AllianceBernstein Variable Products Series Fund, Inc.

Transcription

1 AllianceBernstein Variable Products Series Fund, Inc. Annual Report December 31, 2011 AllianceBernstein Growth & Income Portfolio ANNUAL REPORT

2 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 AllianceBernstein s website at or go to the Securities and Exchange Commission s (the Commission ) website at or call AllianceBernstein at (800) 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 website at 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 AllianceBernstein and the AB Logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.

3 LETTER TO INVESTORS February 10, 2012 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, INVESTMENT OBJECTIVE AND POLICIES The Portfolio s investment objective is long-term growth of capital. The Portfolio invests primarily in the equity securities of U.S. companies that AllianceBernstein L.P. (the Adviser ) believes are undervalued, focusing on dividend-paying securities. The Adviser believes that, over time, a company s stock price will come to reflect its intrinsic economic value. The Portfolio may invest in companies of any size and in any industry. The Portfolio also invests in high-quality securities of non-u.s. issuers. The Portfolio may enter into derivatives transactions, such as options, futures, forwards and swap agreements. 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, The Portfolio outperformed its benchmark during the annual period ended December 31, Stock selection was strongest in the consumer staples and technology sectors and contributed positively to relative returns for the year. UnitedHealth Group, one of the largest U.S. managed-care companies, was a large contributor, benefitting from solid execution while managing the impact of healthcare reform. The company s diversified business mix, focus on cost containment and robust cash-flow generation drove earnings growth throughout the year that was better than expected. Financial stocks underperformed, and the Portfolio s underweight in this sector benefited performance. Stock selection in the healthcare and materials sectors detracted from performance. The Portfolio s position in MetLife also detracted from performance. The Portfolio did not utilize derivatives during the annual period. MARKET REVIEW AND INVESTMENT STRATEGY Investor risk aversion dominated markets during most of A plethora of macroeconomic worries plagued investors, including ongoing concerns over the European sovereign-debt crisis, a potential separation of the euro area and fears of a harder downturn for the Chinese economy. Positive performance followed better-thanexpected U.S. housing data, consumer confidence and durable goods orders. Congress extension of the payroll tax cut and unemployment benefits also helped market performance. The Relative Value Investment Team (the Team ) continues to believe global macro uncertainty will be slow to recede and that capital markets will be prone to dramatic shifts in sentiment. Global imbalances are unsustainably large and a policy prescription based largely on monetary stimulus runs the risk of doing more long-term harm than short-term good. Indeed, the Team is concerned that too easy monetary policy distorts market price signals and contributes to the misallocation of capital. However, with uncertainty comes opportunity. The Portfolio continues to feature investments that offer an attractive combination of free cash flow, balance sheet and fundamental strength, and business model transparency. The Team is avoiding high yielding stocks with very high dividend payout ratios and making sure its economicallysensitive holdings are unencumbered by balance sheet strain. 1

4 HISTORICAL PERFORMANCE An Important Note About Historical Performance The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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. Investors 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 You should read the prospectus carefully before you invest. 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 Russell 1000 Value Index represents the performance of 1000 large-cap value companies within 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 the Portfolio. A Word About Risk Market Risk: The market values of the portfolio s holdings rise and fall from day to day, so investments may lose value. Foreign (Non-U.S.) Risk: Non-U.S. securities may be more volatile because of political, regulatory, market and economic uncertainties associated with such securities. Fluctuations in currency exchange rates may negatively affect the value of the investment or reduce returns. These risks are magnified in emerging or developing markets. Industry/Sector Risk: Investing a substantial amount of assets in fewer economic sectors may be more volatile than more diversified strategies. Economic or market conditions affecting a particular sector could have a major impact on the portfolio s value. 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

5 HISTORICAL PERFORMANCE (continued from previous page) THE PORTFOLIO VS. ITS BENCHMARK NAV Returns PERIODS ENDED DECEMBER 31, Year 5 Years* 10 Years* AllianceBernstein Growth & Income Portfolio Class A** 6.32% -1.93% 2.53% AllianceBernstein Growth & Income Portfolio Class B** 6.07% -2.18% 2.27% Russell 1000 Value Index 0.39% -2.64% 3.89% * Average annual returns. ** Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio s performance for the annual period ended December 31, 2011, by 0.13%. The Portfolio s current prospectus fee table shows the Portfolio s total annual operating expense ratios as 0.63% and 0.88% for Class A and Class B, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods. ALLIANCEBERNSTEIN GROWTH & INCOME PORTFOLIO CLASS A GROWTH OF A $10,000 INVESTMENT 12/31/01 12/31/11 AllianceBernstein Growth & Income Portfolio Class A Russell 1000 Value Index $20,000 $18,000 $16,000 Russell 1000 Value Index: $14,653 $14,000 $12,000 $10,000 $8,000 AllianceBernstein Growth & Income Portfolio Class A: $12,842 $6,000 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 This chart illustrates the total value of an assumed $10,000 investment in AllianceBernstein Growth & Income Portfolio Class A shares (from 12/31/01 to 12/31/11) as compared to the performance of the Portfolio s benchmark the Russell 1000 Value Index. The chart assumes the reinvestment of dividends and capital gains distributions. See Historical Performance and Benchmark disclosures on previous page. 3

6 FUND EXPENSES (unaudited) 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 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. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower. Hypothetical Example for Comparison Purposes 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. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower. 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 each class 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 Account Value July 1, 2011 Ending Account Value December 31, 2011 Expenses Paid During Period* Annualized Expense Ratio* Class A Actual... $ 1,000 $ $ % Hypothetical (5% return before expenses)... $ 1,000 $ 1, $ % Class B Actual... $ 1,000 $ $ % Hypothetical (5% return before expenses)... $ 1,000 $ 1, $ % * 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

7 TEN LARGEST HOLDINGS * December 31, 2011 (unaudited) COMPANY U.S. $ VALUE PERCENT OF NET ASSETS Chevron Corp. $ 33,026, % UnitedHealth Group, Inc. 32,143, Microsoft Corp. 25,791, Gilead Sciences, Inc. 24,384, JPMorgan Chase & Co. 23,459, Apple, Inc. 23,052, Exxon Mobil Corp. 22,473, Merck & Co., Inc. 22,144, CVS Caremark Corp. 21,841, National Oilwell Varco, Inc. 18,121, $ 246,439, % SECTOR DIVERSIFICATION ** December 31, 2011 (unaudited) SECTOR U.S. $ VALUE PERCENT OF TOTAL INVESTMENTS Healthcare $ 166,637, % Financials 130,615, Information Technology 124,609, Energy 115,279, Industrials 103,614, Consumer Discretionary 88,488, Consumer Staples 53,063, Telecommunication Services 26,156, Materials 22,042, Utilities 16,282, Short-Term Investments 38,164, Total Investments $ 884,954, % * Long-term investments. ** The Portfolio s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The Portfolio of Investments section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund s prospectus. 5

8 PORTFOLIO OF INVESTMENTS December 31, 2011 Company Shares U.S. $ Value COMMON STOCKS 96.8% HEALTH CARE 19.1% BIOTECHNOLOGY 4.8% Amgen,Inc ,942 $ 17,140,346 Gilead Sciences, Inc.(a) ,770 24,384,866 41,525,212 HEALTH CARE EQUIPMENT & SUPPLIES 2.8% Baxter International, Inc ,300 6,694,644 St Jude Medical, Inc ,549 11,166,331 Zimmer Holdings, Inc.(a) ,580 6,281,123 24,142,098 HEALTH CARE PROVIDERS & SERVICES 4.2% Cardinal Health, Inc ,430 4,809,443 UnitedHealth Group, Inc ,240 32,143,283 36,952,726 LIFE SCIENCES TOOLS & SERVICES 0.9% Covance, Inc.(a) ,819 7,764,125 PHARMACEUTICALS 6.4% Abbott Laboratories ,490 6,325,313 Johnson & Johnson ,790 12,512,008 Merck & Co., Inc ,379 22,144,188 Pfizer,Inc ,730 15,271,997 56,253, ,637,667 FINANCIALS 14.9% CAPITAL MARKETS 1.4% BlackRock, Inc. Class A... 29,890 5,327,594 Goldman Sachs Group, Inc. (The)... 72,920 6,594,155 11,921,749 COMMERCIAL BANKS 2.7% PNC Financial Services Group, Inc ,580 7,991,909 Wells Fargo & Co ,500 16,081,260 24,073,169 CONSUMER FINANCE 0.8% Capital One Financial Corp ,820 6,758,788 DIVERSIFIED FINANCIAL SERVICES 4.0% IntercontinentalExchange, Inc.(a)... 97,780 11,787,379 JPMorgan Chase & Co ,550 23,459,537 35,246,916 INSURANCE 6.0% ACELtd ,570 17,359,609 Axis Capital Holdings Ltd ,201 14,708,024 MetLife,Inc ,262 13,103,769 Travelers Cos., Inc. (The) ,790 7,442,994 52,614, ,615,018 Company Shares U.S. $ Value INFORMATION TECHNOLOGY 14.2% COMPUTERS & PERIPHERALS 2.6% Apple,Inc.(a)... 56,920 $ 23,052,600 IT SERVICES 1.6% Accenture PLC ,133 9,428,789 AmdocsLtd.(a) ,400 4,890,042 14,318,831 SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.7% LamResearchCorp.(a)... 90,640 3,355,493 Marvell Technology Group Ltd.(a)... 1,301,258 18,022,423 NVIDIACorp.(a) ,670 7,244,206 Xilinx, Inc ,180 3,275,891 31,898,013 SOFTWARE 6.3% Activision Blizzard, Inc ,753 8,115,837 Adobe Systems, Inc.(a) ,330 5,832,949 Cadence Design Systems, Inc.(a) ,970 5,813,288 MicrosoftCorp ,520 25,791,779 OracleCorp ,530 9,786,245 55,340, ,609,542 ENERGY 13.2% ENERGY EQUIPMENT & SERVICES 3.8% Diamond Offshore Drilling, Inc.(b) ,840 11,761,539 Helmerich&Payne,Inc ,740 3,544,786 National Oilwell Varco, Inc ,537 18,121,851 33,428,176 OIL, GAS & CONSUMABLE FUELS 9.4% ChevronCorp ,400 33,026,560 DevonEnergyCorp ,070 8,064,340 EnergenCorp ,810 6,690,500 Exxon Mobil Corp ,140 22,473,266 Occidental Petroleum Corp ,760 11,596,312 81,850, ,279,154 INDUSTRIALS 11.8% AEROSPACE & DEFENSE 2.9% Honeywell International, Inc ,515 3,234,640 L-3 Communications Holdings, Inc ,360 4,958,325 RaytheonCo ,050 17,274,079 25,467,044 6

9 Company Shares U.S. $ Value COMMERCIAL SERVICES & SUPPLIES 0.8% Corrections Corp. of America(a) ,780 $ 7,532,419 CONSTRUCTION & ENGINEERING 1.4% Foster Wheeler AG(a) ,809 6,446,524 URSCorp.(a) ,950 5,687,684 12,134,208 ELECTRICAL EQUIPMENT 1.6% AMETEK, Inc ,040 6,316,684 Hubbell, Inc. Class B ,790 7,474,279 13,790,963 INDUSTRIAL CONGLOMERATES 1.6% General Electric Co ,180 14,259,584 MACHINERY 1.3% Actuant Corp. Class A ,080 5,038,995 DoverCorp ,380 5,130,459 WABCO Holdings, Inc.(a)... 38,190 1,657,446 11,826,900 PROFESSIONAL SERVICES 1.4% Towers Watson & Co ,930 11,921,875 ROAD & RAIL 0.8% Norfolk Southern Corp ,702 6,681, ,614,401 CONSUMER DISCRETIONARY 10.1% AUTO COMPONENTS 0.7% Autoliv,Inc ,980 6,364,240 AUTOMOBILES 1.0% Harley-Davidson, Inc ,160 8,713,099 INTERNET & CATALOG RETAIL 1.6% Liberty Interactive Corp.(a) ,845 14,088,322 LEISURE EQUIPMENT & PRODUCTS 0.3% Mattel,Inc ,009 3,081,610 MEDIA 5.1% Comcast Corp. Class A ,580 13,812,972 Liberty Media Corp. Liberty Capital(a)... 93,488 7,296,738 Scripps Networks Interactive, Inc. ClassA ,880 12,508,809 Time Warner, Inc ,406 3,737,093 Viacom, Inc. Class B ,270 6,959,991 44,315,603 MULTILINE RETAIL 0.4% Macy s,inc ,400 3,230,872 Company Shares U.S. $ Value SPECIALTY RETAIL 1.0% Bed Bath & Beyond, Inc.(a)... 88,460 $ 5,128,026 Lowe scos.,inc ,520 3,566,398 8,694,424 88,488,170 CONSUMER STAPLES 6.1% FOOD & STAPLES RETAILING 2.9% CVSCaremarkCorp ,597 21,841,646 KrogerCo.(The) ,878 3,436,285 25,277,931 FOOD PRODUCTS 0.6% Smithfield Foods, Inc.(a) ,400 5,132,792 TOBACCO 2.6% Lorillard, Inc ,231 15,416,334 Philip Morris International, Inc ,210 7,236,641 22,652,975 53,063,698 TELECOMMUNICATION SERVICES 3.0% DIVERSIFIED TELECOMMUNICATION SERVICES 3.0% AT&T,Inc ,750 17,259,480 Verizon Communications, Inc ,760 8,897,011 26,156,491 MATERIALS 2.5% CHEMICALS 0.6% CF Industries Holdings, Inc ,740 5,326,565 METALS & MINING 1.2% NewmontMiningCorp ,030 10,143,491 PAPER & FOREST PRODUCTS 0.7% DomtarCorp ,200 6,572,712 22,042,768 UTILITIES 1.9% ELECTRIC UTILITIES 0.6% ExelonCorp ,400 5,221,748 MULTI-UTILITIES 1.3% AmerenCorp ,050 5,070,546 Public Service Enterprise Group, Inc ,470 5,990,325 11,060,871 16,282,619 Total Common Stocks (cost $763,595,858) ,789,528 7

10 PORTFOLIO OF INVESTMENTS (continued) Company Principal Amount (000) U.S. $ Value SHORT-TERM INVESTMENTS 4.4% TIME DEPOSIT 4.4% State Street Time Deposit 0.01%, 1/03/12 (cost $38,164,884)... $ 38,165 $ 38,164,884 Total Investments Before Security Lending Collateral for Securities Loaned 101.2% (cost $801,760,742) ,954,412 INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED 0.2% INVESTMENT COMPANIES 0.2% AllianceBernstein Exchange Reserves Class I, 0.14%(c) (cost $1,440,525)... 1,440,525 1,440,525 TOTAL INVESTMENTS 101.4% (cost $803,201,267) ,394,937 Other assets less liabilities (1.4)%... (12,150,031) NET ASSETS 100.0%... $ 874,244,906 (a) Non-income producing security. (b) Represents entire or partial securities out on loan. See Note E for securities lending information. (c) Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. See notes to financial statements. 8

11 STATEMENT OF ASSETS &LIABILITIES December 31, 2011 ASSETS Investments in securities, at value Unaffiliated issuers (cost $801,760,742)... $ 884,954,412(a) Affiliated issuers (cost $1,440,525 including investment of cash collateral for securities loaned of $1,440,525)... 1,440,525 Cash ,069 Receivable for capital stock sold... 1,741,830 Dividends and interest receivable... 1,149,771 Totalassets ,818,607 LIABILITIES Payable for investment securities purchased... 11,723,966 Payableforcapitalstockredeemed... 1,616,080 Payable for collateral received on securities loaned... 1,440,525 Advisoryfeepayable ,828 Distributionfeepayable ,923 Administrativefeepayable... 17,375 TransferAgentfeepayable Accruedexpenses ,886 Total liabilities... 15,573,701 NET ASSETS... $ 874,244,906 COMPOSITION OF NET ASSETS Capitalstock,atpar... $ 48,858 Additionalpaid-incapital... 1,085,015,928 Undistributednetinvestmentincome... 12,369,858 Accumulatednetrealizedlossoninvestmenttransactions... (306,383,408) Netunrealizedappreciationoninvestments... 83,193,670 $ 874,244,906 Net Asset Value Per Share 1 billion shares of capital stock authorized, $.001 par value Class Net Assets Shares Outstanding Net Asset Value A $ 138,731,130 7,684,673 $ B $ 735,513,776 41,173,245 $ (a) Includes securities on loan with a value of $1,390,452 (see Note E). See notes to financial statements. 9

12 STATEMENT OF OPERATIONS Year Ended December 31, 2011 INVESTMENT INCOME Dividends Unaffiliated issuers... $ 20,086,828 Affiliated issuers... 1,859 Interest... 70,075 Securities lending income... 15,450 20,174,212 EXPENSES Advisoryfee(seeNoteB)... 5,209,331 Distributionfee ClassB... 1,943,217 Transferagency ClassA... 1,361 Transferagency ClassB... 6,096 Printing ,237 Custodian ,896 Administrative... 60,194 Legal... 44,775 Audit... 36,071 Directors fees... 3,757 Miscellaneous... 23,244 Totalexpenses... 7,649,179 Netinvestmentincome... 12,525,033 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Netrealizedgainoninvestmenttransactions... 93,888,095 Netchangeinunrealizedappreciation/depreciationofinvestments... (47,469,481) Netgainoninvestmenttransactions... 46,418,614 NET INCREASE IN NET ASSETS FROM OPERATIONS... $ 58,943,647 See notes to financial statements. 10

13 STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31, 2011 Year Ended December 31, 2010 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Netinvestmentincome... $ 12,525,033 $ 10,942,467 Netrealizedgainoninvestmenttransactions... 93,888,095 96,916,273 Netchangeinunrealizedappreciation/depreciationofinvestments... (47,469,481) 9,255,997 Netincreaseinnetassetsfromoperations... 58,943, ,114,737 DIVIDENDS TO SHAREHOLDERS FROM Net investment income ClassA... (2,574,136) 0 ClassB... (8,523,506) 0 CAPITAL STOCK TRANSACTIONS Netdecrease... (180,836,431) (162,497,663) Totaldecrease... (132,990,426) (45,382,926) NET ASSETS Beginningofperiod... 1,007,235,332 1,052,618,258 End of period (including undistributed net investment income of $12,369,858 and $10,942,467, respectively)... $ 874,244,906 $1,007,235,332 See notes to financial statements. 11

14 NOTES TO FINANCIAL STATEMENTS December 31, 2011 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 long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fourteen 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 ( U.S. GAAP ) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities 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 (other than securities listed on the NASDAQ Stock Market, Inc. ( NASDAQ )) 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 last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter market ( OTC ) put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the Adviser ) will have discretion to determine the best valuation (e.g. last trade price); 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; 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; fixedincome 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, 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 swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties, which are approved by the Board of Directors. 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 Portfolio may use fair value pricing for securities primarily traded in non-u.s. markets because 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 and may materially affect the value of those securities. 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. 2. Fair Value Measurements In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement 12

15 date. The U.S. GAAP disclosure requirements establish a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below. Level 1 quoted prices in active markets for identical investments Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) Level 3 significant unobservable inputs (including the Portfolio s own assumptions in determining the fair value of investments) The following table summarizes the valuation of the Portfolio s investments by the above fair value hierarchy levels as of December 31, 2011: Level 1 Level 2 Level 3 Total Investments in Securities: Assets: CommonStocks*... $846,789,528 $ 0 $ 0 $846,789,528 Short-TermInvestments ,164, ,164,884 Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund... 1,440, ,440,525 Total Investments in Securities ,230,053 38,164, ,394,937 Other Financial Instruments** Total... $848,230,053 $38,164,884 $ 0 $886,394,937 * See Portfolio of Investments for sector classifications. ** Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. 3. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange 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. 4. 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. 13

16 NOTES TO FINANCIAL STATEMENTS (continued) In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio s financial statements. 5. 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 the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income. 6. Class Allocations 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. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets. 7. Dividends and Distributions Dividends and distributions to shareholders, if any, 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. GAAP. 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. The fee is accrued daily and paid monthly. Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2011, such fee amounted to $60,194. Brokerage commissions paid on investment transactions for the year ended December 31, 2011 amounted to $1,384,525, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser. The Portfolio compensates AllianceBernstein Investor Services, Inc. ( ABIS ), 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 retained by ABIS amounted to $1,311 for the year ended December 31, 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 Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, 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 or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio s shares. 14

17 NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2011 were as follows: Purchases Sales Investment securities (excluding U.S. government securities)... $700,837,575 $879,008,892 U.S. government securities The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows: Cost... $807,585,725 Grossunrealizedappreciation... $103,989,383 Grossunrealizeddepreciation... (25,180,171) Netunrealizedappreciation... $ 78,809, Derivative Financial Instruments The Portfolio may use derivatives to earn income and enhance returns, to hedge or adjust the risk profile of its portfolio, to replace more traditional direct investments, or to obtain exposure to otherwise inaccessible markets. The Portfolio did not engage in derivatives transactions for the year ended December 31, Currency Transactions The Portfolio may invest in non-u.s. Dollar securities on a currency hedged or unhedged basis. The Portfolio 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 other options. The Portfolio 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). NOTE E: Securities Lending The Portfolio may enter into securities lending transactions. Under the Portfolio s securities lending program, all securities loans will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a negative rebate or fee paid by the borrower to the Portfolio in connection with the loan), and payments for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not have the right to vote any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent will invest the cash collateral received in AllianceBernstein Exchange Reserves, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Fund s Board of Directors. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2011, the Portfolio had securities on loan with a value of $1,390,452 and had received cash collateral which has been invested into AllianceBernstein Exchange Reserves of $1,440,525. The cash collateral will be adjusted on the next business day after period end to maintain the required collateral amount. The Portfolio earned securities lending income of $15,450 and $1,859 from the borrowers and AllianceBernstein Exchange Reserves, respectively, for the year ended December 31, 2011; these amounts are reflected in the statement of operations. A principal risk of lending portfolio securities is that the borrower will fail to return the loaned securities upon termination of the loan and that the 15

18 NOTES TO FINANCIAL STATEMENTS (continued) collateral will not be sufficient to replace the loaned securities. A summary of the Portfolio s transactions in shares of AllianceBernstein Exchange Reserves for the year ended December 31, 2011 is as follows: Market Value December 31, 2010 (000) Purchases at Cost (000) Sales Proceeds (000) Market Value December 31, 2011 (000) Dividend Income (000) $ 0 $47,063 $45,622 $1,441 $2 NOTE F: Capital Stock Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows: Year Ended December 31, 2011 SHARES Year Ended December 31, 2010 Year Ended December 31, 2011 AMOUNT Year Ended December 31, 2010 Class A Sharessold , ,632 $ 9,029,709 $ 9,952,979 Sharesissuedinreinvestmentofdividends , ,574,137 0 Sharesredeemed... (4,680,769) (3,055,947) (83,787,159) (46,792,122) Netdecrease... (4,037,919) (2,426,315) $ (72,183,313) $ (36,839,143) Class B Sharessold... 2,297,038 1,401,841 $ 40,404,439 $ 21,636,957 Sharesissuedinreinvestmentofdividends , ,523,506 0 Sharesredeemed... (8,934,188) (9,574,652) (157,581,063) (147,295,477) Netdecrease... (6,181,104) (8,172,811) $(108,653,118) $(125,658,520) NOTE G: Risks Involved in Investing in the Portfolio Foreign Securities Risk Investing in securities of foreign companies or foreign governments involve special risks which include changes in foreign currency 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 U.S. companies or of the U.S. government. Currency Risk This is the risk that changes in foreign currency exchange rates may negatively affect the value of the Portfolio s investments or reduce the returns of the Portfolio. For example, the value of the Portfolio s investments in foreign currency-denominated securities or currencies may decrease if the U.S. Dollar is strong (i.e., gaining value relative to other currencies) and other currencies are weak (i.e., losing value relative to the U.S. Dollar). Currency markets are generally not as regulated as securities markets. Independent of the Portfolio s investments denominated in foreign currencies, the Portfolio s positions in various foreign currencies may cause the Portfolio to experience investment losses due to the changes in exchange rates and interest rates. Derivatives Risk The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected in the statement of assets and liabilities. 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. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions. NOTE H: Joint Credit Facility A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $140 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 miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31,

19 NOTE I: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2011 and December 31, 2010 were as follows: Distributions paid from: Ordinaryincome... $11,097,642 $ 0 Totaltaxabledistributions... 11,097,642 0 Totaldistributionspaid... $11,097,642 $ 0 As of December 31, 2011, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributedordinaryincome... $ 12,369,858 Accumulatedcapitalandotherlosses... (301,998,950)(a) Unrealizedappreciation/(depreciation)... 78,809,212(b) Total accumulated earnings/(deficit)... $(210,819,880) (a) On December 31, 2011, the Portfolio had a net capital loss carryforward of $298,366,259. During the fiscal year, the Portfolio utilized $96,602,234 of capital loss carryforwards to offset current year net realized gains. At December 31, 2011, the Portfolio had a post- October short-term capital loss deferral of $3,632,691, which is deemed to arise on January 1, (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 tax purposes, net capital losses may be carried over to offset future capital gains, if any. Under the Regulated Investment Company Modernization Act of 2010, funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-enactment capital losses must be utilized prior to the preenactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of December 31, 2011, the Portfolio had a net capital loss carryforward of $298,366,259 which will expire as follows: SHORT-TERM AMOUNT LONG-TERM AMOUNT EXPIRATION $ 60,797,075 $ n/a ,569,184 n/a 2017 During the current fiscal year there were no permanent differences that resulted in adjustments to undistributed net investment income, accumulated net realized loss on investment transactions, or additional paid-in capital. NOTE J: Recent Accounting Pronouncements In May 2011, the Financial Accounting Standards Board ( FASB ) issued an Accounting Standards Update ( ASU ) to develop common requirements for measuring fair value and for disclosing information about fair value measurements in U.S. GAAP and International Financial Reporting Standards ( IFRS ). The amendments are intended to improve the comparability of fair value measurements presented and disclosed in the financial statements prepared in accordance with U.S. GAAP and IFRS. The ASU is effective during interim or annual periods beginning after December 15, At this time, management is evaluating the implication of this ASU and its impact on the financial statements has not been determined. In December 2011, the FASB issued an ASU related to disclosures about offsetting assets and liabilities in financial statements. The amendments in this update require an entity to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective during interim or annual reporting periods beginning on or after January 1, At this time, management is evaluating the implication of this ASU and its impact on the financial statements has not been determined. NOTE K: Subsequent Events Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio s financial statements through this date. 17