investment companies
(which may include management and advisory fees), which are in addition to the
Portfolio's expenses. The Portfolio may also invest in exchange-traded funds,
subject to the restrictions and limitations of the 1940 Act or any applicable
rules, exemptive orders or regulatory guidance.
LOANS OF PORTFOLIO SECURITIES
For the purposes of achieving income, the Portfolio may make secured loans of
portfolio securities to brokers, dealers and financial institutions, provided a
number of conditions are satisfied, including that the loan is fully
collateralized. Securities lending involves the possible loss of rights in the
collateral or delay in the recovery of collateral if the borrower fails to
return the securities loaned or becomes insolvent. When the Portfolio lends
securities, its investment performance will continue to reflect changes in the
value of the securities loaned, and the Portfolio will also receive a fee or
interest on the collateral. The Portfolio may pay reasonable finders',
administrative, and custodial fees in connection with a loan.
PREFERRED STOCK
The Portfolio may invest in preferred stock. Preferred stock is subordinated to
any debt the issuer has outstanding. Accordingly, preferred stock dividends are
not paid until all debt obligations are first met. Preferred stock may be
subject to more fluctuations in market value, due to changes in market
participants' perceptions of the issuer's ability to continue to pay dividends,
than debt of the same issuer. These investments include convertible preferred
stocks, which includes an option for the holder to convert the preferred stock
into the issuer's common stock under certain conditions, among which may be the
specification of a future date when the conversion may begin, a certain number
of common shares per preferred shares, or a certain price per share for the
common stock. Convertible preferred stock tends to be more volatile than
non-convertible preferred stock, because its value is related to the price of
the issuer's common stock as well as the dividends payable on the preferred
stock.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
The Portfolio may enter into repurchase agreements in which the Portfolio
purchases a security from a bank or broker-dealer, which agrees to repurchase
the security from the Portfolio at an agreed-upon future date, normally a day
or a few days later. The purchase and repurchase transactions are transacted
under one agreement. The resale price is greater than the purchase price,
reflecting an agreed-upon interest rate for the period the buyer's money is
invested in the security. Such agreements permit the Portfolio to keep all of
its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. If the bank or broker-dealer defaults on
its repurchase obligation, the Portfolio would suffer a loss to the extent that
the proceeds from the sale of the security were less than the repurchase price.
The Portfolio may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, the Portfolio enters a
trade to buy securities at one price and simultaneously enters a trade to sell
the same securities at another price on a specified date. Similar to a
repurchase agreement, the repurchase price is higher than the sale price and
reflects current interest rates. Unlike a repurchase agreement, however, the
buy/sell back transaction is considered two separate transactions.
RIGHTS AND WARRANTS
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
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warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
SHORT SALES
The Portfolio may make short sales as a part of overall portfolio management or
to offset a potential decline in the value of a security. A short sale involves
the sale of a security that the Portfolio does not own, or if the Portfolio
owns the security, is not to be delivered upon consummation of the sale. When
the Portfolio makes a short sale of a security that it does not own, it must
borrow from a broker-dealer the security sold short and deliver the security to
the broker-dealer upon conclusion of the short sale.
If the price of the security sold short increases between the time of the short
sale and the time the Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will
realize a short-term capital gain. Although the Portfolio's gain is limited to
the price at which it sold the security short, its potential loss is
theoretically unlimited.
ADDITIONAL RISK AND OTHER CONSIDERATIONS
Investments in the Portfolio involve the special risk considerations described
below. Certain of these risks may be heightened when investing in emerging
markets.
FOREIGN (NON U.S.) SECURITIES
Investing in foreign securities involves special risks and considerations not
typically associated with investing in U.S. securities. The securities markets
of many foreign countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited number of companies
representing a small number of industries. If the Portfolio invests in foreign
securities, it may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States.
Securities registration, custody, and settlement may in some instances be
subject to delays and legal and administrative uncertainties. Foreign
investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the cost
and expenses of the Portfolio. In addition, the repatriation of investment
income, capital or the proceeds of sales of securities from certain countries
is controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
The Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Portfolio. These factors may affect the liquidity of the
Portfolio's investments in any country and the Adviser will monitor the effect
of any such factor or factors on the Portfolio's investments. Transaction
costs, including brokerage commissions for transactions both on and off the
securities exchanges, in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, revolutions, wars or
diplomatic developments could affect adversely the economy of a foreign
country. In the event of nationalization, expropriation, or other confiscation,
the Portfolio could lose its entire investment in securities in the country
involved. In addition, laws in foreign countries governing business
organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Portfolio than that provided by U.S. laws.
FOREIGN (NON U.S.) CURRENCIES
The Portfolio invests some portion of its assets in securities denominated in,
and receives revenues in, foreign currencies and will be adversely affected by
reductions in the value of those currencies relative to the U.S. Dollar.
Foreign currency exchange rates may fluctuate significantly. They are
determined by supply and demand in the foreign exchange markets, the relative
merits of investments in different countries, actual or perceived changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected unpredictably by intervention (or the failure to intervene) by U.S. or
non-U.S. governments or central banks or by currency controls or political
developments. In light of these risks, the Portfolio may engage in certain
currency hedging transactions, as described above, which involve certain
special risks. The Portfolio may also invest directly in foreign currencies for
non-hedging purposes directly on a spot basis (i.e., cash) or through derivative
11
transactions, such as forward currency exchange contracts, futures and options
thereon, swaps and options as described above. These investments will be
subject to the same risks. In addition, currency exchange rates may fluctuate
significantly over short periods of time, causing the Portfolio's net asset
value, or NAV, to fluctuate.
FUTURE DEVELOPMENTS
The Portfolio may take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that are different
from or exceed those involved in the practices described above.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
The ALLIANCEBERNSTEIN(R) VARIABLE PRODUCTS SERIES (VPS) FUND'S (the "Fund")
Board of Directors (the "Board") may change the Portfolio's investment
objective without shareholder approval. The Portfolio will provide shareholders
with 60 days' prior written notice of any change to the Portfolio's investment
objective. Unless otherwise noted, all other investment policies of the
Portfolio may be changed without shareholder approval.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes to attempt to respond to adverse market,
economic, political or other conditions, the Portfolio may invest in certain
types of short-term, liquid, investment grade or high quality debt securities.
While the Portfolio is investing for temporary defensive purposes, it may not
meet its investment objectives.
PORTFOLIO HOLDINGS
The Portfolio's SAI includes a description of the policies and procedures that
apply to disclosure of the Portfolio's portfolio holdings.
12
INVESTING IN THE PORTFOLIO
--------------------------------------------------------------------------------
HOW TO BUY AND SELL SHARES
The Portfolio offers its shares through the separate accounts of life insurance
companies (the "Insurers"). You may only purchase and sell shares through these
separate accounts. See the prospectus of the separate account of the
participating insurance company for information on the purchase and sale of the
Portfolio's shares. AllianceBernstein Investments, Inc. ("ABI") may from time
to time receive payments from Insurers in connection with the sale of the
Portfolio's shares through the Insurer's separate accounts.
The purchase or sale of the Portfolio's shares is priced at the next determined
NAV after the order is received in proper form.
The Insurers maintain omnibus account arrangements with the Fund in respect of
the Portfolio and place aggregate purchase, redemption and exchange orders for
shares of the Portfolio corresponding to orders placed by the Insurer's
customers ("Contractholders") who have purchased contracts from the Insurers,
in each case, in accordance with the terms and conditions of the relevant
contract. Omnibus account arrangements maintained by the Insurers are discussed
below under "Limitations on Ability to Detect and Curtail Excessive Trading
Practices".
ABI may refuse any order to purchase shares. The Portfolio reserves the right
to suspend the sale of its shares to the public in response to conditions in
the securities markets or for other reasons.
PAYMENTS TO FINANCIAL INTERMEDIARIES
Financial intermediaries, such as the Insurers, market and sell shares of the
Portfolio and typically receive compensation for selling shares of the
Portfolio. This compensation is paid from various sources.
Insurers or your financial intermediary receive compensation from ABI and/or
the Adviser in several ways from various sources, which include some or all
of the following:
- defrayal of costs for educational seminars and training;
- additional distribution support; and
- payments related to providing Contractholder recordkeeping and/or
administrative services.
ABI and/or the Adviser may pay Insurers or other financial intermediaries to
perform record-keeping and administrative services in connection with the
Portfolio. Such payments will generally not exceed 0.35% of the average daily
net assets of the Portfolio attributable to the Insurer.
OTHER PAYMENTS FOR EDUCATIONAL SUPPORT AND DISTRIBUTION ASSISTANCE
In addition to the fees described above, ABI, at its expense, currently
provides additional payments to the Insurers that sell shares of the Portfolio.
These sums include payments to reimburse directly or indirectly the costs
incurred by the Insurers and their employees in connection with educational
seminars and training efforts about the Portfolio for the Insurers' employees
and/or their clients and potential clients. The costs and expenses associated
with these efforts may include travel, lodging, entertainment and meals.
For 2011, ABI's additional payments to these firms for educational support and
distribution assistance related to the Portfolios are expected to be
approximately $400,000. In 2010, ABI paid additional payments of approximately
$400,000 for the Portfolios.
IF ONE MUTUAL FUND SPONSOR THAT OFFERS SHARES TO SEPARATE ACCOUNTS OF AN
INSURER MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, THE
INSURER MAY HAVE AN INCENTIVE TO RECOMMEND OR OFFER THE SHARES OF FUNDS OF
ONE FUND SPONSOR OVER ANOTHER.
PLEASE SPEAK WITH YOUR FINANCIAL INTERMEDIARY TO LEARN MORE ABOUT THE TOTAL
AMOUNTS PAID TO YOUR FINANCIAL INTERMEDIARY BY THE ADVISER, ABI AND BY OTHER
MUTUAL FUND SPONSORS THAT OFFER SHARES TO INSURERS THAT MAY BE RECOMMENDED TO
YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL INTERMEDIARY
AT THE TIME OF PURCHASE.
As of the date of this Prospectus, ABI anticipates that the Insurers or their
affiliates that will receive additional payments for educational support
include:
AIG SunAmerica
Genworth Financial
Lincoln Financial Distributors
Pacific Life Insurance Co.
Prudential
RiverSource Distributors
SunLife Financial
The Hartford
Transamerica Capital
Although the Portfolio may use brokers and dealers who sell shares of the
Portfolio to effect portfolio transactions, the Portfolio does not consider the
sale of AllianceBernstein Mutual Fund shares as a factor when selecting brokers
or dealers to effect portfolio transactions.
FREQUENT PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
The Fund's Board has adopted policies and procedures designed to detect and
deter frequent purchases and redemptions of Portfolio shares or excessive or
short-term trading that may disadvantage long-term Contractholders. These
policies are described below. There is no guarantee that the Portfolio will be
able to detect excessive or short-term trading or to identify Contractholders
engaged in such practices, particularly with
13
respect to transactions in omnibus accounts. Contractholders should be aware
that application of these policies may have adverse consequences, as described
below, and avoid frequent trading in Portfolio shares through purchases, sales
and exchanges of shares. The Portfolio reserves the right to restrict, reject,
or cancel, without any prior notice, any purchase or exchange order for any
reason, including any purchase or exchange order accepted by any Insurer or a
Contractholder's financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Fund
will try to prevent market timing by utilizing the procedures described below,
these procedures may not be successful in identifying or stopping excessive or
short-term trading in all circumstances. By realizing profits through
short-term trading, Contractholders that engage in rapid purchases and sales or
exchanges of the Portfolio's shares dilute the value of shares held by
long-term Contractholders. Volatility resulting from excessive purchases and
sales or exchanges of shares of the Portfolio, especially involving large
dollar amounts, may disrupt efficient portfolio management and cause the
Portfolio to sell portfolio securities at inopportune times to raise cash to
accommodate redemptions relating to short-term trading activity. In particular,
the Portfolio may have difficulty implementing its long-term investment
strategies if it is forced to maintain a higher level of its assets in cash to
accommodate significant short-term trading activity. In addition, the Portfolio
may incur increased administrative and other expenses due to excessive or
short-term trading and increased brokerage costs.
Investments in securities of foreign issuers may be particularly susceptible to
short-term trading strategies. This is because securities of foreign issuers
are typically traded on markets that close well before the time the Portfolio
calculates its NAV at 4:00 p.m., Eastern Time, which gives rise to the
possibility that developments may have occurred in the interim that would
affect the value of these securities. The time zone differences among
international stock markets can allow a Contractholder engaging in a short-term
trading strategy to exploit differences in share prices that are based on
closing prices of securities of foreign issuers established some time before
the Portfolio calculates its own share price (referred to as "time zone
arbitrage"). The Portfolio has procedures, referred to as fair value pricing,
designed to adjust closing market prices of securities of foreign issuers to
reflect what is believed to be fair value of those securities at the time the
Portfolio calculates its NAV. While there is no assurance, the Portfolio
expects that the use of fair value pricing, in addition to the short-term
trading policies discussed below, will significantly reduce a Contractholder's
ability to engage in time zone arbitrage to the detriment of other
Contractholders.
Contractholders engaging in a short-term trading strategy may also target a
Portfolio that does not invest primarily in securities of foreign issuers. If
the Portfolio invests in securities that are, among other things, thinly
traded, traded infrequently, or relatively illiquid, it has the risk that the
current market price for the securities may not accurately reflect current
market values. Contractholders may seek to engage in short-term trading to take
advantage of these pricing differences (referred to as "price arbitrage"). The
Portfolio may be adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the
Portfolio should be made for investment purposes only. The Fund seeks to
prevent patterns of excessive purchases and sales or exchanges of shares of the
Portfolio. The Fund seeks to prevent such practices to the extent they are
detected by the procedures described below, subject to the Fund's ability to
monitor purchase, sale and exchange activity. Insurers utilizing omnibus
account arrangements may not identify to the Fund, ABI or AllianceBernstein
Investor Services, Inc. ("ABIS") Contractholders' transaction activity relating
to shares of the Portfolio on an individual basis. Consequently, the Fund, ABI
and ABIS may not be able to detect excessive or short-term trading in shares of
the Portfolio attributable to a particular Contractholder who effects purchase
and redemption and/or exchange activity in shares of the Portfolio through an
Insurer acting in an omnibus capacity. In seeking to prevent excessive or
short-term trading in shares of the Portfolio, including the maintenance of any
transaction surveillance or account blocking procedures, the Fund, ABI and ABIS
consider the information actually available to them at the time. The Fund
reserves the right to modify this policy, including any surveillance or account
blocking procedures established from time to time to effectuate this policy, at
any time without notice.
.. TRANSACTION SURVEILLANCE PROCEDURES. The Fund, through its agents, ABI and
ABIS, maintains surveillance procedures to detect excessive or short-term
trading in Portfolio shares. This surveillance process involves several
factors, which include scrutinizing individual Insurer's omnibus transaction
activity in Portfolio shares in order to seek to ascertain whether any such
activity attributable to one or more Contractholders might constitute
excessive or short-term trading. Insurer's omnibus transaction activity
identified by these surveillance procedures, or as a result of any other
information actually available at the time, will be evaluated to determine
whether such activity might indicate excessive or short-term trading
activity attributable to one or more Contractholders. These surveillance
procedures may be modified from time to time, as necessary or appropriate to
improve the detection of excessive or short-term trading or to address
specific circumstances.
.. ACCOUNT BLOCKING PROCEDURES. If the Fund determines, in its sole discretion,
that a particular transaction or pattern of transactions identified by the
transaction surveillance procedures described above is excessive or
short-term trading in nature, the relevant Insurer's omnibus account(s) will
be immediately "blocked" and no future purchase or exchange activity will
be permitted, except to the extent the Fund, ABI or ABIS has been informed
in writing that the terms and conditions of a particular contract may limit
the Fund's ability to apply its short-term trading policy to Contractholder
activity as discussed below. As a result, any Contractholder seeking to
engage through an Insurer in
14
purchase or exchange activity in shares of the Portfolio under a particular
contract will be prevented from doing so. However, sales of Portfolio shares
back to the Portfolio or redemptions will continue to be permitted in
accordance with the terms of the Portfolio's current Prospectus. In the event
an account is blocked, certain account-related privileges, such as the
ability to place purchase, sale and exchange orders over the internet or by
phone, may also be suspended. As a result, unless the Contractholder redeems
his or her shares, the Contractholder effectively may be "locked" into an
investment in shares of one or more of the Portfolio that the Contractholder
did not intend to hold on a long-term basis or that may not be appropriate
for the Contractholder's risk profile. To rectify this situation, a
Contractholder with a "blocked" account may be forced to redeem Portfolio
shares, which could be costly if, for example, these shares have declined in
value. To avoid this risk, a Contractholder should carefully monitor the
purchases, sales, and exchanges of Portfolio shares and avoid frequent
trading in Portfolio shares. An Insurer's omnibus account that is blocked
will generally remain blocked unless and until the Insurer provides evidence
or assurance acceptable to the Fund that one or more Contractholders did not
or will not in the future engage in excessive or short-term trading.
.. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS
ACCOUNTS. The Portfolio applies its surveillance procedures to Insurers. As
required by Commission rules, the Portfolio has entered into agreements with
all of its financial intermediaries that require the financial
intermediaries to provide the Portfolio, upon the request of the Portfolio
or its agents, with individual account level information about their
transactions. If the Portfolio detects excessive trading through its
monitoring of omnibus accounts, including trading at the individual account
level, Insurers will also execute instructions from the Portfolio to take
actions to curtail the activity, which may include applying blocks to
account to prohibit future purchases and exchanges of Portfolio shares.
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolio's NAV is calculated at the close of regular trading on the New
York Stock Exchange (the "Exchange") (ordinarily, 4:00 p.m., Eastern Time),
only on days when the Exchange is open for business. To calculate NAV, the
Portfolio's assets are valued and totaled, liabilities are subtracted, and the
balance, called net assets, is divided by the number of shares outstanding. If
the Portfolio invests in securities that are primarily traded on foreign
exchanges that trade on weekends or other days when the Portfolio does not
price its shares, the NAV of the Portfolio's shares may change on days when
shareholders will not be able to purchase or redeem their shares in the
Portfolio.
The Portfolio values its securities at their current market value determined on
the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Board. When
the Portfolio uses fair value pricing, it may take into account any factors it
deems appropriate. The Portfolio may determine fair value based upon
developments related to a specific security, current valuations of foreign
stock indices (as reflected in U.S. futures markets) and/or U.S. sector or
broader stock market indices. The prices of securities used by the Portfolio to
calculate its NAV may differ from quoted or published prices for the same
securities. Fair value pricing involves subjective judgments and it is possible
that the fair value determined for a security is materially different than the
value that could be realized upon the sale of that security.
The Portfolio expects to use fair value pricing for securities primarily traded
on U.S. exchanges only under very limited circumstances, such as the early
closing of the exchange on which a security is traded or suspension of trading
in the security. The Portfolio may use fair value pricing more frequently for
securities primarily traded in foreign markets because, among other things,
most foreign markets close well before the Portfolio values its securities at
4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise
to the possibility that significant events, including broad market moves, may
have occurred in the interim. For example, the Portfolio believes that foreign
security values may be affected by events that occur after the close of foreign
securities markets. To account for this, the Portfolio may frequently value
many of its foreign equity securities using fair value prices based on third
party vendor modeling tools to the extent available.
Subject to its oversight, the Board has delegated responsibility for valuing
the Portfolio's assets to the Adviser. The Adviser has established a Valuation
Committee, which operates under the policies and procedures approved by the
Board, to value the Portfolio's assets on behalf of the Portfolio. The
Valuation Committee values Portfolio assets as described above.
15
MANAGEMENT OF THE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT ADVISER
The Portfolio's adviser is AllianceBernstein L.P., 1345 Avenue of the Americas,
New York, New York 10105. The Adviser is a leading international investment
adviser managing client accounts with assets as of December 31, 2010, totaling
more than $478 billion (of which over $84 billion represented assets of
registered investment companies sponsored by the Adviser). As of December 31,
2010, the Adviser managed retirement assets for many of the largest public and
private employee benefit plans (including 31 of the nation's FORTUNE 100
companies), for public employee retirement funds in 35 states, for investment
companies, and for foundations, endowments, banks and insurance companies
worldwide. Currently, there are 35 registered investment companies managed by
the Adviser, comprising 115 separate investment portfolios, with approximately
3.3 million retail accounts.
The Adviser provides investment advisory services and order placement
facilities for the Portfolio. For these advisory services, for the fiscal year
ended December 31, 2010, the Portfolio paid the Adviser as a percentage of
average daily net assets .75%.
A discussion regarding the basis for the Board's approval of the Portfolio's
investment advisory agreement is available in the Portfolio's semi-annual
report to shareholders for the period ending June 30, 2010.
The Adviser may act as an investment adviser to other persons, firms, or
corporations, including investment companies, hedge funds, pension funds, and
other institutional investors. The Adviser may receive management fees,
including performance fees, that may be higher or lower than the advisory fees
it receives from the Portfolio. Certain other clients of the Adviser may have
investment objectives and policies similar to those of the Portfolio. The
Adviser may, from time to time, make recommendations that result in the
purchase or sale of a particular security by its other clients simultaneously
with the Portfolio. If transactions on behalf of more than one client during
the same period increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price or
quantity. It is the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner that is deemed equitable by the Adviser
to the accounts involved, including the Portfolio. When two or more of the
clients of the Adviser (including the Portfolio) are purchasing or selling the
same security on a given day from the same broker-dealer, such transactions may
be averaged as to price.
PORTFOLIO MANAGERS
The day-to-day management of, and investment decisions for, the Portfolio are
made by the Adviser's Small/Mid Cap Value Senior Investment Management Team.
The Small/Mid Cap Value Senior Investment Management Team relies heavily on the
fundamental analysis and research of the Adviser's large internal research
staff. No one person is principally responsible for making recommendations for
the Portfolio's portfolio.
The following table lists the persons within the Small/Mid Cap Value Senior
Investment Management Team with the most significant responsibility for the
day-to-day management of the Portfolio's portfolio, the length of time that
each person has been jointly and primarily responsible for the Portfolio, and
each person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
------------------------------------------------------------------------------------
James W. MacGregor; since 2005; Senior Senior Vice President of the Adviser,
Vice President of the Adviser with which he has been associated
since prior to 2006. He is also Chief
Investment Officer--Small- and Mid-
Cap Value Equities and Chief
Investment Officer--Canadian Value
Equities.
Joseph G. Paul; since 2002; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated
since prior to 2006. He is also Chief
Investment Officer--US Large Cap
Value Equities, Chief Investment
Officer--North American Value
Equities, and Global Head of Diversified
Value. Until 2009, he was Chief
Investment Officer--Small and Mid-
Capitalization Value Equities, Co-Chief
Investment Officer of Real Estate
Investments, and Chief Investment
Officer of Advanced Value since prior to
2006.
Andrew J. Weiner; since 2005; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated
since prior to 2006. He is also Director
of Research--Small- and Mid-Cap
Value Equities.
Additional information about the portfolio managers may be found in the
Portfolio's SAI.
16
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
The Portfolio declares dividends on its shares at least annually. The income
and capital gains distribution are expected to be made in shares of the
Portfolio.
See the prospectus of the separate account of the participating insurance
company for federal income tax information.
Investment income received by the Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
Provided that certain requirements are met, the Portfolio may "pass-through" to
its shareholders credits or deductions to foreign income taxes paid. Non-U.S.
investors may not be able to credit or deduct such foreign taxes.
17
GLOSSARY
--------------------------------------------------------------------------------
RUSSELL 2500(R) INDEX measures the performance of the small- to mid-cap segment
of the U.S. equity universe, commonly referred to as "smid" cap. The Russell
2500(R) Index is a subset of the Russell 3000(R) Index. It includes
approximately 2500 of the smallest securities based on a combination of their
market cap and current index membership.
RUSSELL 2500(R) VALUE INDEX measures the performance of the small- to mid-cap
value segment of the U.S. equity universe. It includes those Russell 2500(R)
companies with lower price-to-book ratios and lower forecasted growth values.
18
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the period of the Portfolio's operations.
Certain information reflects financial results for a single share of a class of
the Portfolio. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). The total returns
in the table do not take into account separate account charges. If separate
account charges were included, an investor's returns would have been lower.
This information has been audited by Ernst & Young LLP, the independent
registered public accounting firm for the Portfolio, whose report, along with
the Portfolio's financial statements, are included in the Portfolio's annual
report, which is available upon request.
ALLIANCEBERNSTEIN SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
2010 2009 2008 2007 2006
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.41 $ 9.92 $ 17.11 $ 18.08 $ 17.06
-------- -------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .08 .08 .13 .11 .20
Net realized and unrealized gain (loss) on investment and foreign
currency transactions 3.52 4.01 (5.63) .36 2.14
-------- -------- ------- -------- --------
Net increase (decrease) in net asset value from operations 3.60 4.09 (5.50) .47 2.34
-------- -------- ------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.06) (.12) (.11) (.17) (.08)
Distributions from net realized gain on investment transactions 0.00 (.48) (1.58) (1.27) (1.24)
-------- -------- ------- -------- --------
Total dividends and distributions (.06) (.60) (1.69) (1.44) (1.32)
-------- -------- ------- -------- --------
Net asset value, end of period $ 16.95 $ 13.41 $ 9.92 $ 17.11 $ 18.08
======== ======== ======= ======== ========
TOTAL RETURN
Total investment return based on net asset value(b) 26.91% 42.86% (35.58)% 1.71% 14.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $174,068 $134,291 $99,957 $146,350 $159,804
Ratio to average net assets of:
Expenses .84%(c) .87% .86% .83% .86%(c)
Net investment income .56%(c) .70% .95% .59% 1.15%(c)
Portfolio turnover rate 54% 58% 49% 32% 46%
------------------------------------------------------------------------------------------------------------------------------
Footnotes:
(a)Based on average shares outstanding.
(b)Total investment return is calculated assuming an initial investment made at
the NAV at the beginning of the period, reinvestment of all dividends and
distributions at the NAV during the period, and redemption on the last day
of the period. Total return does not reflect (i) insurance company's
separate account related expense charges and (ii) the 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)The ratio includes expenses attributable to costs of proxy solicitation.
19
APPENDIX A
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The settlement agreement between the Adviser and the New York Attorney General
requires the Fund to include the following supplemental hypothetical investment
information that provides additional information calculated and presented in a
manner different from expense information found under "Fees and Expenses of the
Portfolio" in this Prospectus about the effect of the Portfolio's expenses,
including investment advisory fees and other Portfolio costs, on the
Portfolio's returns over a 10-year period. The chart shows the estimated
expenses that would be charged on a hypothetical investment of $10,000 in
Class A shares of the Portfolio assuming a 5% return each year. Except as
otherwise indicated, the chart also assumes that the current annual expense
ratio stays the same throughout the 10-year period. The current annual expense
ratio for the Portfolio is the same as stated under "Fees and Expenses of the
Portfolios." There are additional fees and expenses associated with variable
products. These fees can include mortality and expense risk charges,
administrative charges, and other charges that can significantly affect
expenses. These fees and expenses are not reflected in the following expense
information. Your actual expenses may be higher or lower.
ALLIANCEBERNSTEIN SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 88.20 $10,411.80
2 10,411.80 520.59 10,932.39 91.83 10,840.56
3 10,840.56 542.03 11,382.59 95.61 11,286.97
4 11,286.97 564.35 11,851.32 99.55 11,751.77
5 11,751.77 587.59 12,339.36 103.65 12,235.71
6 12,235.71 611.79 12,847.49 107.92 12,739.57
7 12,739.57 636.98 13,376.55 112.36 13,264.19
8 13,264.19 663.21 13,927.40 116.99 13,810.41
9 13,810.41 690.52 14,500.93 121.81 14,379.12
10 14,379.12 718.96 15,098.08 126.82 14,971.25
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Cumulative $6,036.02 $1,064.74
A-1
For more information about the Portfolio, the following documents are available
upon request:
.. ANNUAL/SEMI-ANNUAL REPORTS TO CONTRACTHOLDERS
The Portfolio's annual and semi-annual reports to Contractholders contain
additional information on the Portfolio's investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Portfolio's performance during its last fiscal
year.
.. STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Fund has an SAI, which contains more detailed information about the
Portfolio, including its operations and investment policies. The Fund's SAI and
the independent registered public accounting firm's report and financial
statements in the Portfolio's most recent annual report to Contractholders are
incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make inquiries concerning the Portfolio, by contacting your broker or
other financial intermediary, or by contacting the Adviser:
BY MAIL: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Securities and Exchange
Commission ("Commission"):
.. Call the Commission at 1-202-551-8090 for information on the operation of
the Public Reference Room.
.. Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov.
.. Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov, or by writing to the
Commission's Public Reference Section, Washington, DC 20549-1520.
You also may find these documents and more information about the Adviser and
the Portfolios on the Internet at: www.alliancebernstein.com.
AllianceBernstein(R) and the AB Logo are registered trademarks and service
marks used by permission of the owner, AllianceBernstein L.P.
SEC File No. 811-05398
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