UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21497
AB CORPORATE SHARES
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Joseph J. Mantineo
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 221-5672
Date of fiscal year end: April 30, 2021
Date of reporting period: October 31, 2020
ITEM 1. REPORTS TO STOCKHOLDERS.
OCT 10.31.20
SEMI-ANNUAL REPORT
AB CORPORATE INCOME SHARES
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
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 AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT | ![]() |
Dear Shareholder,
We are pleased to provide this report for AB Corporate Income Shares (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB CORPORATE INCOME SHARES | 1 |
SEMI-ANNUAL REPORT
December 15, 2020
This report provides management’s discussion of fund performance for AB Corporate Income Shares for the semi-annual reporting period ended October 31, 2020. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by the Adviser.
The Fund’s investment objective is to earn high current income.
NAV RETURNS AS OF OCTOBER 31, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB CORPORATE INCOME SHARES | 7.61% | 8.02% | ||||||
Bloomberg Barclays US Credit Bond Index | 4.80% | 6.66% |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays US Credit Bond Index, for the six- and 12-month periods ended October 31, 2020.
During the six-month period, the Fund outperformed the benchmark. Security selection was the primary contributor, relative to the benchmark, mostly within the banking, technology, energy, real estate investment trusts (“REITs”), electric and consumer-noncyclical sectors. Industry exposure also contributed due to positions in energy, automotive and REITs, which more than offset a loss in sovereign bonds. The Fund’s longer-than-benchmark duration contributed, as rates rallied in the period. Overall yield-curve positioning and the shape of the Fund’s yield curve were minor detractors from performance.
During the 12-month period, the Fund outperformed the benchmark. The Fund’s longer-than-benchmark duration contributed most, as rates rallied in the period. Yield-curve positioning also contributed, as positioning along the three- to six-year and seven- to 10-year parts of the curve more than offset positioning in the one- to two-year and longer-than-10-year parts of the yield curve. Security selection was also positive, mostly from gains within the technology, consumer cyclicals–retail, consumer noncyclical and basic sectors, which were greater than losses in consumer cyclicals–other and banking. Industry allocation contributed, mainly in cash, investment-grade credit default swap derivatives and the banking sector, while energy and REITs detracted.
The Fund utilized derivatives in the form of futures and interest rate swaps for hedging purposes, which detracted from absolute returns for the six-month period and added for the 12-month period. Credit default swaps
2 | AB CORPORATE INCOME SHARES | abfunds.com |
were used for investment purposes, which added to returns for both periods.
MARKET REVIEW AND INVESTMENT STRATEGY
Global fixed-income market returns were positive yet volatile over the six-month period ended October 31, 2020. Government bonds advanced modestly. Emerging- and developed-market high-yield corporate bonds led gains, followed by emerging- and developed-market investment-grade corporates, as investors searched for higher yields in a period of falling interest rates. Corporate bonds in the US outperformed their European counterparts. Emerging-market local bonds also rebounded, and securitized assets provided positive, yet muted, results. The US dollar fell against all major developed-market currencies and a majority of emerging-market currencies. Brent crude oil prices rose 90% from recent historic lows as economies started to open up and rebound.
The Fund’s Senior Investment Management Team (the “Team”) continues to seek attractively priced securities through top-down and bottom-up research, while mitigating overall risk. The Team invests primarily in single-sector, investment-grade issues of global corporates, but has leeway to invest in below investment-grade bonds as well.
INVESTMENT POLICIES
The Fund invests, under normal circumstances, at least 80% of its net assets in US corporate bonds. The Fund may also invest in US government securities (other than US government securities that are mortgage-backed or asset-backed securities), repurchase agreements and forward contracts relating to US government securities. The Fund normally invests all of its assets in securities that are rated, at the time of purchase, at least BBB- or the equivalent. The Fund will not invest in unrated corporate debt securities. The Fund has the flexibility to invest in long- and short-term fixed-income securities. In making decisions about whether to buy or sell securities, the Adviser will consider, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates and other general market conditions and the credit quality of individual issuers.
The Fund also may: invest in convertible debt securities; invest up to 10% of its assets in inflation-indexed securities; invest up to 5% of its net assets in preferred stock; purchase and sell interest rate futures contracts and options; enter into swap transactions; invest in zero-coupon securities and “payment-in-kind” debentures; make secured loans of portfolio securities; and invest in US dollar-denominated fixed-income securities issued by non-US companies.
abfunds.com | AB CORPORATE INCOME SHARES | 3 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Credit Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays US Credit Bond Index represents the performance of the US credit securities within the US fixed-income market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and any accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
4 | AB CORPORATE INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS (continued)
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Management Risk: The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227 4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
abfunds.com | AB CORPORATE INCOME SHARES | 5 |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2020 (unaudited)
NAV Returns | ||||
1 Year | 8.02% | |||
5 Years | 6.09% | |||
10 Years | 5.45% |
AVERAGE ANNUAL RETURNS AS OF THE MOST RECENT CALENDAR QUARTER-END SEPTEMBER 30, 2020 (unaudited)
NAV Returns | ||||
1 Year | 8.83% | |||
5 Years | 6.21% | |||
10 Years | 5.47% |
The prospectus fee table shows the fees and the total operating expenses of the Fund as 0.00% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses, except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.
6 | AB CORPORATE INCOME SHARES | abfunds.com |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. 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.
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.
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 hypothetical example 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 May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Actual | $ | 1,000 | $ | 1,076.10 | $ | – 0 – | 0.00 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,025.21 | $ | – 0 – | 0.00 | % |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates. |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB CORPORATE INCOME SHARES | 7 |
PORTFOLIO SUMMARY
October 31, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $182.1
1 | All data are as of October 31, 2020. The Fund’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
8 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS
October 31, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
CORPORATES – INVESTMENT GRADE – 90.9% |
| |||||||
Industrial – 50.6% | ||||||||
Basic – 2.3% |
| |||||||
Anglo American Capital PLC | $ | 515 | $ | 593,913 | ||||
Celulosa Arauco y Constitucion SA | 246 | 262,913 | ||||||
4.50%, 08/01/2024 | 200 | 217,500 | ||||||
Glencore Funding LLC | 531 | 528,175 | ||||||
4.625%, 04/29/2024(a) | 175 | 192,469 | ||||||
Industrias Penoles SAB de CV | 300 | 329,531 | ||||||
Inversiones CMPC SA | 210 | 228,273 | ||||||
LYB International Finance III LLC | 340 | 365,038 | ||||||
LyondellBasell Industries NV | 102 | 113,703 | ||||||
Nutrition & Biosciences, Inc. | 38 | 38,112 | ||||||
2.30%, 11/01/2030(a) | 210 | 211,512 | ||||||
Reliance Steel & Aluminum Co. | 848 | 915,721 | ||||||
Sherwin-Williams Co. (The) | 62 | 67,008 | ||||||
Suzano Austria GmbH | 92 | 94,033 | ||||||
|
| |||||||
4,157,901 | ||||||||
|
| |||||||
Capital Goods – 0.8% |
| |||||||
CNH Industrial Capital LLC | 320 | 325,533 | ||||||
General Electric Co. | 26 | 27,543 | ||||||
4.25%, 05/01/2040 | 130 | 136,639 | ||||||
5.875%, 01/14/2038 | 384 | 462,386 | ||||||
Series G | ||||||||
3.10%, 01/09/2023 | 214 | 224,319 | ||||||
Raytheon Technologies Corp. | 230 | 242,487 | ||||||
Westinghouse Air Brake Technologies Corp. | 61 | 64,757 | ||||||
4.40%, 03/15/2024 | 39 | 42,559 | ||||||
|
| |||||||
1,526,223 | ||||||||
|
|
abfunds.com | AB CORPORATE INCOME SHARES | 9 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Communications - Media – 6.4% |
| |||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | $ | 309 | $ | 361,391 | ||||
5.375%, 05/01/2047 | 519 | 620,205 | ||||||
Comcast Corp. | 57 | 52,474 | ||||||
2.80%, 01/15/2051 | 135 | 133,546 | ||||||
3.25%, 11/01/2039 | 568 | 627,475 | ||||||
3.90%, 03/01/2038 | 215 | 254,145 | ||||||
4.049%, 11/01/2052 | 44 | 53,943 | ||||||
4.60%, 10/15/2038 | 85 | 108,073 | ||||||
4.65%, 07/15/2042 | 498 | 642,281 | ||||||
6.45%, 03/15/2037 | 436 | 648,219 | ||||||
Fox Corp. | 23 | 25,037 | ||||||
3.50%, 04/08/2030 | 180 | 201,222 | ||||||
5.576%, 01/25/2049 | 422 | 575,329 | ||||||
Interpublic Group of Cos., Inc. (The) | 601 | 722,426 | ||||||
Omnicom Group, Inc. | 1,042 | 1,215,774 | ||||||
Prosus NV | 210 | 227,784 | ||||||
Thomson Reuters Corp. | 280 | 365,210 | ||||||
Time Warner Entertainment Co. LP | 987 | 1,154,089 | ||||||
ViacomCBS, Inc. | 21 | 22,902 | ||||||
3.70%, 06/01/2028 | 520 | 577,507 | ||||||
4.20%, 05/19/2032 | 225 | 259,213 | ||||||
4.95%, 01/15/2031 | 337 | 408,508 | ||||||
Walt Disney Co. (The) | 205 | 198,110 | ||||||
3.00%, 09/15/2022 | 265 | 277,794 | ||||||
3.35%, 03/24/2025 | 131 | 145,124 | ||||||
3.60%, 01/13/2051 | 429 | 477,348 | ||||||
4.00%, 10/01/2023 | 40 | 43,548 | ||||||
5.40%, 10/01/2043 | 180 | 249,174 | ||||||
6.15%, 02/15/2041 | 110 | 161,321 | ||||||
6.40%, 12/15/2035 | 161 | 239,384 | ||||||
8.875%, 04/26/2023 | 125 | 148,625 | ||||||
Weibo Corp. | 373 | 389,086 | ||||||
|
| |||||||
11,586,267 | ||||||||
|
|
10 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Communications - Telecommunications – 3.5% |
| |||||||
AT&T, Inc. | $ | 705 | $ | 730,578 | ||||
3.30%, 02/01/2052 | 135 | 124,151 | ||||||
3.50%, 09/15/2053(a) | 929 | 884,064 | ||||||
3.55%, 09/15/2055(a) | 105 | 99,356 | ||||||
3.65%, 06/01/2051 | 384 | 376,044 | ||||||
4.30%, 02/15/2030 | 587 | 684,653 | ||||||
4.35%, 03/01/2029 | 370 | 430,588 | ||||||
6.55%, 01/15/2028 | 130 | 162,995 | ||||||
Corning, Inc. | 465 | 566,547 | ||||||
Rogers Communications, Inc. | 4 | 4,832 | ||||||
T-Mobile USA, Inc. | 570 | 640,805 | ||||||
Verizon Communications, Inc. | 244 | 295,418 | ||||||
4.272%, 01/15/2036 | 586 | 717,059 | ||||||
4.862%, 08/21/2046 | 571 | 758,579 | ||||||
|
| |||||||
6,475,669 | ||||||||
|
| |||||||
Consumer Cyclical - Automotive – 2.7% |
| |||||||
BMW US Capital LLC | 378 | 421,341 | ||||||
Cummins, Inc. | 386 | 369,082 | ||||||
General Motors Co. | 95 | 116,476 | ||||||
General Motors Financial Co., Inc. | 798 | 844,643 | ||||||
4.15%, 06/19/2023 | 116 | 123,564 | ||||||
4.30%, 07/13/2025 | 418 | 456,013 | ||||||
Harley-Davidson Financial Services, Inc. | 824 | 868,776 | ||||||
Hyundai Capital America | 160 | 186,613 | ||||||
Lear Corp. | 40 | 41,654 | ||||||
3.80%, 09/15/2027 | 406 | 433,937 | ||||||
Nissan Motor Co., Ltd. | 285 | 285,824 | ||||||
Toyota Motor Credit Corp. | 364 | 385,767 | ||||||
Volkswagen Group of America Finance LLC | 285 | 310,265 | ||||||
|
| |||||||
4,843,955 | ||||||||
|
|
abfunds.com | AB CORPORATE INCOME SHARES | 11 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Consumer Cyclical - Other – 1.0% |
| |||||||
Las Vegas Sands Corp. | $ | 695 | $ | 688,842 | ||||
3.20%, 08/08/2024 | 573 | 579,601 | ||||||
Marriott International, Inc./MD | 213 | 219,573 | ||||||
3.75%, 10/01/2025 | 195 | 200,447 | ||||||
Series EE | ||||||||
5.75%, 05/01/2025 | 210 | 233,818 | ||||||
|
| |||||||
1,922,281 | ||||||||
|
| |||||||
Consumer Cyclical - Restaurants – 0.2% |
| |||||||
McDonald’s Corp. | 230 | 294,066 | ||||||
|
| |||||||
Consumer Cyclical - Retailers – 2.6% |
| |||||||
Advance Auto Parts, Inc. | 57 | 56,620 | ||||||
3.90%, 04/15/2030 | 449 | 506,598 | ||||||
AutoNation, Inc. | 70 | 82,126 | ||||||
Costco Wholesale Corp. | 263 | 270,714 | ||||||
Dollar General Corp. | 61 | 64,628 | ||||||
Home Depot, Inc. (The) | 40 | 59,235 | ||||||
PVH Corp. | 152 | 160,314 | ||||||
Ralph Lauren Corp. | 995 | 1,031,884 | ||||||
Ross Stores, Inc. | 160 | 188,048 | ||||||
4.80%, 04/15/2030 | 115 | 140,819 | ||||||
5.45%, 04/15/2050 | 215 | 286,722 | ||||||
Target Corp. | 263 | 271,219 | ||||||
TJX Cos., Inc. (The) | 647 | 859,876 | ||||||
VF Corp. | 88 | 93,472 | ||||||
2.80%, 04/23/2027 | 101 | 109,056 | ||||||
2.95%, 04/23/2030 | 489 | 530,379 | ||||||
|
| |||||||
4,711,710 | ||||||||
|
|
12 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Consumer Non - Cyclical – 10.1% |
| |||||||
AbbVie, Inc. | $ | 80 | $ | 91,839 | ||||
4.25%, 11/21/2049(a) | 135 | 157,804 | ||||||
4.40%, 11/06/2042 | 185 | 219,713 | ||||||
4.75%, 03/15/2045(a) | 118 | 144,647 | ||||||
4.875%, 11/14/2048 | 541 | 686,139 | ||||||
Altria Group, Inc. | 180 | 195,365 | ||||||
4.80%, 02/14/2029 | 586 | 687,513 | ||||||
5.95%, 02/14/2049 | 190 | 251,817 | ||||||
Amgen, Inc. | 215 | 228,463 | ||||||
4.663%, 06/15/2051 | 375 | 484,875 | ||||||
Anheuser-Busch InBev Finance, Inc. | 448 | 539,934 | ||||||
Anheuser-Busch InBev Worldwide, Inc. | 503 | 599,236 | ||||||
4.95%, 01/15/2042 | 490 | 602,019 | ||||||
BAT Capital Corp. | 597 | 596,499 | ||||||
4.39%, 08/15/2037 | 333 | 356,876 | ||||||
4.906%, 04/02/2030 | 529 | 616,650 | ||||||
Biogen, Inc. | 710 | 686,911 | ||||||
Bristol-Myers Squibb Co. | 256 | 270,344 | ||||||
4.55%, 02/20/2048 | 768 | 1,016,225 | ||||||
Cigna Corp. | 71 | 75,371 | ||||||
4.80%, 08/15/2038-07/15/2046 | 783 | 976,526 | ||||||
7.875%, 05/15/2027 | 53 | 70,829 | ||||||
Coca-Cola Co. (The) | 215 | 212,618 | ||||||
CommonSpirit Health | 44 | 48,023 | ||||||
CVS Health Corp. | 308 | 345,853 | ||||||
4.10%, 03/25/2025 | 11 | 12,403 | ||||||
4.78%, 03/25/2038 | 811 | 980,142 | ||||||
5.125%, 07/20/2045 | 325 | 411,473 | ||||||
Danaher Corp. | 260 | 335,223 | ||||||
Gilead Sciences, Inc. | 271 | 271,645 | ||||||
2.60%, 10/01/2040 | 490 | 474,482 | ||||||
4.50%, 02/01/2045 | 80 | 98,139 |
abfunds.com | AB CORPORATE INCOME SHARES | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
4.80%, 04/01/2044 | $ | 145 | $ | 184,455 | ||||
5.65%, 12/01/2041 | 105 | 146,974 | ||||||
Kimberly-Clark de Mexico SAB de CV | 320 | 321,100 | ||||||
Kraft Heinz Foods Co. | 301 | 325,869 | ||||||
Leggett & Platt, Inc. | 511 | 570,828 | ||||||
Merck & Co., Inc. | 113 | 142,512 | ||||||
Mylan, Inc. | 692 | 756,951 | ||||||
PepsiCo, Inc. | 271 | 274,379 | ||||||
Perrigo Finance Unlimited Co. | 420 | 467,796 | ||||||
Pfizer, Inc. | 112 | 142,356 | ||||||
Smithfield Foods, Inc. | 65 | 66,006 | ||||||
Sysco Corp. | 250 | 351,730 | ||||||
Takeda Pharmaceutical Co., Ltd. | 586 | 589,323 | ||||||
Universal Health Services, Inc. | 497 | 495,584 | ||||||
Wyeth LLC | 264 | 386,596 | ||||||
Zimmer Biomet Holdings, Inc. | 350 | 388,003 | ||||||
|
| |||||||
18,356,058 | ||||||||
|
| |||||||
Energy – 8.0% |
| |||||||
Boardwalk Pipelines LP | 140 | 134,637 | ||||||
4.80%, 05/03/2029 | 304 | 325,551 | ||||||
BP Capital Markets America, Inc. | 670 | 632,446 | ||||||
Ecopetrol SA | 89 | 97,854 | ||||||
Enable Midstream Partners LP | 41 | 33,856 | ||||||
Enbridge, Inc. | 115 | 121,303 | ||||||
Energy Transfer Operating LP | 47 | 48,739 | ||||||
5.25%, 04/15/2029 | 415 | 449,599 | ||||||
6.25%, 04/15/2049 | 393 | 415,252 |
14 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Eni SpA | $ | 247 | $ | 279,552 | ||||
Enterprise Products Operating LLC | 130 | 129,840 | ||||||
4.20%, 01/31/2050 | 449 | 480,403 | ||||||
4.80%, 02/01/2049 | 85 | 98,580 | ||||||
4.90%, 05/15/2046 | 45 | 51,255 | ||||||
EOG Resources, Inc. | 74 | 87,288 | ||||||
Exxon Mobil Corp. | 524 | 604,748 | ||||||
4.327%, 03/19/2050 | 115 | 138,806 | ||||||
Husky Energy, Inc. | 712 | 724,083 | ||||||
Marathon Petroleum Corp. | 596 | 681,735 | ||||||
MPLX LP | 713 | 687,061 | ||||||
4.125%, 03/01/2027 | 180 | 197,032 | ||||||
Newfield Exploration Co. | 610 | 573,400 | ||||||
Noble Energy, Inc. | 110 | 131,217 | ||||||
6.00%, 03/01/2041 | 113 | 158,734 | ||||||
ONEOK, Inc. | 99 | 101,007 | ||||||
5.20%, 07/15/2048 | 295 | 289,277 | ||||||
6.35%, 01/15/2031 | 500 | 580,475 | ||||||
Plains All American Pipeline LP/PAA Finance Corp. | 51 | 48,969 | ||||||
3.60%, 11/01/2024 | 461 | 474,115 | ||||||
4.50%, 12/15/2026 | 341 | 362,101 | ||||||
Sabine Pass Liquefaction LLC | 452 | 493,819 | ||||||
Shell International Finance BV | 705 | 727,560 | ||||||
3.75%, 09/12/2046 | 125 | 137,805 | ||||||
Suncor Energy, Inc. | 455 | 486,613 | ||||||
Sunoco Logistics Partners Operations LP | 170 | 175,899 | ||||||
5.35%, 05/15/2045 | 145 | 138,075 | ||||||
Tengizchevroil Finance Co. International Ltd. | 265 | 269,058 | ||||||
Total Capital International SA | 205 | 205,974 |
abfunds.com | AB CORPORATE INCOME SHARES | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
TransCanada PipeLines Ltd. | $ | 534 | $ | 606,378 | ||||
4.75%, 05/15/2038 | 50 | 59,336 | ||||||
Transcontinental Gas Pipe Line Co. LLC | 648 | 694,883 | ||||||
7.85%, 02/01/2026 | 325 | 417,238 | ||||||
Valero Energy Corp. | 394 | 405,174 | ||||||
7.50%, 04/15/2032 | 318 | 417,299 | ||||||
Williams Cos., Inc.(The) | 130 | 157,655 | ||||||
|
| |||||||
14,531,681 | ||||||||
|
| |||||||
Services – 2.2% |
| |||||||
Amazon.com, Inc. | 261 | 271,310 | ||||||
4.25%, 08/22/2057 | 107 | 141,380 | ||||||
Booking Holdings, Inc. | 810 | 959,356 | ||||||
eBay, Inc. | 62 | 64,857 | ||||||
3.60%, 06/05/2027 | 421 | 470,838 | ||||||
Expedia Group, Inc. | 73 | 80,270 | ||||||
IHS Markit Ltd. | 76 | 84,496 | ||||||
Moody’s Corp. | 177 | 184,507 | ||||||
5.25%, 07/15/2044 | 356 | 478,282 | ||||||
PayPal Holdings, Inc. | 637 | 691,049 | ||||||
Verisk Analytics, Inc. | 486 | 670,651 | ||||||
|
| |||||||
4,096,996 | ||||||||
|
| |||||||
Technology – 9.5% |
| |||||||
Analog Devices, Inc. | 36 | 39,094 | ||||||
Apple, Inc. | 264 | 270,877 | ||||||
2.55%, 08/20/2060 | 210 | 203,664 | ||||||
2.65%, 05/11/2050 | 170 | 172,693 | ||||||
4.45%, 05/06/2044 | 881 | 1,173,853 | ||||||
Autodesk, Inc. | 605 | 681,417 | ||||||
Baidu, Inc. | 265 | 281,265 |
16 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | $ | 63 | $ | 67,748 | ||||
3.875%, 01/15/2027 | 342 | 378,067 | ||||||
Broadcom, Inc. | 872 | 951,971 | ||||||
4.11%, 09/15/2028 | 596 | 664,129 | ||||||
4.25%, 04/15/2026 | 332 | 373,417 | ||||||
Dell International LLC/EMC Corp. | 546 | 621,747 | ||||||
6.02%, 06/15/2026(a) | 513 | 607,966 | ||||||
Hewlett Packard Enterprise Co. | 463 | 471,732 | ||||||
Honeywell International, Inc. | 271 | 271,344 | ||||||
HP, Inc. | 473 | 507,647 | ||||||
Infor, Inc. | 95 | 97,639 | ||||||
Intel Corp. | 235 | 320,559 | ||||||
4.90%, 07/29/2045 | 195 | 267,729 | ||||||
International Business Machines Corp. | 365 | 383,159 | ||||||
2.95%, 05/15/2050 | 360 | 363,168 | ||||||
4.25%, 05/15/2049 | 210 | 259,379 | ||||||
KLA Corp. | 215 | 225,415 | ||||||
5.00%, 03/15/2049 | 247 | 326,801 | ||||||
Lam Research Corp. | 829 | 858,753 | ||||||
3.75%, 03/15/2026 | 142 | 163,007 | ||||||
Leidos, Inc. | 486 | 565,558 | ||||||
Microchip Technology, Inc. | 175 | 178,313 | ||||||
Micron Technology, Inc. | 455 | 533,369 | ||||||
Microsoft Corp. | 264 | 270,640 | ||||||
2.525%, 06/01/2050 | 601 | 613,050 | ||||||
NXP BV/NXP Funding LLC | 296 | 366,729 | ||||||
NXP BV/NXP Funding LLC/NXP USA, Inc. | 24 | 25,501 | ||||||
3.15%, 05/01/2027(a) | 500 | 541,460 | ||||||
Oracle Corp. | 480 | 502,943 |
abfunds.com | AB CORPORATE INCOME SHARES | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
3.60%, 04/01/2050 | $ | 420 | $ | 460,879 | ||||
3.85%, 04/01/2060 | 94 | 106,678 | ||||||
4.00%, 11/15/2047 | 310 | 359,960 | ||||||
6.125%, 07/08/2039 | 254 | 377,180 | ||||||
QUALCOMM, Inc. | 447 | 568,562 | ||||||
Texas Instruments, Inc. | 265 | 270,984 | ||||||
VMware, Inc. | 591 | 653,167 | ||||||
|
| |||||||
17,399,213 | ||||||||
|
| |||||||
Transportation - Airlines – 0.4% |
| |||||||
Delta Air Lines, Inc./SkyMiles IP Ltd. | 131 | 132,935 | ||||||
Southwest Airlines Co. | 519 | 575,846 | ||||||
|
| |||||||
708,781 | ||||||||
|
| |||||||
Transportation - Railroads – 0.2% |
| |||||||
Burlington Northern Santa Fe LLC | 85 | 109,379 | ||||||
CSX Corp. | 12 | 14,066 | ||||||
Union Pacific Corp. | 200 | 227,754 | ||||||
|
| |||||||
351,199 | ||||||||
|
| |||||||
Transportation - Services – 0.7% |
| |||||||
Aviation Capital Group LLC | 215 | 215,030 | ||||||
4.375%, 01/30/2024(a) | 230 | 231,631 | ||||||
ERAC USA Finance LLC | 145 | 159,400 | ||||||
FedEx Corp. | 151 | 172,966 | ||||||
Penske Truck Leasing Co. Lp/PTL Finance Corp. | 300 | 326,256 | ||||||
4.20%, 04/01/2027(a) | 117 | 131,496 | ||||||
|
| |||||||
1,236,779 | ||||||||
|
| |||||||
92,198,779 | ||||||||
|
| |||||||
Financial Institutions – 36.6% |
| |||||||
Banking – 24.4% |
| |||||||
American Express Co. | 472 | 488,265 | ||||||
Banco de Credito del Peru | 304 | 307,040 |
18 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Banco Santander SA | $ | 600 | $ | 683,580 | ||||
Bank of America Corp. | 214 | 218,297 | ||||||
2.592%, 04/29/2031 | 605 | 633,247 | ||||||
2.831%, 10/24/2051 | 300 | 299,646 | ||||||
2.881%, 04/24/2023 | 360 | 371,891 | ||||||
4.271%, 07/23/2029 | 827 | 971,006 | ||||||
Series L | 1,134 | 1,264,058 | ||||||
Series X | 175 | 190,068 | ||||||
Series Z | 53 | 58,913 | ||||||
Bank of New York Mellon Corp. (The) | 212 | 217,639 | ||||||
Series G | 148 | 158,424 | ||||||
Barclays PLC | 435 | 489,767 | ||||||
BBVA Bancomer SA/Texas | 330 | 343,613 | ||||||
BBVA USA | 481 | 514,766 | ||||||
BNP Paribas SA | 365 | 377,958 | ||||||
BPCE SA | 200 | 224,090 | ||||||
Capital One Financial Corp. | 345 | 383,323 | ||||||
3.75%, 03/09/2027 | 533 | 595,835 | ||||||
Citigroup, Inc. | 209 | 225,657 | ||||||
3.875%, 03/26/2025 | 441 | 487,301 | ||||||
4.45%, 09/29/2027 | 1,699 | 1,961,479 | ||||||
5.50%, 09/13/2025 | 595 | 705,384 | ||||||
Citizens Financial Group, Inc. | 769 | 771,815 | ||||||
Commonwealth Bank of Australia | 615 | 693,646 | ||||||
Cooperatieve Rabobank UA | 525 | 587,265 | ||||||
Credit Agricole SA/London | 370 | 379,002 | ||||||
Credit Suisse Group AG | 657 | 754,479 |
abfunds.com | AB CORPORATE INCOME SHARES | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Danske Bank A/S | $ | 556 | $ | 552,447 | ||||
Deutsche Bank AG/New York NY | 334 | 346,889 | ||||||
3.95%, 02/27/2023 | 635 | 667,836 | ||||||
3.961%, 11/26/2025 | 555 | 593,106 | ||||||
Discover Bank | 385 | 403,753 | ||||||
Discover Financial Services | 670 | 750,152 | ||||||
DNB Bank ASA | 200 | 205,852 | ||||||
Goldman Sachs Group, Inc. (The) | 138 | 152,182 | ||||||
3.75%, 05/22/2025 | 225 | 250,274 | ||||||
3.80%, 03/15/2030 | 979 | 1,129,159 | ||||||
4.223%, 05/01/2029 | 482 | 562,186 | ||||||
4.25%, 10/21/2025 | 325 | 369,031 | ||||||
4.411%, 04/23/2039 | 148 | 179,784 | ||||||
5.75%, 01/24/2022 | 346 | 368,400 | ||||||
5.95%, 01/15/2027 | 40 | 49,501 | ||||||
HSBC Holdings PLC | 285 | 283,911 | ||||||
4.25%, 08/18/2025 | 632 | 698,436 | ||||||
4.95%, 03/31/2030 | 205 | 248,573 | ||||||
6.875%, 06/01/2021(b) | 205 | 207,601 | ||||||
ING Groep NV | 200 | 207,046 | ||||||
Intesa Sanpaolo SpA | 911 | 959,948 | ||||||
JPMorgan Chase & Co. | 374 | 390,946 | ||||||
2.956%, 05/13/2031 | 1,253 | 1,340,159 | ||||||
3.625%, 12/01/2027 | 335 | 373,475 | ||||||
3.882%, 07/24/2038 | 740 | 868,915 | ||||||
4.203%, 07/23/2029 | 325 | 381,615 | ||||||
8.00%, 04/29/2027 | 530 | 724,515 | ||||||
KeyCorp | 319 | 324,965 | ||||||
Lloyds Banking Group PLC | 592 | 650,170 | ||||||
Manufacturers & Traders Trust Co. | 315 | 325,008 | ||||||
Mastercard, Inc. | 175 | 210,271 | ||||||
3.85%, 03/26/2050 | 446 | 556,987 | ||||||
3.95%, 02/26/2048 | 170 | 213,131 |
20 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Mizuho Financial Group Cayman 3 Ltd. | $ | 1,295 | $ | 1,419,825 | ||||
Morgan Stanley | 143 | 149,940 | ||||||
2.625%, 11/17/2021 | 1,060 | 1,085,154 | ||||||
3.622%, 04/01/2031 | 145 | 166,150 | ||||||
3.95%, 04/23/2027 | 345 | 389,595 | ||||||
Series F | 55 | 60,774 | ||||||
Series G | 540 | 646,947 | ||||||
Natwest Group PLC | 828 | 911,694 | ||||||
PNC Bank NA | 265 | 274,211 | ||||||
Santander Holdings USA, Inc. | 1,044 | 1,162,317 | ||||||
Santander UK Group Holdings PLC | 590 | 650,788 | ||||||
Societe Generale SA | 243 | 261,604 | ||||||
4.75%, 11/24/2025(a) | 200 | 220,466 | ||||||
State Street Corp. | 29 | 32,703 | ||||||
2.653%, 05/15/2023 | 315 | 325,760 | ||||||
Truist Financial Corp. | ||||||||
Series P | 993 | 1,060,802 | ||||||
Series Q | 197 | 215,260 | ||||||
UBS Group AG | 205 | 210,123 | ||||||
UniCredit SpA | 360 | 357,613 | ||||||
Wells Fargo & Co. | 171 | 177,967 | ||||||
2.393%, 06/02/2028 | 269 | 279,330 | ||||||
4.478%, 04/04/2031 | 910 | 1,092,710 | ||||||
5.606%, 01/15/2044 | 560 | 752,970 | ||||||
Series G | 1,419 | 1,627,962 | ||||||
|
| |||||||
44,436,343 | ||||||||
|
| |||||||
Brokerage – 0.4% |
| |||||||
Charles Schwab Corp. (The) | 221 | 242,119 |
abfunds.com | AB CORPORATE INCOME SHARES | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Jefferies Financial Group, Inc. | $ | 454 | $ | 499,018 | ||||
|
| |||||||
741,137 | ||||||||
|
| |||||||
Finance – 1.4% |
| |||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust | 365 | 361,752 | ||||||
Air Lease Corp. | 179 | 182,023 | ||||||
Aircastle Ltd. | 342 | 344,093 | ||||||
5.25%, 08/11/2025(a) | 210 | 208,385 | ||||||
GE Capital Funding LLC | 200 | 218,580 | ||||||
GE Capital International Funding Co. Unlimited Co. | 275 | 297,294 | ||||||
Harborwalk Funding Trust | 170 | 208,947 | ||||||
Synchrony Financial | 669 | 721,543 | ||||||
4.25%, 08/15/2024 | 58 | 63,406 | ||||||
|
| |||||||
2,606,023 | ||||||||
|
| |||||||
Insurance – 4.5% |
| |||||||
Aetna, Inc. | 175 | 194,135 | ||||||
Alleghany Corp. | 885 | 990,572 | ||||||
Allstate Corp. (The) | 582 | 618,113 | ||||||
American International Group, Inc. | 392 | 439,307 | ||||||
Berkshire Hathaway, Inc. | 395 | 415,366 | ||||||
Guardian Life Insurance Co. of America (The) | 210 | 213,385 | ||||||
Humana, Inc. | 378 | 433,007 | ||||||
MassMutual Global Funding II | 270 | 272,514 | ||||||
MetLife Capital Trust IV | 150 | 206,730 | ||||||
MetLife, Inc. | ||||||||
Series C | 68 | 67,233 |
22 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series D | $ | 170 | $ | 187,549 | ||||
Nationwide Mutual Insurance Co. | 120 | 203,563 | ||||||
New York Life Global Funding | 386 | 388,505 | ||||||
New York Life Insurance Co. | 180 | 222,649 | ||||||
Peachtree Corners Funding Trust | 110 | 121,047 | ||||||
Prudential Financial, Inc. | 437 | 461,166 | ||||||
5.375%, 05/15/2045 | 260 | 280,267 | ||||||
5.625%, 06/15/2043 | 474 | 505,990 | ||||||
5.875%, 09/15/2042 | 235 | 248,458 | ||||||
Reinsurance Group of America, Inc. | 897 | 979,336 | ||||||
UnitedHealth Group, Inc. | 212 | 217,981 | ||||||
Voya Financial, Inc. | 470 | 484,264 | ||||||
|
| |||||||
8,151,137 | ||||||||
|
| |||||||
REITS – 5.9% |
| |||||||
American Homes 4 Rent LP | 5 | 5,661 | ||||||
American Tower Corp. | 275 | 299,200 | ||||||
5.00%, 02/15/2024 | 525 | 593,612 | ||||||
Brixmor Operating Partnership LP | 270 | 280,703 | ||||||
4.05%, 07/01/2030 | 518 | 559,611 | ||||||
EPR Properties | 120 | 116,880 | ||||||
GLP Capital LP/GLP Financing II, Inc. | 323 | 353,717 | ||||||
5.375%, 04/15/2026 | 114 | 126,747 | ||||||
Healthpeak Properties, Inc. | 519 | 547,394 | ||||||
Highwoods Realty LP | 821 | 814,678 | ||||||
Host Hotels & Resorts LP | ||||||||
Series E | 263 | 272,713 | ||||||
Series I | 491 | 470,859 | ||||||
Kilroy Realty LP | 40 | 42,298 |
abfunds.com | AB CORPORATE INCOME SHARES | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Kimco Realty Corp. | $ | 95 | $ | 101,566 | ||||
Office Properties Income Trust | 350 | 355,253 | ||||||
Omega Healthcare Investors, Inc. | 108 | 115,605 | ||||||
5.25%, 01/15/2026 | 808 | 893,204 | ||||||
Realty Income Corp. | 285 | 312,876 | ||||||
Regency Centers LP | 230 | 250,277 | ||||||
3.75%, 06/15/2024 | 33 | 34,991 | ||||||
4.125%, 03/15/2028 | 195 | 216,150 | ||||||
Sabra Health Care LP | 710 | 750,023 | ||||||
5.125%, 08/15/2026 | 565 | 617,223 | ||||||
SITE Centers Corp. | 365 | 383,991 | ||||||
Spirit Realty LP | 385 | 385,200 | ||||||
4.00%, 07/15/2029 | 132 | 138,608 | ||||||
4.45%, 09/15/2026 | 238 | 257,407 | ||||||
Ventas Realty LP | 211 | 228,745 | ||||||
4.125%, 01/15/2026 | 44 | 49,418 | ||||||
VEREIT Operating Partnership LP | 1,036 | 1,116,321 | ||||||
WP Carey, Inc. | 44 | 48,852 | ||||||
|
| |||||||
10,739,783 | ||||||||
|
| |||||||
66,674,423 | ||||||||
|
| |||||||
Utility – 3.7% |
| |||||||
Electric – 3.5% |
| |||||||
Abu Dhabi National Energy Co. PJSC | 215 | 241,673 | ||||||
AES Panama Generation Holdings SRL | 200 | 211,032 | ||||||
Berkshire Hathaway Energy Co. | 272 | 267,857 | ||||||
4.25%, 10/15/2050(a) | 140 | 173,201 | ||||||
6.125%, 04/01/2036 | 100 | 143,361 | ||||||
Consolidated Edison Co. of New York, Inc. | 25 | 29,688 | ||||||
Dominion Energy, Inc. | 110 | 124,611 |
24 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Duke Energy Corp. | $ | 423 | $ | 513,124 | ||||
Empresas Publicas de Medellin ESP | 200 | 205,308 | ||||||
Enel Americas SA | 53 | 57,180 | ||||||
Enel Chile SA | 62 | 72,463 | ||||||
Entergy Louisiana LLC | 133 | 137,840 | ||||||
Exelon Corp. | 94 | 98,020 | ||||||
Florida Power & Light Co. | 642 | 807,675 | ||||||
Georgia Power Co. | 340 | 407,259 | ||||||
Kentucky Utilities Co. | 52 | 55,966 | ||||||
Nevada Power Co. | 215 | 227,186 | ||||||
NextEra Energy Capital Holdings, Inc. | 75 | 80,930 | ||||||
5.65%, 05/01/2079 | 194 | 220,093 | ||||||
PacifiCorp | 210 | 229,673 | ||||||
PSEG Power LLC | 388 | 562,340 | ||||||
Public Service Co. of New Hampshire | 127 | 147,155 | ||||||
Sempra Energy | 215 | 241,576 | ||||||
Southern Power Co. | 77 | 86,459 | ||||||
Southwestern Public Service Co. | 427 | 494,701 | ||||||
Virginia Electric & Power Co. | 273 | 487,103 | ||||||
|
| |||||||
6,323,474 | ||||||||
|
| |||||||
Natural Gas – 0.1% |
| |||||||
GNL Quintero SA | 200 | 216,750 | ||||||
NiSource, Inc. | 60 | 83,215 | ||||||
|
| |||||||
299,965 | ||||||||
|
|
abfunds.com | AB CORPORATE INCOME SHARES | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Other Utility – 0.1% |
| |||||||
American Water Capital Corp. | $ | 80 | $ | 93,173 | ||||
|
| |||||||
6,716,612 | ||||||||
|
| |||||||
Total Corporates – Investment Grade | 165,589,814 | |||||||
|
| |||||||
QUASI-SOVEREIGNS – 1.6% | ||||||||
Quasi-Sovereign Bonds – 1.6% |
| |||||||
Chile – 0.6% |
| |||||||
Corp. Nacional del Cobre de Chile | 200 | 218,375 | ||||||
3.70%, 01/30/2050(a) | 200 | 208,437 | ||||||
Empresa de Transporte de Pasajeros Metro SA | 350 | 380,800 | ||||||
Empresa Nacional del Petroleo | 200 | 210,750 | ||||||
|
| |||||||
1,018,362 | ||||||||
|
| |||||||
Malaysia – 0.1% |
| |||||||
Petronas Capital Ltd. | 225 | 280,725 | ||||||
|
| |||||||
Mexico – 0.3% |
| |||||||
Petroleos Mexicanos | 240 | 214,104 | ||||||
6.75%, 09/21/2047 | 140 | 108,430 | ||||||
6.95%, 01/28/2060 | 169 | 132,158 | ||||||
7.69%, 01/23/2050 | 80 | 66,396 | ||||||
|
| |||||||
521,088 | ||||||||
|
| |||||||
Panama – 0.3% |
| |||||||
Aeropuerto Internacional de Tocumen SA | 200 | 221,500 | ||||||
Empresa de Transmision Electrica SA | 246 | 286,897 | ||||||
|
| |||||||
508,397 | ||||||||
|
| |||||||
Peru – 0.3% |
| |||||||
Corp. Financiera de Desarrollo SA | 560 | 568,960 | ||||||
|
| |||||||
Total Quasi-Sovereigns | 2,897,532 | |||||||
|
| |||||||
26 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
CORPORATES – NON-INVESTMENT GRADE – 1.4% | ||||||||
Industrial – 1.2% |
| |||||||
Consumer Cyclical - Automotive – 0.2% |
| |||||||
Ford Motor Credit Co. LLC | $ | 395 | $ | 394,554 | ||||
|
| |||||||
Consumer Cyclical - Entertainment – 0.2% |
| |||||||
Carnival Corp. | 379 | 417,127 | ||||||
|
| |||||||
Consumer Non-Cyclical – 0.3% |
| |||||||
Newell Brands, Inc. | 548 | 571,920 | ||||||
|
| |||||||
Energy – 0.5% |
| |||||||
EQM Midstream Partners LP | 295 | 293,431 | ||||||
Occidental Petroleum Corp. | 319 | 265,488 | ||||||
3.50%, 08/15/2029 | 55 | 39,690 | ||||||
Western Midstream Operating LP | 81 | 77,608 | ||||||
5.45%, 04/01/2044 | 149 | 126,325 | ||||||
|
| |||||||
802,542 | ||||||||
|
| |||||||
2,186,143 | ||||||||
|
| |||||||
Financial Institutions – 0.2% |
| |||||||
REITS – 0.2% |
| |||||||
Diversified Healthcare Trust | 407 | 361,530 | ||||||
|
| |||||||
Total Corporates – Non-Investment Grade | 2,547,673 | |||||||
|
| |||||||
GOVERNMENTS – SOVEREIGN BONDS – 1.3% |
| |||||||
Colombia – 0.5% |
| |||||||
Colombia Government International Bond | 562 | 576,612 | ||||||
5.20%, 05/15/2049 | 200 | 240,938 | ||||||
|
| |||||||
817,550 | ||||||||
|
| |||||||
Mexico – 0.4% |
| |||||||
Mexico Government International Bond | 285 | 311,309 | ||||||
4.60%, 01/23/2046 | 200 | 216,687 | ||||||
4.75%, 03/08/2044 | 150 | 165,938 | ||||||
|
| |||||||
693,934 | ||||||||
|
|
abfunds.com | AB CORPORATE INCOME SHARES | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Peru – 0.0% |
| |||||||
Peruvian Government International Bond | $ | 53 | $ | 55,650 | ||||
|
| |||||||
Qatar – 0.2% |
| |||||||
Qatar Government International Bond | 228 | 304,166 | ||||||
|
| |||||||
Saudi Arabia – 0.2% |
| |||||||
Saudi Government International Bond | 330 | �� | 359,391 | |||||
|
| |||||||
Uruguay – 0.0% |
| |||||||
Uruguay Government International Bond | 54 | 65,096 | ||||||
|
| |||||||
Total Governments – Sovereign Bonds | 2,295,787 | |||||||
|
| |||||||
Total Investments – 95.2% | 173,330,806 | |||||||
Other assets less liabilities – 4.8% | 8,740,357 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 182,071,163 | ||||||
|
|
FUTURES (see Note C)
Description | Number of Contracts | Expiration Month | Current Notional | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
Purchased Contracts | ||||||||||||||||
U.S. 10 Yr Ultra Futures | 18 | December 2020 | $ | 2,831,062 | $ | (31,902 | ) | |||||||||
U.S. T-Note 2 Yr (CBT) Futures | 3 | December 2020 | 662,531 | (238 | ) | |||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 4 | December 2020 | 552,875 | (4,599 | ) | |||||||||||
U.S. Ultra Bond (CBT) Futures | 20 | December 2020 | 4,300,000 | (103,959 | ) | |||||||||||
Sold Contracts | ||||||||||||||||
U.S. Long Bond (CBT) Futures | 3 | December 2020 | 517,406 | 4,683 | ||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 15 | December 2020 | 1,884,023 | 2,238 | ||||||||||||
|
| |||||||||||||||
$ | (133,777 | ) | ||||||||||||||
|
|
28 | AB CORPORATE INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note C)
| Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2020 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
CDX-NAIG Series 35, 5 Year Index, 12/20/2025* | 1.00 | % | Quarterly | 0.66 | % | USD | 3,280 | $ | 60,197 | $ | 78,756 | $ | (18,559 | ) |
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||
USD | 1,170 | 09/09/2021 | 1.132% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | $ | (10,591 | ) | $ | — | $ | (10,591 | ) | |||||||||||||||
USD | 1,070 | 03/27/2022 | 2.058% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | (29,618 | ) | — | (29,618 | ) | ||||||||||||||||||
USD | 60 | 11/04/2044 | | 3 Month LIBOR | | 3.049% | Quarterly/ Semi-Annual | 23,944 | — | 23,944 | ||||||||||||||||||||
USD | 60 | 05/05/2045 | | 3 Month LIBOR | | 2.562% | Quarterly/ Semi-Annual | 17,711 | — | 17,711 | ||||||||||||||||||||
USD | 60 | 06/02/2046 | | 3 Month LIBOR | | 2.186% | Quarterly/ Semi-Annual | 12,878 | — | 12,878 | ||||||||||||||||||||
USD | 690 | 07/15/2046 | | 3 Month LIBOR | | 1.783% | Quarterly/ Semi-Annual | 82,238 | — | 82,238 | ||||||||||||||||||||
USD | 270 | 09/02/2046 | | 3 Month LIBOR | | 1.736% | Quarterly/ Semi-Annual | 28,605 | — | 28,605 | ||||||||||||||||||||
USD | 50 | 11/02/2046 | | 3 Month LIBOR | | 2.086% | Quarterly/ Semi-Annual | 9,738 | — | 9,738 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
$ | 134,905 | $ | — | $ | 134,905 | |||||||||||||||||||||||||
|
|
|
|
|
|
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate market value of these securities amounted to $28,952,922 or 15.9% of net assets. |
(b) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(c) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2020. |
Glossary:
CBT – Chicago Board of Trade
CDX-NAIG – North American Investment Grade Credit Default Swap Index
LIBOR – London Interbank Offered Rate
PJSC – Public Joint Stock Company
REIT – Real Estate Investment Trust
See notes to financial statements.
abfunds.com | AB CORPORATE INCOME SHARES | 29 |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2020 (unaudited)
Assets | ||||
Investments in securities, at value (cost $166,433,008) | $ | 173,330,806 | ||
Cash | 7,283,774 | |||
Cash collateral due from broker | 479,989 | |||
Receivable for shares of beneficial interest sold | 2,028,015 | |||
Interest receivable | 1,603,529 | |||
Receivable for investment securities sold | 362,811 | |||
|
| |||
Total assets | 185,088,924 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased | 2,174,004 | |||
Dividends payable | 392,448 | |||
Payable for shares of beneficial interest redeemed | 357,368 | |||
Payable for variation margin on futures | 42,834 | |||
Payable for variation margin on centrally cleared swaps | 4,410 | |||
Other liabilities | 46,697 | |||
|
| |||
Total liabilities | 3,017,761 | |||
|
| |||
Net Assets | $ | 182,071,163 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest, at par | $ | 149 | ||
Additional paid-in capital | 170,743,272 | |||
Distributable earnings | 11,327,742 | |||
|
| |||
$ | 182,071,163 | |||
|
| |||
Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 14,888,061 common shares outstanding) | $ | 12.23 | ||
|
|
See notes to financial statements.
30 | AB CORPORATE INCOME SHARES | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (unaudited)
Investment Income | ||||||||
Interest | $ | 2,277,089 | ||||||
Other income | 750 | |||||||
|
| |||||||
Total investment income | $ | 2,277,839 | ||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions(a) | 2,163,336 | |||||||
Futures | 397,279 | |||||||
Swaps | 92,783 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments(b) | 4,579,117 | |||||||
Futures | (599,887 | ) | ||||||
Swaps | (204,852 | ) | ||||||
|
| |||||||
Net gain on investment transactions | 6,427,776 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 8,705,615 | ||||||
|
|
(a) | Net of foreign capital gains taxes of $38,151. |
(b) | Net of increase in accrued foreign capital gains taxes of $7,220. |
See notes to financial statements.
abfunds.com | AB CORPORATE INCOME SHARES | 31 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||
Increase in Net Assets from Operations | ||||||||
Net investment income | $ | 2,277,839 | $ | 4,935,479 | ||||
Net realized gain on investment transactions | 2,653,398 | 4,092,280 | ||||||
Net change in unrealized appreciation/depreciation of investments | 3,774,378 | 992,946 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 8,705,615 | 10,020,705 | ||||||
Distribution to Shareholders | (2,293,590 | ) | (5,640,743 | ) | ||||
Transactions in Shares of Beneficial Interest | ||||||||
Net increase | 61,203,771 | 11,394,931 | ||||||
|
|
|
| |||||
Total increase | 67,615,796 | 15,774,893 | ||||||
Net Assets | ||||||||
Beginning of period | 114,455,367 | 98,680,474 | ||||||
|
|
|
| |||||
End of period | $ | 182,071,163 | $ | 114,455,367 | ||||
|
|
|
|
See notes to financial statements.
32 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
October 31, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Corporate Shares (the “Trust”) is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust, which is a Massachusetts Business Trust, operates as a “series” company currently offering five separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares, AB Taxable Multi-Sector Income Shares, AB Impact Municipal Income Shares and AB Tax-Aware Real Return Income Shares. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Corporate Income Shares (the “Fund”).
Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. 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 Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
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 Trust’s Board of Trustees (the “Board”).
In general, the market values 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
abfunds.com | AB CORPORATE INCOME SHARES | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
the counter (“OTC”) market 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, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures 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 any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, 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. 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. Open-end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
34 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes 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 (including those valued based on their market values as described in Note A.1 above). 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 Fund. Unobservable inputs reflect the Fund’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 Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate
abfunds.com | AB CORPORATE INCOME SHARES | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Investment Grade | $ | – 0 | – | $ | 165,589,814 | $ | – 0 | – | $ | 165,589,814 | ||||||
Quasi-Sovereigns | – 0 | – | 2,897,532 | – 0 | – | 2,897,532 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 2,547,673 | – 0 | – | 2,547,673 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 2,295,787 | – 0 | – | 2,295,787 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | – 0 | – | 173,330,806 | – 0 | – | 173,330,806 | ||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 6,921 | – 0 | – | – 0 | – | 6,921 | (b) | |||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 60,197 | – 0 | – | 60,197 | (b) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 175,114 | – 0 | – | 175,114 | (b) | |||||||||
Liabilities: | ||||||||||||||||
Futures | (140,698 | ) | – 0 | – | – 0 | – | (140,698 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (40,209 | ) | – 0 | – | (40,209 | )(b) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (133,777 | ) | $ | 173,525,908 | $ | – 0 | – | $ | 173,392,131 | ||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
3. Taxes
It is the Fund’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.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’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 Fund’s financial statements.
36 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund 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 Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for distributions received from REIT investments or from regulated investment companies as dividend income, realized gain, or return of capital based on information provided by the REIT or the investment company.
5. 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 advisory agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee is paid by their investment adviser to the Adviser. In certain cases, participants may have a direct relationship with the Adviser without the involvement of a third party investment adviser, in which case the participant would pay a fee directly to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The Advisory Agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.
The Fund has entered into a distribution agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a
abfunds.com | AB CORPORATE INCOME SHARES | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.
AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximate 65% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
38 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2020 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 84,274,824 | $ | 30,255,489 | ||||
U.S. government securities | – 0 | – | – 0 | – |
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 8,055,620 | ||
Gross unrealized depreciation | (1,175,253 | ) | ||
|
| |||
Net unrealized appreciation | $ | 6,880,367 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Futures |
The Fund may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Fund bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Fund may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies.
At the time the Fund enters into futures, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are
abfunds.com | AB CORPORATE INCOME SHARES | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the six months ended October 31, 2020, the Fund held futures for hedging purposes.
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates or credit risk. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis,
40 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates
abfunds.com | AB CORPORATE INCOME SHARES | 41 |
NOTES TO FINANCIAL STATEMENTS (continued)
rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended October 31, 2020, the Fund held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation. In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty.
42 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Credit default swaps may involve greater risks than if a Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended October 31, 2020, the Fund held credit default swaps for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to
abfunds.com | AB CORPORATE INCOME SHARES | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
During the six months ended October 31, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 6,921 | * | Receivable/Payable for variation margin on futures | $ | 140,698 | * | ||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 18,559 | * | |||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | | 175,114 | * | Receivable/Payable for variation margin on centrally cleared swaps | | 40,209 | * | ||||
|
|
|
| |||||||||
Total | $ | 182,035 | $ | 199,466 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | 397,279 | $ | (599,887 | ) | ||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (4,422 | ) | (139,538 | ) | |||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 97,205 | (65,314 | ) | ||||||
|
|
|
| |||||||
Total | $ | 490,062 | $ | (804,739 | ) | |||||
|
|
|
|
44 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2020:
Futures: | ||||
Average notional amount of buy contracts | $ | 12,712,850 | ||
Average notional amount of sale contracts | $ | 3,822,411 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 3,430,000 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 3,494,286 |
NOTE D
Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Shares sold | 5,571,367 | 5,009,033 | $ | 68,235,597 | $ | 57,284,749 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | – 0 | – | 6 | – 0 | – | 71 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (580,618 | ) | (3,990,723 | ) | (7,031,826 | ) | (45,889,889 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 4,990,749 | 1,018,316 | $ | 61,203,771 | $ | 11,394,931 | ||||||||||||||||||
|
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
abfunds.com | AB CORPORATE INCOME SHARES | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During the periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk—The Fund 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 Fund, 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 on the statement of assets and liabilities.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance
46 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 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 Adviser. The Fund did not utilize the Facility during the six months ended October 31, 2020.
NOTE G
Distributions to Shareholders
The tax character of distributions to be paid for the year ending April 30, 2021 will be determined at the end of the current fiscal year. The tax
abfunds.com | AB CORPORATE INCOME SHARES | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
character of distributions paid during the fiscal years ended April 30, 2020 and April 30, 2019 were as follows:
2020 | 2019 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 5,640,743 | $ | 3,601,284 | ||||
|
|
|
| |||||
Total distributions paid | $ | 5,640,743 | $ | 3,601,284 | ||||
|
|
|
|
As of April 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 2,099,643 | ||
Accumulated capital and other losses | 598,788 | (a) | ||
Unrealized appreciation/(depreciation) | 2,577,135 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 5,275,566 | (c) | |
|
|
(a) | During the fiscal year, the Fund utilized $1,595,243 of capital loss carryforwards to offset current year net realized gains. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the recognition for tax purposes of unrealized gains/losses on certain derivative instruments and the tax treatment of swaps. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the accrual of foreign capital gains tax and dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30, 2020, the Fund had a no short-term capital loss carryforward.
NOTE H
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 Fund’s financial statements through this date.
48 | AB CORPORATE INCOME SHARES | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
Six Months (unaudited) | Year Ended April 30, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.56 | $ | 11.11 | $ | 10.81 | $ | 11.14 | $ | 11.19 | $ | 11.36 | ||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .20 | .44 | .44 | .39 | .38 | .39 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | .68 | .51 | .30 | (.33 | ) | (.04 | ) | (.16 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase in net asset value from operations | .88 | .95 | .74 | .06 | .34 | .23 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.21 | ) | (.45 | ) | (.44 | ) | (.39 | ) | (.39 | ) | (.40 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.05 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.21 | ) | (.50 | ) | (.44 | ) | (.39 | ) | (.39 | ) | (.40 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 12.23 | $ | 11.56 | $ | 11.11 | $ | 10.81 | $ | 11.14 | $ | 11.19 | ||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(b)* | 7.61 | % | 8.65 | % | 7.03 | % | .50 | % | 3.08 | % | 2.12 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $ | 182,071 | $ | 114,455 | $ | 98,680 | $ | 84,740 | $ | 74,191 | $ | 63,342 | ||||||||||||
Ratio to average net assets of: |
| |||||||||||||||||||||||
Net investment income | 3.31 | %^ | 3.83 | % | 4.06 | % | 3.47 | % | 3.43 | % | 3.60 | % | ||||||||||||
Portfolio turnover rate | 23 | % | 87 | % | 140 | % | 73 | % | 79 | % | 59 | % |
(a) | Based on average shares outstanding. |
(b) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
* | Includes the impact of proceeds received and credited to the Fund resulting from class action settlements, which enhanced the Fund’s performance for the year ended April 30, 2017 by .01%. |
^ | Annualized. |
See notes to financial statements.
abfunds.com | AB CORPORATE INCOME SHARES | 49 |
BOARD OF TRUSTEES
Marshall C. Turner, Jr(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Shawn E. Keegan(2), Vice President Tiffanie Wong(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company
Principal Underwriter AllianceBernstein Investments, Inc.
| Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004
Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 | |
Transfer Agent AllianceBernstein Investor Services, Inc. |
1 | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s Portfolio are made by the Adviser’s Corporate Income Shares Investment Team. Mr. Keegan and Ms. Wong are the investment professionals primarily responsible for the day-to-day management of the Fund’s Portfolio. |
50 | AB CORPORATE INCOME SHARES | abfunds.com |
Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Trustees (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
abfunds.com | AB CORPORATE INCOME SHARES | 51 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested trustees (the “directors”) of AB Corporate Shares (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Corporate Income Shares (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).*
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors noted that the Fund is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The directors also noted that no advisory fee is payable by the Fund, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Fund’s ordinary expenses. The directors noted that the Company acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The directors further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Fund as an investment vehicle for their clients.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
* | Following transactions completed on November 13, 2019 that may have been deemed to have been an“assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
52 | AB CORPORATE INCOME SHARES | abfunds.com |
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2017 and 2018 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
abfunds.com | AB CORPORATE INCOME SHARES | 53 |
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund. The directors noted that the Adviser is compensated by the Sponsors. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing the Fund’s performance against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended July 31, 2019 and (in the case of comparisons with the broad-based securities market index) for the period from inception. The directors were cognizant that the Fund was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Fund. At the directors’ request, the Adviser provided information showing the weighting of the Fund in a current SMA and the overall performance of the SMA versus its stated benchmark. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees
The directors considered the advisory fee rate payable by the Fund to the Adviser (zero) and information provided by the 15(c) service provider showing the fees payable by other fund families used in wrap fee programs similar to that of the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds.
The directors noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Fund. The directors reviewed the fee arrangements between the Adviser and each of the current Sponsors and noted that such fees were negotiated on an arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the directors acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Fund
54 | AB CORPORATE INCOME SHARES | abfunds.com |
paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Fund (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to Fund management at the Fund level is the same for all Sponsors. The directors also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule, on the other. The directors recognized that such information was of limited utility in light of the Fund’s unusual fee arrangement. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors previously discussed these matters with an independent fee consultant.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional clients. In this regard, the Adviser noted, among other things, that, compared to institutional accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional clients as compared to the Fund, and the different risk profile, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors did not consider comparative expense information for the Fund because the Fund does not bear ordinary expenses.
abfunds.com | AB CORPORATE INCOME SHARES | 55 |
Economies of Scale
The directors did not consider the extent to which fee levels in the Advisory Agreement for the Fund reflect economies of scale because the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Fund and the Fund’s expense ratio is zero. They did note, however, that the fee payable to the Adviser by the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.
56 | AB CORPORATE INCOME SHARES | abfunds.com |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
abfunds.com | AB CORPORATE INCOME SHARES | 57 |
NOTES
58 | AB CORPORATE INCOME SHARES | abfunds.com |
NOTES
abfunds.com | AB CORPORATE INCOME SHARES | 59 |
NOTES
60 | AB CORPORATE INCOME SHARES | abfunds.com |
AB CORPORATE INCOME SHARES
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
CIS-0152-1020
OCT 10.31.20
SEMI-ANNUAL REPORT
AB IMPACT MUNICIPAL INCOME SHARES
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
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 AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT | ![]() |
Dear Shareholder,
We are pleased to provide this report for AB Impact Municipal Income Shares (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 1 |
SEMI-ANNUAL REPORT
December 11, 2020
This report provides management’s discussion of fund performance for AB Impact Municipal Income Shares for the semi-annual reporting period ended October 31, 2020. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by the Adviser.
The investment objective of the Fund is to earn the highest level of current income, exempt from federal taxation, that is available consistent with what the Adviser considers to be an appropriate level of risk.
NAV RETURNS AS OF OCTOBER 31, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB IMPACT MUNICIPAL INCOME SHARES | 7.56% | 2.50% | ||||||
Bloomberg Barclays Municipal Bond Index | 4.99% | 3.59% |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays Municipal Bond Index, for the six- and 12-month periods ended October 31, 2020.
The Fund outperformed its benchmark during the six-month period but underperformed for the 12-month period.
For the six-month period, the Fund’s overweight to municipal credit contributed, relative to the benchmark, as credit rebounded from March lows. Security selection within the education and health-care sectors contributed, while selection in mass transit and energy detracted. There were no other noteworthy detractors over the period.
During the 12-month period, the Fund’s overweight to municipal credit detracted, as municipal credit sold off abruptly in March. Security selection within the health-care sector detracted, while selection in mass transit contributed. There were no other significant contributors for the period.
The Fund did not utilize derivatives during either period.
MARKET REVIEW AND INVESTMENT STRATEGY
Municipal performance over the six-month period ended October 31, 2020, was positive. According to the Federal Reserve Bank of New York, the US economy stopped contracting in early May, and began a steady recovery through the rest of the summer. With respect to monetary policy,
2 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
the US Federal Reserve (“the Fed”) Board of Governors stated that short-term interest rates were likely to be held at current low levels for the next few years. Consistent with the improving economy and steady monetary policy, municipals regained their footing and have performed exceptionally well following the sharp sell-off in March.
While outflows and a lack of liquidity sparked the sell-off in March, these themes have since largely abated, as investors took comfort in the significant federal support provided to state and local governments. On the monetary side, the Fed established the Municipal Liquidity Facility, which can purchase as much as $500 billion in short-term notes directly from municipalities, helping alleviate near-term liquidity concerns for eligible municipalities. The fiscal side brought issuers additional support in the form of the CARES Act, which included $150 billion to state and local governments, $120 billion to hospitals, $31 billion for education, $25 billion for transportation and $10 billion to airports.
The underlying goal of the Fund is to make environmentally, socially and financially productive investments in historically marginalized and underserved communities to reduce gaps that exist in such areas as academic achievement, economic development or the provision of health care. Essentially, the Fund’s Senior Investment Management Team is looking to create a better tomorrow. Inherent in these goals is to make investments toward improving the quality of life for all by enhancing and promoting civic engagement, an informed citizenry, culture and the physical and natural sciences.
The Fund may purchase municipal securities that are insured under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most bond insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research. If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of October 31, 2020, the Fund’s percentages of investments in municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity were 17.25% and 0.00%, respectively.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 3 |
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in high-yielding municipal securities of any credit quality that (i) score highly on the Adviser’s environmental, social and corporate governance (“ESG”) criteria and (ii) are deemed by the Adviser to have an environmental or social impact in underserved or low socio-economic communities. As a matter of fundamental policy, the Fund invests, under normal circumstances, at least 80% of its net assets in municipal securities that pay interest that is exempt from federal income tax. These securities may pay interest that is subject to the federal alternative minimum tax for certain taxpayers.
The Adviser evaluates each security in which the Fund invests using both a traditional municipal bond credit analysis and a consideration of the security’s overall ESG score under the Adviser’s ESG evaluation criteria. Under this ESG evaluation, to arrive at an overall ESG score, each security is scored on environmental, social and governance factors, and the scores are weighted based on the Adviser’s assessment of the relevance of each factor within a given sector (e.g., education, health care, renewable energy and mass transit). For example, social factors are weighted more heavily in the overall ESG score for a security of an issuer in the education sector than they are for a security of an issuer in the mass transit sector, where environmental factors predominate. The Adviser regularly reviews the overall ESG scores assigned to securities under consideration for purposes of determining the securities in which to invest for the Fund.
The Adviser’s ESG evaluation is conducted on an industry sector basis and includes the use of key performance indicators that vary in materiality by sector. The Adviser’s environmental evaluation covers issues such as clean and renewable energy, climate change and water conservation. The Adviser’s social evaluation covers issues such as economic impact, high quality safety-net health care and overall community health needs, and the reduction of achievement gaps between wealthy and poor school districts. The Adviser’s governance evaluation covers issues such as stewardship of debt and capital, board governance and transparency.
The Adviser also assesses a security’s risk and return characteristics as well as a security’s impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality, maturity, sensitivity to interest rates and the expected after-tax returns of the security under consideration and of the Fund’s other holdings.
(continued on next page)
4 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
The Fund may invest without limit in lower-rated securities (“junk bonds”), which may include securities having the lowest rating, and in unrated securities that, in the Adviser’s judgment, would be lower-rated securities if rated. The Fund may invest in fixed-income securities with any maturity or duration. The Fund will seek to increase income for shareholders by investing in longer-maturity bonds. Consistent with its objective of seeking a higher level of income, the Fund may experience greater volatility and a higher risk of loss of principal than other municipal funds.
The Fund may also invest in: tender option bond transactions (“TOBs”); forward commitments; zero-coupon municipal securities and variable, floating and inverse floating-rate municipal securities; certain types of mortgage-related securities; and derivatives, such as options, futures contracts, forwards and swaps.
The Fund may make short sales of securities or maintain a short position, and may use other investment techniques. The Fund may use leverage for investment purposes to increase income through the use of TOBs and derivative instruments, such as interest rate swaps.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 5 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays Municipal Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays Municipal Bond Index represents the performance of the long-term tax-exempt bond market consisting of investment-grade bonds. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
ESG Risk: Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for non-investment reasons and, therefore, the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities selected based on ESG factors may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and any accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including
6 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS (continued)
economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the US federal income tax treatment of certain types of municipal securities.
Tax Risk: There is no guarantee that all of the Fund’s income will remain exempt from federal or state income taxes. From time to time, the US government and the US Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Fund by increasing taxes on that income. In such event, the Fund’s net asset value (“NAV”) could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax-exempt status of municipal bonds could also result in significant shareholder redemptions of Fund shares as investors anticipate adverse effects on the Fund or seek higher yields to offset the potential loss of the tax deduction. As a result, the Fund would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Fund’s yield. The federal income tax treatment of payments in respect of certain derivative contracts is unclear.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest-rate
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 7 |
DISCLOSURES AND RISKS (continued)
sensitivity, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Leverage Risk: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.
Illiquid Investments Risk: Illiquid investments risk exists when particular investments, such as lower-rated securities, are or become difficult to purchase or sell, possibly preventing the Fund from selling such investments at an advantageous price. The Fund is subject to illiquid investments risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk than most other types of investments.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Management Risk: The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
8 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS (continued)
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227 4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 9 |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2020 (unaudited)
NAV Returns | ||||
1 Year | 2.50% | |||
Since Inception1 | 4.75% |
AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2020 (unaudited)
NAV Returns | ||||
1 Year | 2.72% | |||
Since Inception1 | 4.93% |
The prospectus fee table shows the fees and the total operating expenses of the Fund as 0.01% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.
1 | Inception date: 9/12/2017. |
10 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. 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, 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 under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example 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 May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Actual | $ | 1,000 | $ | 1,075.60 | $ | – 0 – | 0.00 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,025.21 | $ | – 0 – | 0.00 | % |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates. |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 11 |
PORTFOLIO SUMMARY
October 31, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $351.8
1 | All data are as of October 31, 2020. The Fund’s quality rating breakdown is expressed as a percentage of the Fund’s total investments in municipal securities and may vary over time. The quality ratings are determined by using the S&P Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the pre-refunded category includes bonds which are secured by U.S. Government securities and therefore are deemed high-quality investment-grade by the Adviser. If applicable, Not Applicable (N/A) includes non-creditworthy investments, such as equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a nationally recognized statistical rating organization. The Adviser evaluates the creditworthiness of non-rated securities based on a number of factors including, but not limited to, cash flows, enterprise value and economic environment. |
12 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS
October 31, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 90.8% |
| |||||||
Long-Term Municipal Bonds – 90.8% |
| |||||||
American Samoa – 0.4% |
| |||||||
American Samoa Economic Development Authority | $ | 1,210 | $ | 1,291,336 | ||||
|
| |||||||
Arizona – 2.4% |
| |||||||
Arizona Industrial Development Authority | 4,500 | 4,992,300 | ||||||
5.00%, 02/01/2035 | 1,100 | 1,387,309 | ||||||
Maricopa County Industrial Development Authority | 1,815 | 1,893,573 | ||||||
|
| |||||||
8,273,182 | ||||||||
|
| |||||||
California – 8.0% |
| |||||||
Alameda Corridor Transportation Authority | 725 | 778,607 | ||||||
Series 2016B | 2,095 | 2,415,428 | ||||||
California Educational Facilities Authority | 3,155 | 3,807,655 | ||||||
California Infrastructure & Economic Development Bank | 2,000 | 1,993,980 | ||||||
California Municipal Finance Authority | 5,275 | 5,563,878 | ||||||
California School Finance Authority | 850 | 921,452 | ||||||
California School Finance Authority | 250 | 261,743 |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
California School Finance Authority | $ | 2,085 | $ | 2,200,991 | ||||
California School Finance Authority | 3,750 | 3,976,012 | ||||||
California School Finance Authority | 1,125 | 1,214,149 | ||||||
California School Finance Authority | 1,000 | 1,159,090 | ||||||
California Statewide Communities Development Authority | 2,640 | 2,980,402 | ||||||
Coalinga-Huron Joint Unified School District | 500 | 588,820 | ||||||
Port of Los Angeles | 355 | 366,392 | ||||||
|
| |||||||
28,228,599 | ||||||||
|
| |||||||
Colorado – 0.9% |
| |||||||
Denver Health & Hospital Authority | 2,770 | 3,012,221 | ||||||
|
| |||||||
Connecticut – 1.2% |
| |||||||
City of Bridgeport CT | 525 | 620,713 | ||||||
BAM Series 2018C | 1,620 | 1,933,230 | ||||||
BAM Series 2019A | 1,500 | 1,825,815 | ||||||
|
| |||||||
4,379,758 | ||||||||
|
|
14 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
District of Columbia – 1.1% |
| |||||||
District of Columbia | $ | 785 | $ | 894,374 | ||||
Series 2017B | 625 | 722,781 | ||||||
District of Columbia | 1,000 | 1,075,240 | ||||||
District of Columbia Water & Sewer Authority | 820 | 993,455 | ||||||
|
| |||||||
3,685,850 | ||||||||
|
| |||||||
Florida – 1.9% |
| |||||||
Florida Development Finance Corp. | 2,610 | 2,663,259 | ||||||
School District of Broward County/FL | 500 | 609,360 | ||||||
Series 2019B | 2,750 | 3,577,612 | ||||||
|
| |||||||
6,850,231 | ||||||||
|
| |||||||
Georgia – 0.1% |
| |||||||
Atlanta Development Authority The | 230 | 233,765 | ||||||
|
| |||||||
Illinois – 7.5% |
| |||||||
Chicago Transit Authority | 5,085 | 5,752,152 | ||||||
Chicago Transit Authority Sales Tax Receipts Fund | 5,000 | 5,655,700 | ||||||
Series 2020A | 6,010 | 7,089,817 | ||||||
Cook County Community College District No. 508 | 605 | 631,305 |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
BAM Series 2017 | $ | 620 | $ | 716,236 | ||||
Illinois Finance Authority | 6,250 | 6,690,363 | ||||||
|
| |||||||
26,535,573 | ||||||||
|
| |||||||
Kansas – 0.2% |
| |||||||
Seward County Unified School District No. 480 Liberal | 555 | 664,551 | ||||||
|
| |||||||
Maryland – 0.3% |
| |||||||
Maryland Economic Development Corp. | 1,200 | 1,172,400 | ||||||
|
| �� | ||||||
Massachusetts – 5.2% |
| |||||||
Massachusetts Development Finance Agency | 7,165 | 7,900,129 | ||||||
Series 2016E | 765 | 870,035 | ||||||
Series 2017F | 1,475 | 1,749,084 | ||||||
Massachusetts Development Finance Agency | 4,895 | 5,688,428 | ||||||
AGM Series 2020C | 1,090 | 1,225,978 | ||||||
Massachusetts Development Finance Agency | 825 | 965,869 | ||||||
|
| |||||||
18,399,523 | ||||||||
|
| |||||||
Michigan – 13.3% |
| |||||||
Center Line Public Schools | 895 | 1,096,518 | ||||||
City of Detroit MI | 6,090 | 6,552,173 |
16 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Detroit City School District | $ | 4,940 | $ | 6,226,115 | ||||
AGM Series 2005A | 5,000 | 6,641,850 | ||||||
Downriver Utility Wastewater Authority | 1,515 | 1,809,183 | ||||||
Ferris State University | 6,185 | 7,346,298 | ||||||
Flint Hospital Building Authority | 3,500 | 3,653,020 | ||||||
5.00%, 07/01/2031 | 2,405 | 2,864,427 | ||||||
Flint Public Library | 2,260 | 2,554,441 | ||||||
Grand Rapids Public Schools | 1,800 | 2,251,800 | ||||||
AGM Series 2017 | 200 | 253,302 | ||||||
Great Lakes Water Authority Water Supply System Revenue | 1,225 | 1,437,244 | ||||||
Series 2016C | 695 | 847,212 | ||||||
Series 2020B | 2,650 | 3,281,264 | ||||||
|
| |||||||
46,814,847 | ||||||||
|
| |||||||
Minnesota – 1.9% |
| |||||||
Housing & Redevelopment Authority of The City of St. Paul Minnesota | 5,000 | 5,588,050 | ||||||
Housing & Redevelopment Authority of The City of St. Paul Minnesota | 1,000 | 1,027,040 | ||||||
|
| |||||||
6,615,090 | ||||||||
|
|
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Mississippi – 1.9% |
| |||||||
Mississippi Development Bank | $ | 5,750 | $ | 6,564,652 | ||||
|
| |||||||
Missouri – 0.1% |
| |||||||
St. Louis Community College District | 200 | 228,426 | ||||||
|
| |||||||
Montana – 0.7% |
| |||||||
City of Missoula MT Water System Revenue | 2,180 | 2,506,582 | ||||||
|
| |||||||
New Hampshire – 1.5% |
| |||||||
New Hampshire Business Finance Authority | 4,990 | 5,165,149 | ||||||
|
| |||||||
New Jersey – 7.4% |
| |||||||
Essex County Improvement Authority | 4,360 | 4,592,781 | ||||||
New Jersey Economic Development Authority | 1,000 | 1,113,470 | ||||||
New Jersey Economic Development Authority | 5,500 | 5,667,310 | ||||||
5.00%, 11/01/2044 | 6,925 | 7,776,567 | ||||||
New Jersey Economic Development Authority | 1,170 | 1,297,507 | ||||||
New Jersey Economic Development Authority | 3,205 | 3,763,439 |
18 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey Economic Development Authority | $ | 1,645 | $ | 1,864,866 | ||||
|
| |||||||
26,075,940 | ||||||||
|
| |||||||
New York – 9.0% |
| |||||||
Build NYC Resource Corp. | 1,150 | 1,278,850 | ||||||
Build NYC Resource Corp. | 500 | 536,770 | ||||||
Build NYC Resource Corp. | 2,260 | 2,407,985 | ||||||
Series 2017A | 725 | 774,053 | ||||||
Metropolitan Transportation Authority | 4,000 | 4,152,120 | ||||||
Series 2018B | 2,160 | 2,333,470 | ||||||
Series 2019F | 2,000 | 2,037,480 | ||||||
Series 2020C | 7,085 | 7,496,922 | ||||||
Monroe County Industrial Development Corp./NY | 6,945 | 7,561,021 | ||||||
Monroe County Industrial Development Corp./NY | 1,265 | 1,458,140 | ||||||
New York City Housing Development Corp. | 230 | 233,563 | ||||||
New York State Dormitory Authority | 750 | 882,825 |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2020 | $ | 500 | $ | 539,400 | ||||
|
| |||||||
31,692,599 | ||||||||
|
| |||||||
North Carolina – 1.5% |
| |||||||
North Carolina Central University | 2,270 | 2,434,961 | ||||||
5.00%, 04/01/2044 | 2,500 | 2,937,200 | ||||||
|
| |||||||
5,372,161 | ||||||||
|
| |||||||
Ohio – 2.8% |
| |||||||
American Municipal Power, Inc. | 2,150 | 2,619,882 | ||||||
County of Cuyahoga/OH | 4,365 | 4,916,954 | ||||||
5.25%, 02/15/2047 | 1,500 | 1,730,460 | ||||||
County of Darke OH | 690 | 723,003 | ||||||
|
| |||||||
9,990,299 | ||||||||
|
| |||||||
Oklahoma – 1.5% |
| |||||||
Oklahoma County Finance Authority | 1,120 | 1,311,822 | ||||||
Oklahoma Development Finance Authority | 3,365 | 3,905,049 | ||||||
|
| |||||||
5,216,871 | ||||||||
|
| |||||||
Oregon – 0.4% |
| |||||||
Tri-County Metropolitan Transportation District of Oregon | 865 | 1,078,171 | ||||||
Series 2018A | 250 | 316,302 | ||||||
|
| |||||||
1,394,473 | ||||||||
|
|
20 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Pennsylvania – 9.5% |
| |||||||
Capital Region Water Water Revenue | $ | 1,510 | $ | 1,809,097 | ||||
City of Philadelphia PA Water & Wastewater Revenue | 3,050 | 3,689,615 | ||||||
Series 2019B | 3,095 | 3,817,559 | ||||||
Series 2020A | 5,000 | 6,281,200 | ||||||
Delaware County Authority | 825 | 843,992 | ||||||
Hospitals & Higher Education Facilities Authority of Philadelphia (The) | 1,115 | 1,270,561 | ||||||
Philadelphia Authority for Industrial Development | 4,010 | 4,858,639 | ||||||
AGM Series 2017 | 200 | 241,582 | ||||||
Philadelphia Authority for Industrial Development | 1,050 | 1,151,640 | ||||||
Pittsburgh Water & Sewer Authority | 2,000 | 2,470,240 | ||||||
School District of the City of Erie (The) | 405 | 517,140 | ||||||
AGM Series 2019C | 2,850 | 3,660,714 | ||||||
State Public School Building Authority | 1,000 | 1,026,910 |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Wilkes-Barre Area School District/PA | $ | 1,620 | $ | 1,931,186 | ||||
|
| |||||||
33,570,075 | ||||||||
|
| |||||||
Rhode Island – 2.9% |
| |||||||
Providence Public Building Authority | 8,000 | 10,101,455 | ||||||
|
| |||||||
Texas – 0.3% |
| |||||||
El Paso County Hospital District | 370 | 412,280 | ||||||
Newark Higher Education Finance Corp. | 735 | 744,790 | ||||||
|
| |||||||
1,157,070 | ||||||||
|
| |||||||
Utah – 1.2% |
| |||||||
Ogden City School District Municipal Building Authority | 3,490 | 4,197,737 | ||||||
|
| |||||||
Washington – 1.1% |
| |||||||
Pend Oreille County Public Utility District No. 1 | 3,600 | 3,914,316 | ||||||
|
| |||||||
West Virginia – 1.5% |
| |||||||
Morgantown Utility Board, Inc. | 2,555 | 3,099,113 | ||||||
West Virginia Hospital Finance Authority | 1,775 | 2,067,325 | ||||||
|
| |||||||
5,166,438 | ||||||||
|
| |||||||
Wisconsin – 3.1% |
| |||||||
Milwaukee Redevelopment Authority | 200 | 243,202 |
22 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Wisconsin Health & Educational Facilities Authority | $ | 1,175 | $ | 1,352,272 | ||||
Wisconsin Public Finance Authority | 4,430 | 4,695,003 | ||||||
Wisconsin Public Finance Authority | 4,450 | 4,632,539 | ||||||
|
| |||||||
10,923,016 | ||||||||
|
| |||||||
Total Municipal Obligations | 319,394,185 | |||||||
|
| |||||||
CORPORATES – INVESTMENT | ||||||||
Industrial – 2.4% |
| |||||||
Consumer Cyclical - Other – 1.0% |
| |||||||
Conservation Fund A Nonprofit Corp. (The) | 3,267 | 3,396,994 | ||||||
|
| |||||||
Consumer Non-Cyclical – 0.1% |
| |||||||
YMCA of Greater New York | 500 | 515,605 | ||||||
|
| |||||||
Other Industrial – 0.9% |
| |||||||
Howard University | 1,000 | 1,024,620 | ||||||
2.516%, 10/01/2025 | 1,000 | 1,060,500 | ||||||
2.291%, 10/01/2026 | 1,000 | 1,023,340 | ||||||
|
| |||||||
3,108,460 | ||||||||
|
| |||||||
Services – 0.4% |
| |||||||
Ford Foundation (The) | 1,595 | 1,584,122 | ||||||
|
| |||||||
8,605,181 | ||||||||
|
| |||||||
Financial Institutions – 1.8% |
| |||||||
Finance – 1.8% |
| |||||||
BlueHub Loan Fund, Inc. | 1,000 | 1,006,447 |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Low Income Investment Fund | $ | 5,000 | $ | 5,408,829 | ||||
|
| |||||||
6,415,276 | ||||||||
|
| |||||||
Total Corporates – Investment Grade | 15,020,457 | |||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 5.7% |
| |||||||
Investment Companies – 5.7% |
| |||||||
AB Fixed Income Shares, Inc. – | 19,960,413 | 19,960,413 | ||||||
|
| |||||||
Total Investments – 100.7% | 354,375,055 | |||||||
Other assets less liabilities – (0.7)% | (2,574,323 | ) | ||||||
|
| |||||||
Net Assets – 100.0% | $ | 351,800,732 | ||||||
|
|
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate market value of these securities amounted to $36,954,398 or 10.5% of net assets. |
(b) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2020. |
(c) | When-Issued or delayed delivery security. |
(d) | Affiliated investments. |
(e) | The rate shown represents the 7-day yield as of period end. |
(f) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
As of October 31, 2020, the Fund’s percentages of investments in municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity are 17.3% and 0.0%, respectively.
Glossary:
AGM – Assured Guaranty Municipal
BAM – Build American Mutual
COP – Certificate of Participation
LIBOR – London Interbank Offered Rates
See notes to financial statements.
24 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2020 (unaudited)
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $323,852,944) | $ | 334,414,642 | ||
Affiliated issuers (cost $19,960,413) | 19,960,413 | |||
Cash | 15,880 | |||
Interest receivable | 4,041,317 | |||
Receivable for shares of beneficial interest sold | 1,847,514 | |||
Receivable due from Adviser | 2,731 | |||
Affiliated dividends receivable | 554 | |||
|
| |||
Total assets | 360,283,051 | |||
|
| |||
Liabilities |
| |||
Payable for investment securities purchased | 7,524,282 | |||
Dividends payable | 885,818 | |||
Payable for shares of beneficial interest redeemed | 72,219 | |||
|
| |||
Total liabilities | 8,482,319 | |||
|
| |||
Net Assets | $ | 351,800,732 | ||
|
| |||
Composition of Net Assets |
| |||
Shares of beneficial interest, at par | $ | 335 | ||
Additional paid-in capital | 342,436,697 | |||
Distributable earnings | 9,363,700 | |||
|
| |||
$ | 351,800,732 | |||
|
| |||
Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 33,494,425 common shares outstanding) | $ | 10.50 | ||
|
|
See notes to financial statements.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 25 |
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (unaudited)
Investment Income | ||||||||
Interest | $ | 4,634,255 | ||||||
Dividends—Affiliated issuers | 11,534 | |||||||
Other income(a) | 9,954 | |||||||
|
| |||||||
Total investment income | $ | 4,655,743 | ||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized loss on investment transactions | (721,464 | ) | ||||||
Net change in unrealized appreciation/depreciation of investments | 16,151,538 | |||||||
|
| |||||||
Net gain on investment transactions | 15,430,074 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 20,085,817 | ||||||
|
|
(a) | Other income includes a reimbursement for investment in affiliated issuer (see Note B). |
See notes to financial statements.
26 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 4,655,743 | $ | 5,843,359 | ||||
Net realized loss on investment transactions | (721,464 | ) | (284,986 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 16,151,538 | (9,721,429 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 20,085,817 | (4,163,056 | ) | |||||
Distribution to Shareholders | (4,662,879 | ) | (5,843,379 | ) | ||||
Transactions in Shares of Beneficial Interest | ||||||||
Net increase | 91,081,135 | 122,339,075 | ||||||
|
|
|
| |||||
Total increase | 106,504,073 | 112,332,640 | ||||||
Net Assets |
| |||||||
Beginning of period | 245,296,659 | 132,964,019 | ||||||
|
|
|
| |||||
End of period | $ | 351,800,732 | $ | 245,296,659 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 27 |
NOTES TO FINANCIAL STATEMENTS
October 31, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Corporate Shares (the “Trust”) is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust, which is a Massachusetts Business Trust, operates as a “series” company currently offering five separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares, AB Taxable Multi-Sector Income Shares, AB Impact Municipal Income Shares and AB Tax-Aware Real Return Income Shares. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Impact Municipal Income Shares (the “Fund”).
Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. 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 Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
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 Trust’s Board of Trustees (the “Board”).
In general, the market values 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 (“OTC”) market put or call options are valued at the mid level
28 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures 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 any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, 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. 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. Open-end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes 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 (including those valued based on their market values as described in Note A.1 above). 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 Fund. Unobservable inputs reflect the Fund’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 Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more
30 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 319,394,185 | $ | – 0 | – | $ | 319,394,185 | ||||||
Corporates – Investment Grade | – 0 | – | 15,020,457 | – 0 | – | 15,020,457 | ||||||||||
Short-Term Investments | 19,960,413 | – 0 | – | – 0 | – | 19,960,413 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 19,960,413 | 334,414,642 | – 0 | – | 354,375,055 | |||||||||||
Other Financial Instruments(a) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 19,960,413 | $ | 334,414,642 | $ | – 0 | – | $ | 354,375,055 | |||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
3. Taxes
It is the Fund’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.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’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 two tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund 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 Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
distributions received from REIT investments or from regulated investment companies as dividend income, realized gain, or return of capital based on information provided by the REIT or the investment company.
5. 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 advisory agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee is paid by their investment adviser to the Adviser. In certain cases, participants may have a direct relationship with the Adviser without the involvement of a third party investment adviser, in which case the participant would pay a fee directly to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The advisory agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.
The Fund has entered into a distribution agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.
AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.
32 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of ..20% of the portfolio’s average daily net assets and bears its own expenses. The Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to reimburse the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended October 31, 2020, such reimbursement amounted to $9,954.
A summary of the Fund’s transactions in AB mutual funds for the six months ended October 31, 2020 is as follows:
Fund | Market Value 4/30/20 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 15,950 | $ | 86,662 | $ | 82,652 | $ | 19,960 | $ | 12 |
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximate 65% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2020 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 122,033,761 | $ | 24,953,849 | ||||
U.S. government securities | – 0 | – | – 0 | – |
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 13,013,517 | ||
Gross unrealized depreciation | (2,451,819 | ) | ||
|
| |||
Net unrealized appreciation | $ | 10,561,698 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Fund did not engage in derivatives transactions for the six months ended October 31, 2020.
NOTE D
Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Shares sold | 9,381,836 | 13,186,982 | $ | 97,805,096 | $ | 137,610,295 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (648,719 | ) | (1,472,619 | ) | (6,723,961 | ) | (15,271,220 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 8,733,117 | 11,714,363 | $ | 91,081,135 | $ | 122,339,075 | ||||||||||||||||||
|
34 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The market value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
ESG Risk—Applying environmental, social and corporate governance (“ESG”) and sustainability criteria to the investment process may exclude securities of certain issuers for non-investment reasons and, therefore, the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities selected based on ESG factors may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and any accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the U.S. federal income tax treatment of certain types of municipal securities
Tax Risk—There is no guarantee that all of the Fund’s income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Fund by increasing taxes on that income. In such event, the Fund’s net asset value, or NAV, could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Fund shares as investors anticipate adverse effects on the Fund or seek higher yields to offset the potential loss of the tax deduction. As a result, the Fund would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Fund’s yield. The federal income tax treatment of payments in respect of certain derivative contracts is unclear.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new
36 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During the periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Illiquid Investments Risk—Illiquid investments risk exists when particular investments, such as lower-rated securities, are or become difficult to purchase or sell, possibly preventing the Fund from selling such investments at an advantageous price. The Fund is subject to illiquid investments risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk than most other types of investments.
Derivatives Risk—The Fund 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 Fund, 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 on the statement of assets and liabilities.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”)
38 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Adviser. The Fund did not utilize the Facility during the six months ended October 31, 2020.
NOTE G
Distributions to Shareholders
The tax character of distributions to be paid for the year ending April 30, 2021 will be determined at the end of the current fiscal year.
The tax character of distributions paid during the fiscal years ended April 30, 2020 and April 30, 2019 were as follows:
2020 | 2019 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 169,666 | $ | 125,019 | ||||
|
|
|
| |||||
Total taxable distributions | 169,666 | 125,019 | ||||||
Tax exempt distributions | 5,673,713 | 2,974,674 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 5,843,379 | $ | 3,099,693 | ||||
|
|
|
|
As of April 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 610,567 | ||
Accumulated capital and other losses | (469,397 | )(a) | ||
Unrealized appreciation/(depreciation) | (5,589,840 | ) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (5,448,670 | )(b) | |
|
|
(a) | As of April 30, 2020, the Fund had a net capital loss carryforward of $469,397. |
(b) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30, 2020, the Fund had a net short-term capital loss carryforward of $71,511, which may be carried forward for an indefinite period.
NOTE H
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 Fund’s financial statements through this date.
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 39 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
Six Months (unaudited) | Year Ended April 30, | September 12, 2018 | ||||||||||||||
2020 | 2019 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 9.91 | $ 10.19 | $ 9.79 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(b) | .16 | .33 | .33 | .18 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | .59 | (.27 | ) | .40 | (.22 | ) | ||||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | .75 | .06 | .73 | (.04 | ) | |||||||||||
|
| |||||||||||||||
Less: Dividends |
| |||||||||||||||
Dividends from net investment income | (.16 | ) | (.34 | ) | (.33 | ) | (.17 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.50 | $ 9.91 | $ 10.19 | $ 9.79 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(c) | 7.56 | % | .40 | % | 7.56 | % | (.44 | )% | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $351,801 | $245,297 | $132,964 | $37,341 | ||||||||||||
Ratio to average net assets of: |
| |||||||||||||||
Net investment income | 2.98 | %^ | 3.18 | % | 3.35 | % | 2.89 | %^ | ||||||||
Portfolio turnover rate | 9 | % | 2 | % | 23 | % | 8 | % |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
^ | Annualized. |
See notes to financial statements.
40 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
BOARD OF TRUSTEES
Marshall C. Turner, Jr(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
R.B. (Guy) Davidson III(2),^, Vice President Eric A. Glass(2), Vice President Matthew J. Norton(2), Vice President Emilie D. Wrapp, Secretary | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company
Principal Underwriter AllianceBernstein Investments, Inc.
| Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004
Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 | |
Transfer Agent AllianceBernstein Investor Services, P.O. Box 786003 |
1 | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s Portfolio are made by the Adviser’s Municipal Impact Investment Team. Messrs. Davidson, Glass and Norton are the investment professionals primarily responsible for the day-to-day management of the Fund’s Portfolio. |
^ | Mr. Davidson is expected to retire from the Adviser effective December 30, 2020. |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 41 |
Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
42 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested trustees (the “directors”) of AB Corporate Shares (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Impact Municipal Income Shares (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).*
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors noted that the Fund is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The directors also noted that no advisory fee is payable by the Fund, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Fund’s ordinary expenses. The directors noted that the Company acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The directors further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Fund as an investment vehicle for their clients.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the underlying fund advised by the Adviser in which the Fund invests.
* | Following transactions completed on November 13, 2019 that may have been deemed to have been an “assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 43 |
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for the period ended December 31, 2017 and calendar year 2018 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and
44 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
distribution expenses. The directors noted that the Fund was not profitable to the Adviser in the periods reviewed.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the underlying fund advised by the Adviser in which the Fund invests. The directors noted that the Adviser is compensated by the Sponsors. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing the Fund’s performance against a broad-based securities market index, in each case for the 1-year period ended July 31, 2019 and (in the case of comparisons with the broad-based securities market index) for the period from inception. The directors were cognizant that the Fund was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Fund. At the directors’ request, the Adviser provided information showing the weighting of the Fund in a current SMA and the overall performance of the SMA versus its stated benchmark. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees
The directors considered the advisory fee rate payable by the Fund to the Adviser (zero) and information provided by the 15(c) service provider showing the fees payable by other fund families used in wrap fee programs similar to that of the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds.
The directors noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Fund. The directors reviewed the fee arrangements between the Adviser and each of the current Sponsors and noted that such fees were negotiated on an
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 45 |
arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the directors acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Fund paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Fund (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to Fund management at the Fund level is the same for all Sponsors. The directors also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.
The Adviser informed the directors that there were no institutional products managed by the Adviser that utilize investment strategies similar to those of the Fund.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
The directors did not consider comparative expense information for the Fund because the Fund does not bear ordinary expenses.
Economies of Scale
The directors did not consider the extent to which fee levels in the Advisory Agreement for the Fund reflect economies of scale because the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Fund and the Fund’s expense ratio is zero. They did note, however, that the fee payable to the Adviser by the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.
46 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 47 |
NOTES
48 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 49 |
NOTES
50 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
NOTES
abfunds.com | AB IMPACT MUNICIPAL INCOME SHARES | 51 |
NOTES
52 | AB IMPACT MUNICIPAL INCOME SHARES | abfunds.com |
AB IMPACT MUNICIPAL INCOME SHARES
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
IMISH-0152-1020
OCT 10.31.20
SEMI-ANNUAL REPORT
AB MUNICIPAL INCOME SHARES
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
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 AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT | ![]() |
Dear Shareholder,
We are pleased to provide this report for AB Municipal Income Shares (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB MUNICIPAL INCOME SHARES | 1 |
SEMI-ANNUAL REPORT
December 16, 2020
This report provides management’s discussion of fund performance for AB Municipal Income Shares for the semi-annual reporting period ended October 31, 2020. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by the Adviser.
The investment objective of the Fund is to earn the highest level of current income, exempt from federal taxation, that is available consistent with what the Adviser considers to be an appropriate level of risk.
NAV RETURNS AS OF OCTOBER 31, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB MUNICIPAL INCOME SHARES | 11.85% | 1.93% | ||||||
Bloomberg Barclays Municipal Bond Index | 4.99% | 3.59% |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays Municipal Bond Index, for the six- and 12-month periods ended October 31, 2020.
The Fund outperformed the benchmark for the six-month period but underperformed for the 12-month period. The Fund is generally used to provide exposure to lower-rated municipal bonds and longer-duration bonds within separately managed account strategies. The Fund was overweight lower-rated (noninvestment-grade) bonds, relative to the benchmark, which is fully composed of investment-grade bonds. This overweight was beneficial over the six-month period, but detrimental over the 12-month period. The Fund was overweight long-duration bonds, which contributed over both periods.
During the six-month period, the Fund’s overweight to municipal credit contributed, as credit rebounded from March lows. Security selection within the special tax sector contributed. An underweight to the intermediate part of the yield-curve detracted. There were no other noteworthy detractors over the period.
For the 12-month period, the Fund’s overweight to municipal credit detracted, following the sell-off in March. Security selection within the state general obligation bonds sector detracted, while selection in toll roads/transit contributed. An overweight to the long-end of the yield curve contributed.
2 | AB MUNICIPAL INCOME SHARES | abfunds.com |
The Fund utilized derivatives for hedging purposes in the form of consumer price index swaps, which added to absolute performance for both periods, and interest rate swaps, which had no material impact for the six-month period but detracted for the 12-month period.
MARKET REVIEW AND INVESTMENT STRATEGY
Despite record volatility across most financial markets as the COVID-19 pandemic developed last spring, municipal performance was positive over both the six- and 12-month periods ended October 31, 2020. Following the onset of the virus, the US economy quickly contracted; however, according to the Federal Reserve Bank of New York, the US economy stopped contracting in early May, and began a steady recovery through the rest of the summer. With respect to monetary policy, the US Federal Reserve (“the Fed”) Board of Governors stated that short-term interest rates were likely to be held at current low levels for the next few years. Consistent with the improving economy and steady monetary policy, municipals have continued to perform well following the sharp sell-off in March.
While outflows from open-end municipal bond funds and a general lack of liquidity across most markets sparked the sell-off in March, these themes have since largely abated, as investors have taken comfort in the significant federal support provided to state and local governments. On the monetary side, the Fed established the Municipal Liquidity Facility, which can purchase as much as $500 billion in short-term notes directly from municipalities, helping alleviate near-term liquidity concerns for eligible municipalities. The fiscal side brought issuers additional support in the form of the CARES Act, which included $150 billion to state and local governments, $120 billion to hospitals, $31 billion for education, $25 billion for transportation and $10 billion to airports.
The Fund’s Senior Investment Management Team relies on an investment process that combines quantitative and fundamental research to build effective municipal bond portfolios.
The Fund may purchase municipal securities that are insured under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most bond insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research. If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of October 31, 2020, the Fund’s percentages of investments in
abfunds.com | AB MUNICIPAL INCOME SHARES | 3 |
municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity were 2.00% and 0.04%, respectively.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in high-yielding municipal securities that may be non-investment grade or investment-grade. As a matter of fundamental policy, the Fund invests, under normal circumstances, at least 80% of its net assets in municipal securities that pay interest that is exempt from federal income tax. These securities may pay interest that is subject to the federal alternative minimum tax for certain taxpayers.
The Adviser selects securities for purchase or sale based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.
The Fund may invest without limit in lower-rated securities (“junk bonds”), which may include securities having the lowest rating, and in unrated securities that, in the Adviser’s judgment, would be lower-rated securities if rated. The Fund may invest in fixed-income securities with any maturity or duration. The Fund will seek to increase income for shareholders by investing in longer maturity bonds. Consistent with its objective of seeking a higher level of income, the Fund may experience greater volatility and a higher risk of loss of principal than other municipal funds.
The Fund may also invest in tender option bond transactions (“TOBs”); forward commitments; zero-coupon municipal securities and variable, floating and inverse floating-rate municipal securities; certain types of mortgage-related securities; and derivatives, such as options, futures contracts, forwards and swaps.
The Fund may make short sales of securities or maintain a short position, and may use other investment techniques. The Fund may use leverage for investment purposes to increase income through the use of TOBs and derivative instruments, such as interest rate swaps.
4 | AB MUNICIPAL INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays Municipal Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays Municipal Bond Index represents the performance of the long-term tax-exempt bond market consisting of investment-grade bonds. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and any accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still
abfunds.com | AB MUNICIPAL INCOME SHARES | 5 |
DISCLOSURES AND RISKS (continued)
uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the US federal income tax treatment of certain types of municipal securities.
Tax Risk: There is no guarantee that all of the Fund’s income will remain exempt from federal or state income taxes. From time to time, the US government and the US Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Fund by increasing taxes on that income. In such event, the Fund’s net asset value (“NAV”) could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax-exempt status of municipal bonds could also result in significant shareholder redemptions of Fund shares as investors anticipate adverse effects on the Fund or seek higher yields to offset the potential loss of the tax deduction. As a result, the Fund would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Fund’s yield. The federal income tax treatment of payments in respect of certain derivative contracts is unclear.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest-rate sensitivity and negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During periods
6 | AB MUNICIPAL INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS (continued)
of very low or negative interest rates, the Fund’s returns may be adversely affected.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Leverage Risk: To the extent the Fund uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.
Illiquid Investments Risk: Illiquid investments risk exists when particular investments, such as lower-rated securities, are or become difficult to purchase or sell, possibly preventing the Fund from selling such investments at an advantageous price. The Fund is subject to illiquid investments risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk than most other types of investments.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Management Risk: The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227 4618. The investment return and principal value of an investment in the Fund will fluctuate, so that
abfunds.com | AB MUNICIPAL INCOME SHARES | 7 |
DISCLOSURES AND RISKS (continued)
your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
8 | AB MUNICIPAL INCOME SHARES | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2020 (unaudited)
NAV Returns | ||||
1 Year | 1.93% | |||
5 Years | 5.20% | |||
10 Years | 6.38% |
AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2020 (unaudited)
NAV Returns | ||||
1 Year | 1.84% | |||
5 Years | 5.40% | |||
10 Years | 6.40% |
The prospectus fee table shows the fees and the total operating expenses of the Fund as 0.01% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.
abfunds.com | AB MUNICIPAL INCOME SHARES | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. 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.
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.
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 hypothetical example 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 May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Actual | $ | 1,000 | $ | 1,118.50 | $ | 0.26 | 0.05 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,024.96 | $ | 0.24 | 0.05 | % |
* | Expenses are equal to the Fund’s annualized expense ratio (interest expense incurred) multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates. |
** | Assumes 5% annual return before expenses. |
10 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO SUMMARY
October 31, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $5,437.5
1 | All data are as of October 31, 2020. The Fund’s quality rating breakdown is expressed as a percentage of the Fund’s total investments in municipal securities and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). The quality ratings are determined by using the S&P Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the pre-refunded category includes bonds which are secured by U.S. Government securities and therefore are deemed high-quality investment-grade by the Adviser. If applicable, Not Applicable (N/A) includes non-creditworthy investments, such as equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a nationally recognized statistical rating organization. The Adviser evaluates the creditworthiness of non-rated securities based on a number of factors including, but not limited to, cash flows, enterprise value and economic environment. |
abfunds.com | AB MUNICIPAL INCOME SHARES | 11 |
PORTFOLIO OF INVESTMENTS
October 31, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 106.0% | ||||||||
Long-Term Municipal Bonds – 106.0% | ||||||||
Alabama – 2.4% | ||||||||
County of Jefferson AL Sewer Revenue | $ | 11,645 | $ | 13,488,404 | ||||
Infirmary Health System Special Care Facilities Financing Authority of Mobile | 10,000 | 11,178,900 | ||||||
Jefferson County Board of Education/AL | 28,280 | 33,399,461 | ||||||
Southeast Alabama Gas Supply District (The) | 13,350 | 14,648,554 | ||||||
Special Care Facilities Financing Authority of the City of Pell City Alabama | 3,000 | 3,109,800 | ||||||
Special Care Facilities Financing Authority of the City of Pell City Alabama | 10,000 | 10,366,000 | ||||||
Tuscaloosa County Industrial Development Authority | 41,175 | 45,130,270 | ||||||
|
| |||||||
131,321,389 | ||||||||
|
| |||||||
Alaska – 0.2% |
| |||||||
State of Alaska International Airports System | 9,000 | 10,458,625 | ||||||
|
| |||||||
American Samoa – 0.3% |
| |||||||
American Samoa Economic Development Authority | 8,315 | 10,355,002 | ||||||
Series 2015A | 3,235 | 3,724,585 | ||||||
|
| |||||||
14,079,587 | ||||||||
|
|
12 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Arizona – 1.7% |
| |||||||
Arizona Industrial Development Authority | $ | 15,564 | $ | 16,238,572 | ||||
Arizona Industrial Development Authority | 16,870 | 16,946,758 | ||||||
Arizona Industrial Development Authority | 4,285 | 4,927,765 | ||||||
Arizona Industrial Development Authority | 1,250 | 1,306,475 | ||||||
Arizona Industrial Development Authority | 1,100 | 1,101,870 | ||||||
Arizona Sports & Tourism Authority | 3,670 | 3,857,427 | ||||||
Glendale Industrial Development Authority | 1,000 | 1,048,270 | ||||||
Glendale Industrial Development Authority | 2,700 | 2,813,589 | ||||||
Industrial Development Authority of the City of Phoenix (The) | 3,875 | 4,081,809 | ||||||
Industrial Development Authority of the County of Pima (The) | 10,590 | 10,515,112 | ||||||
Maricopa County Industrial Development Authority | 19,500 | 21,927,165 | ||||||
Quechan Indian Tribe of Fort Yuma | 60 | 63,056 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Salt Verde Financial Corp. | $ | 2,010 | $ | 2,684,998 | ||||
Tempe Industrial Development Authority | 1,185 | 1,152,827 | ||||||
Tempe Industrial Development Authority | 1,065 | 1,093,553 | ||||||
|
| |||||||
89,759,246 | ||||||||
|
| |||||||
Arkansas – 0.6% |
| |||||||
Arkansas Development Finance Authority | 12,500 | 14,810,625 | ||||||
Arkansas Development Finance Authority | 20,000 | 20,006,400 | ||||||
|
| |||||||
34,817,025 | ||||||||
|
| |||||||
California – 7.3% |
| |||||||
Abag Finance Authority for Nonprofit Corps. | 100 | 101,508 | ||||||
Alameda Corridor Transportation Authority | 26,130 | 30,176,608 | ||||||
Anaheim Public Financing Authority | 1,460 | 1,614,278 | ||||||
Bay Area Toll Authority | 1,000 | 1,114,620 | ||||||
California Educational Facilities Authority | 8,210 | 9,463,552 | ||||||
California Educational Facilities Authority | 2,000 | 2,285,810 |
14 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
California Educational Facilities Authority | $ | 100 | $ | 103,181 | ||||
California Health Facilities Financing Authority | 1,700 | 1,981,214 | ||||||
California Health Facilities Financing Authority | 22,500 | 24,777,500 | ||||||
California Housing Finance | 15,162 | 16,665,319 | ||||||
California Infrastructure & Economic Development Bank | 1,710 | 1,930,243 | ||||||
California Municipal Finance Authority | 3,030 | 3,577,067 | ||||||
California Municipal Finance Authority | 1,000 | 1,014,350 | ||||||
Series 2014 | 1,085 | 1,029,622 | ||||||
California Municipal Finance Authority | 3,625 | 4,129,600 | ||||||
California Municipal Finance Authority | 1,025 | 1,044,567 | ||||||
California Municipal Finance Authority | 1,200 | 1,305,492 | ||||||
7.25%, 06/01/2043 | 2,075 | 2,256,542 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
California Municipal Finance Authority | $ | 710 | $ | 739,678 | ||||
California Pollution Control Financing Authority | 4,675 | 4,845,263 | ||||||
California Pollution Control Financing Authority | 785 | 758,153 | ||||||
California School Finance Authority | 8,850 | 9,330,997 | ||||||
California School Finance Authority | 3,000 | 3,271,170 | ||||||
California Statewide Communities Development Authority | 250 | 276,880 | ||||||
California Statewide Communities Development Authority | 530 | 548,889 | ||||||
California Statewide Communities Development Authority | 7,440 | 8,345,647 | ||||||
Series 2016A | 6,160 | 6,727,767 | ||||||
5.25%, 12/01/2056(a) | 12,590 | 13,846,230 | ||||||
Series 2018A | 1,350 | 1,539,513 | ||||||
5.50%, 12/01/2058(a) | 17,615 | 19,907,416 | ||||||
California Statewide Communities Development Authority | 1,200 | 1,233,888 |
16 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
California Statewide Communities Development Authority | $ | 100 | $ | 106,238 | ||||
California Statewide Communities Development Authority | 140 | 144,248 | ||||||
City of Los Angeles Department of Airports | 25,415 | 30,886,190 | ||||||
City of Roseville CA | 1,000 | 1,126,540 | ||||||
City of San Buenaventura CA | 100 | 104,426 | ||||||
Golden State Tobacco Securitization Corp. | 82,290 | 84,631,974 | ||||||
5.25%, 06/01/2047 | 2,400 | 2,472,624 | ||||||
Hastings Campus Housing Finance Authority | 24,625 | 25,191,867 | ||||||
M-S-R Energy Authority | 17,685 | 27,515,030 | ||||||
Oakland Unified School District/Alameda County | 6,215 | 7,186,178 | ||||||
Palomar Health | 3,990 | 4,494,735 | ||||||
Series 2017 | 3,375 | 3,789,214 | ||||||
San Francisco City & County Airport Comm | 19,525 | 23,944,718 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
San Francisco City & County Redevelopment Agency Successor Agency | $ | 1,000 | $ | 1,056,050 | ||||
San Francisco Intl Airport | 2,000 | 2,245,040 | ||||||
San Joaquin Hills Transportation Corridor Agency | 1,450 | 1,592,622 | ||||||
Series 2014B | 1,000 | 1,100,710 | ||||||
Southern California Logistics Airport Authority | 1,685 | 1,685,272 | ||||||
Tobacco Securitization Authority of Southern California | 10,480 | 1,794,490 | ||||||
5.00%, 06/01/2039 | 1,555 | 1,958,134 | ||||||
|
| |||||||
398,968,864 | ||||||||
|
| |||||||
Colorado – 2.4% |
| |||||||
Centerra Metropolitan District No. 1 | 5,000 | 5,160,200 | ||||||
City & County of Denver CO | 645 | 653,192 | ||||||
City & County of Denver CO Airport System Revenue | 7,180 | 8,814,886 | ||||||
Colorado Health Facilities Authority | 8,295 | 9,304,410 | ||||||
5.00%, 08/01/2044(c) | 67,235 | 79,502,698 | ||||||
Colorado Health Facilities Authority | 1,150 | 1,306,929 |
18 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Colorado Health Facilities Authority | $ | 7,050 | $ | 8,446,957 | ||||
Colorado Health Facilities Authority | 1,000 | 1,001,660 | ||||||
Copper Ridge Metropolitan District | 3,660 | 3,415,727 | ||||||
Copperleaf Metropolitan District No. 2 | 1,000 | 1,034,260 | ||||||
Plaza Metropolitan District No. 1 | 1,500 | 1,526,610 | ||||||
STC Metropolitan District No. 2 | 1,940 | 1,975,421 | ||||||
Sterling Ranch Community Authority Board | 2,250 | 2,305,193 | ||||||
Sterling Ranch Community Authority Board | 1,000 | 1,034,260 | ||||||
Sterling Ranch Community Authority Board | 2,000 | 2,029,370 | ||||||
Vauxmont Metropolitan District AGM | 805 | 855,264 | ||||||
5.00%, 12/01/2033-12/01/2050 | 805 | 993,243 | ||||||
|
| |||||||
129,360,280 | ||||||||
|
| |||||||
Connecticut – 3.1% |
| |||||||
City of New Haven CT | 1,650 | 1,996,682 | ||||||
Connecticut State Health & Educational Facilities Authority | 3,850 | 4,388,562 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Connecticut State Health & Educational Facilities Authority | $ | 5,750 | $ | 6,403,085 | ||||
Connecticut State Health & Educational Facilities Authority | 2,095 | 2,471,890 | ||||||
Connecticut State Health & Educational Facilities Authority | 2,475 | 2,523,497 | ||||||
Connecticut State Health & Educational Facilities Authority | 18,035 | 17,155,393 | ||||||
5.00%, 07/01/2033-07/01/2034 | 765 | 832,562 | ||||||
Connecticut State Health & Educational Facilities Authority | 1,000 | 1,072,880 | ||||||
Series 2018K-1 | 7,090 | 7,590,876 | ||||||
State of Connecticut | 1,000 | 1,105,260 | ||||||
Series 2015F | 2,875 | 3,389,223 | ||||||
Series 2016A | 8,165 | 9,680,914 | ||||||
Series 2016E | 12,845 | 15,592,146 | ||||||
Series 2016F | 10,205 | 12,321,415 | ||||||
Series 2017A | 27,825 | 33,897,770 | ||||||
Series 2018A | 7,930 | 9,673,142 | ||||||
Series 2018C | 7,490 | 9,255,205 | ||||||
Series 2018E | 1,035 | 1,264,087 | ||||||
Series 2020A | 8,300 | 10,312,999 |
20 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2020C | $ | 3,775 | $ | 4,395,791 | ||||
State of Connecticut Special Tax Revenue | 4,530 | 5,668,961 | ||||||
Series 2012 | 5,000 | 5,441,200 | ||||||
|
| |||||||
166,433,540 | ||||||||
|
| |||||||
Delaware – 0.1% |
| |||||||
Delaware State Economic Development Authority | 2,440 | 2,555,340 | ||||||
Delaware State Economic Development Authority | 1,125 | 1,300,185 | ||||||
Series 2012 | 1,310 | 1,348,252 | ||||||
|
| |||||||
5,203,777 | ||||||||
|
| |||||||
District of Columbia – 0.5% |
| |||||||
District of Columbia | 1,420 | 1,475,806 | ||||||
Series 2016A | 1,900 | 2,076,344 | ||||||
District of Columbia | 8,580 | 9,727,944 | ||||||
Series 2017B | 1,465 | 1,694,199 | ||||||
Metropolitan Washington Airports Authority | 500 | 585,905 | ||||||
Series 2018A | 7,400 | 8,652,154 | ||||||
Series 2020A | 3,750 | 4,258,630 | ||||||
|
| |||||||
28,470,982 | ||||||||
|
| |||||||
Florida – 6.9% |
| |||||||
Alachua County Health Facilities Authority | 435 | 473,824 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Alachua County Health Facilities Authority | $ | 1,000 | $ | 1,131,120 | ||||
Bexley Community Development District | 1,000 | 1,035,790 | ||||||
Cape Coral Health Facilities Authority | 1,400 | 1,387,792 | ||||||
6.00%, 07/01/2045-07/01/2050(a) | 4,015 | 3,978,532 | ||||||
Capital Projects Finance Authority/FL | 5,700 | 6,395,688 | ||||||
Capital Trust Agency, Inc. | 1,300 | 1,294,319 | ||||||
Capital Trust Agency, Inc. | 3,865 | 3,805,109 | ||||||
City of Jacksonville FL | 11,325 | 12,419,824 | ||||||
5.00%, 11/01/2050 | 8,230 | 9,577,333 | ||||||
City of Lakeland FL | 2,350 | 2,432,216 | ||||||
City of Lakeland FL | 5,610 | 6,321,124 | ||||||
City of South Miami Health Facilities Authority, Inc. | 14,530 | 17,088,931 | ||||||
City of Tallahassee FL | 3,535 | 3,867,820 |
22 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2015A | $ | 1,200 | $ | 1,308,852 | ||||
City of Tampa FL | 6,580 | 2,998,167 | ||||||
County of Broward FL Airport System Revenue | 2,170 | 2,387,564 | ||||||
5.00%, 10/01/2038-10/01/2044 | 6,095 | 7,344,752 | ||||||
County of Broward FL Airport System Revenue | 7,880 | 9,122,404 | ||||||
County of Lake FL | 8,105 | 8,287,836 | ||||||
County of Miami-Dade FL Aviation Revenue | 10,000 | 11,184,700 | ||||||
Series 2015A | 1,100 | 1,258,015 | ||||||
Series 2017B | 9,025 | 10,444,452 | ||||||
County of Osceola FL Transportation Revenue | 6,045 | 3,480,844 | ||||||
County of Palm Beach FL | 4,030 | 3,897,294 | ||||||
Florida Development Finance Corp. | 8,150 | 9,030,168 | ||||||
Florida Development Finance Corp. | 10,500 | 10,671,405 | ||||||
Florida Higher Educational Facilities Financial Authority | 1,000 | 1,010,440 | ||||||
Florida Higher Educational Facilities Financial Authority | 7,965 | 8,451,985 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Greater Orlando Aviation Authority | $ | 15,000 | $ | 17,957,880 | ||||
Series 2017A | 15,500 | 18,297,639 | ||||||
Series 2019A | 13,500 | 16,153,565 | ||||||
Highlands County Health Facilities Authority | 1,530 | 676,994 | ||||||
6.25%, 04/01/2049 | 1,820 | 804,622 | ||||||
Lakewood Ranch Stewardship District | 1,000 | 1,089,090 | ||||||
5.45%, 05/01/2048 | 1,525 | 1,674,282 | ||||||
Manatee County School District | 2,700 | 3,291,192 | ||||||
Marshall Creek Community Development District | 1,655 | 1,726,827 | ||||||
Martin County Health Facilities Authority | 1,350 | 1,422,657 | ||||||
Martin County Industrial Development Authority | 13,155 | 13,161,841 | ||||||
Miami Beach Health Facilities Authority | 2,885 | 3,044,396 | ||||||
Series 2014 | 2,000 | 2,191,340 | ||||||
Miami-Dade County Expressway Authority | 4,000 | 4,461,960 | ||||||
Mid-Bay Bridge Authority | 3,600 | 4,068,668 | ||||||
Series 2015C | 2,750 | 3,052,785 |
24 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
North Broward Hospital District | $ | 21,590 | $ | 24,315,179 | ||||
Palm Beach County Health Facilities Authority | 1,000 | 1,167,040 | ||||||
Palm Beach County Health Facilities Authority | 2,045 | 2,043,671 | ||||||
5.00%, 06/01/2055 | 2,880 | 2,965,910 | ||||||
Pinellas County Industrial Development Authority | 1,955 | 2,197,870 | ||||||
Polk County Industrial Development Authority | 4,000 | 4,003,440 | ||||||
St. Johns County Industrial Development Authority | 5,300 | 5,596,058 | ||||||
Tampa Florida Hospitals | 18,325 | 22,107,646 | ||||||
Town of Davie FL | 3,765 | 4,244,322 | ||||||
Town of Davie FL | 24,650 | 27,832,808 | ||||||
Village Community Development District No. 13 | 1,000 | 1,031,800 | ||||||
3.375%, 05/01/2034 | 1,500 | 1,554,150 | ||||||
3.50%, 05/01/2051(a) | 5,000 | 5,009,800 | ||||||
3.55%, 05/01/2039 | 2,615 | 2,692,587 | ||||||
3.70%, 05/01/2050 | 10,000 | 10,219,600 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Volusia County School Board | $ | 1,625 | $ | 1,862,494 | ||||
|
| |||||||
374,008,413 | ||||||||
|
| |||||||
Georgia – 1.9% |
| |||||||
Cedartown Polk County Hospital Authority | 4,000 | 4,480,640 | ||||||
City of Atlanta GA Department of Aviation | 1,390 | 1,453,787 | ||||||
Series 2014A | 1,820 | 2,031,539 | ||||||
Clarke County Hospital Authority | 2,500 | 2,960,325 | ||||||
Development Authority for Fulton County | 2,000 | 2,357,920 | ||||||
Development Authority of Gwinnett County | 10,855 | 12,778,506 | ||||||
Fayette County Hospital Authority/GA | 10,710 | 12,518,212 | ||||||
Glynn-Brunswick Memorial Hospital Authority | 12,680 | 14,366,676 | ||||||
Main Street Natural Gas, Inc. | 16,200 | 17,660,916 | ||||||
Series 2018C | 12,245 | 13,435,581 |
26 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Municipal Electric Authority of Georgia | $ | 16,960 | $ | 20,061,765 | ||||
|
| |||||||
104,105,867 | ||||||||
|
| |||||||
Guam – 1.0% |
| |||||||
Guam Government Waterworks Authority | 3,925 | 4,685,861 | ||||||
Territory of Guam | 2,165 | 2,299,988 | ||||||
Territory of Guam | 9,015 | 10,243,362 | ||||||
Territory of Guam | 6,420 | 6,596,101 | ||||||
Series 2015D | 25,505 | 28,297,061 | ||||||
|
| |||||||
52,122,373 | ||||||||
|
| |||||||
Idaho – 0.0% |
| |||||||
Idaho Housing & Finance Association | 200 | 201,790 | ||||||
|
| |||||||
Illinois – 11.0% |
| |||||||
Chicago Board of Education | 5,630 | 5,697,278 | ||||||
Series 2015C | 10,315 | 10,873,932 | ||||||
Series 2015E | 1,000 | 1,061,620 | ||||||
Series 2016A | 1,400 | 1,647,940 | ||||||
Series 2016B | 1,900 | 2,216,863 | ||||||
Series 2017G | 4,150 | 4,489,844 | ||||||
Series 2017H | 5,795 | 6,118,389 | ||||||
Series 2018A | 17,705 | 19,799,681 | ||||||
Series 2019A | 6,070 | 6,767,193 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2019B | $ | 3,100 | $ | 3,420,619 | ||||
Chicago O’Hare International Airport | 1,665 | 1,891,440 | ||||||
Series 2016B | 5,000 | 5,736,200 | ||||||
Series 2016C | 9,250 | 10,532,769 | ||||||
Series 2017B | 33,445 | 38,840,285 | ||||||
Series 2018B | 6,000 | 6,995,400 | ||||||
Chicago O’Hare International Airport | 7,145 | 8,032,650 | ||||||
Chicago Transit Authority | 4,285 | 4,515,919 | ||||||
Chicago Transit Authority | 12,340 | 13,265,006 | ||||||
5.00%, 12/01/2055(c) | 6,000 | 7,000,500 | ||||||
Chicago Transit Authority Sales Tax Receipts Fund | 5,000 | 5,898,350 | ||||||
City of Chicago IL | 1,050 | 718,326 | ||||||
Illinois Finance Authority | 2,835 | 3,365,173 | ||||||
Illinois Finance Authority | 4,280 | 4,341,836 | ||||||
5.00%, 09/01/2036-09/01/2040 | 3,495 | 3,826,502 | ||||||
Illinois Finance Authority | 400 | 411,904 |
28 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Illinois Finance Authority | $ | 1,079 | $ | 916,938 | ||||
6.33%, 05/15/2048 | 829 | 704,438 | ||||||
6.44%, 05/15/2055 | 1,998 | 1,697,875 | ||||||
Series 2016C | 609 | 30,450 | ||||||
Illinois Finance Authority | 3,500 | 3,747,345 | ||||||
Series 2015 | 2,000 | 2,038,680 | ||||||
Illinois Finance Authority | 3,000 | 3,243,710 | ||||||
Series 2017C | 1,000 | 1,079,550 | ||||||
Illinois Finance Authority | 4,750 | 5,349,450 | ||||||
Illinois State Toll Highway Authority | 3,125 | 3,687,688 | ||||||
Series 2015B | 2,850 | 3,356,873 | ||||||
Series 2016A | 7,000 | 8,341,130 | ||||||
Series 2016B | 3,450 | 4,068,137 | ||||||
Metropolitan Pier & Exposition Authority | 47,375 | 51,960,900 | ||||||
Series 2012 | 20,785 | 6,592,418 | ||||||
Series 2015B | 13,300 | 14,136,437 | ||||||
Series 2017B | 9,850 | 2,088,200 | ||||||
State of Illinois | 5,245 | 5,508,037 | ||||||
5.50%, 05/01/2030 | 2,750 | 3,142,783 | ||||||
5.75%, 05/01/2045 | 2,500 | 2,768,375 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2012 | $ | 1,300 | $ | 1,347,957 | ||||
Series 2014 | 14,800 | 15,547,807 | ||||||
Series 2016 | 38,595 | 41,478,820 | ||||||
Series 2017A | 14,795 | 16,044,978 | ||||||
Series 2017C | 29,335 | 31,367,915 | ||||||
Series 2017D | 73,540 | 79,361,370 | ||||||
Series 2018A | 24,750 | 27,099,019 | ||||||
Series 2018B | 5,000 | 5,467,000 | ||||||
Series 2019B | 33,295 | 32,410,729 | ||||||
5.00%, 11/01/2030-11/01/2031 | 34,700 | 37,515,898 | ||||||
Village of Antioch IL Special Service Areas No. 1 & 2 | 3,767 | 3,601,666 | ||||||
Series 2016B | 1,700 | 1,634,788 | ||||||
Village of Pingree Grove IL Special Service Area No. 7 | 748 | 762,040 | ||||||
5.00%, 03/01/2036 | 2,963 | 3,006,526 | ||||||
Series 2015B | 918 | 948,927 | ||||||
|
| |||||||
599,520,473 | ||||||||
|
| |||||||
Indiana – 1.1% |
| |||||||
Indiana Finance Authority | 3,905 | 4,420,538 | ||||||
Indiana Finance Authority | 1,000 | 1,002,760 | ||||||
5.50%, 08/15/2045 | 2,225 | 2,228,805 |
30 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Indiana Finance Authority | $ | 1,000 | $ | 1,075,100 | ||||
Indiana Finance Authority | 10,970 | 11,635,399 | ||||||
Indiana Finance Authority | 4,790 | 4,764,709 | ||||||
Series 2020 | 6,935 | 6,758,088 | ||||||
Series 2020A | 7,290 | 7,251,509 | ||||||
Indiana Finance Authority | 22,795 | 21,386,497 | ||||||
|
| |||||||
60,523,405 | ||||||||
|
| |||||||
Iowa – 0.3% |
| |||||||
Iowa Finance Authority | 6,405 | 6,740,750 | ||||||
Iowa Finance Authority | 11,000 | 11,642,230 | ||||||
|
| |||||||
18,382,980 | ||||||||
|
| |||||||
Kansas – 0.3% |
| |||||||
Overland Park Development Corp. | 13,035 | 13,158,951 | ||||||
Wyandotte County-Kansas City Unified Government | 1,765 | 1,744,561 | ||||||
|
| |||||||
14,903,512 | ||||||||
|
| |||||||
Kentucky – 2.1% |
| |||||||
City of Ashland KY | 930 | 981,866 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
County of Trimble KY | $ | 8,500 | $ | 8,432,935 | ||||
Kentucky Economic Development Finance Authority | 550 | 941,969 | ||||||
21.70%, 08/15/2041(a)(b) | 1,385 | 2,469,497 | ||||||
21.76%, 08/15/2034-08/15/2037(a)(b) | 610 | 1,161,635 | ||||||
21.83%, 08/15/2035(a)(b) | 615 | 1,178,672 | ||||||
Kentucky Economic Development Finance Authority | 2,135 | 2,386,680 | ||||||
5.00%, 08/01/2044-08/01/2049(c) | 13,765 | 16,216,660 | ||||||
Kentucky Economic Development Finance Authority | 1,685 | 1,685,118 | ||||||
5.50%, 11/15/2045 | 1,000 | 1,001,120 | ||||||
Series 2016A | 3,100 | 2,984,474 | ||||||
Kentucky Economic Development Finance Authority | 21,590 | 23,097,630 | ||||||
Series 2017A | 21,375 | 23,347,768 | ||||||
5.25%, 06/01/2041 | 6,750 | 7,497,495 | ||||||
Series 2017B | 5,000 | 5,457,550 | ||||||
Kentucky Economic Development Finance Authority | 1,750 | 1,659,105 | ||||||
5.75%, 11/15/2045 | 3,350 | 3,091,681 | ||||||
Louisville/Jefferson County Metropolitan Government | 1,965 | 2,472,638 |
32 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2016 | $ | 8,205 | $ | 9,614,127 | ||||
Series 2020A | 965 | 1,182,945 | ||||||
|
| |||||||
116,861,565 | ||||||||
|
| |||||||
Louisiana – 1.8% |
| |||||||
Jefferson Parish Hospital Service District No. 2 | 2,130 | 2,214,518 | ||||||
Jefferson Sales Tax District | 3,400 | 4,111,562 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Auth | 2,100 | 2,178,225 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Auth | 27,600 | 32,644,695 | ||||||
Louisiana Public Facilities Authority | 10 | 12,379 | ||||||
Louisiana Public Facilities Authority | 2,750 | 28 | ||||||
Series 2014A | 1,250 | 13 | ||||||
Louisiana Public Facilities Authority | 10,270 | 11,760,999 | ||||||
Louisiana Public Facilities Authority | 17,565 | 19,688,027 | ||||||
New Orleans Aviation Board | 1,000 | 1,123,440 | ||||||
Parish of St. James LA | 7,375 | 8,723,150 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Parish of St. John the Baptist LA | $ | 4,855 | $ | 4,864,079 | ||||
2.10%, 06/01/2037 | 2,465 | 2,473,627 | ||||||
2.20%, 06/01/2037 | 3,700 | 3,701,924 | ||||||
Port New Orleans Board of Commissioners | 540 | 596,511 | ||||||
5.00%, 04/01/2031 (Pre-refunded/ETM) | 1,000 | 1,104,650 | ||||||
|
| |||||||
95,197,827 | ||||||||
|
| |||||||
Maine – 0.4% |
| |||||||
Finance Authority of Maine | 4,630 | 5,106,936 | ||||||
Series 2018R-2 | 1,700 | 1,832,226 | ||||||
Maine Health & Higher Educational Facilities Authority | 9,620 | 11,387,495 | ||||||
Maine Health & Higher Educational Facilities Authority | 1,000 | 1,028,690 | ||||||
|
| |||||||
19,355,347 | ||||||||
|
| |||||||
Maryland – 1.7% |
| |||||||
City of Baltimore MD | 8,575 | 7,460,936 | ||||||
Series 2017 | 3,250 | 2,868,475 | ||||||
City of Baltimore MD | 1,000 | 1,046,400 | ||||||
City of Baltimore MD | 1,750 | 1,622,950 | ||||||
Series 2019B | 300 | 280,992 |
34 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
County of Frederick MD | $ | 2,615 | $ | 2,559,274 | ||||
Maryland Health & Higher Educational Facilities Authority | 3,245 | 3,706,244 | ||||||
Maryland Health & Higher Educational Facilities Authority | 9,880 | 11,153,327 | ||||||
5.00%, 07/01/2046 | 22,040 | 26,477,534 | ||||||
Maryland Health & Higher Educational Facilities Authority | 16,530 | 36,970,957 | ||||||
|
| |||||||
94,147,089 | ||||||||
|
| |||||||
Massachusetts – 0.7% |
| |||||||
Massachusetts Development Finance Agency | 2,220 | 2,462,357 | ||||||
Series 2017A | 670 | 764,235 | ||||||
Massachusetts Development Finance Agency | 1,760 | 1,936,722 | ||||||
Massachusetts Development Finance Agency | 5,000 | 5,138,150 | ||||||
Massachusetts Development Finance Agency | 2,360 | 2,773,500 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Massachusetts Development Finance Agency | $ | 3,850 | $ | 4,371,954 | ||||
Massachusetts Development Finance Agency | 3,980 | 4,517,394 | ||||||
Massachusetts Development Finance Agency | 2,550 | 2,705,499 | ||||||
AGM Series 2019A | 1,000 | 1,179,150 | ||||||
Massachusetts Development Finance Agency | 10,525 | 8,982,351 | ||||||
Series 2017A | 4,495 | 3,806,591 | ||||||
|
| |||||||
38,637,903 | ||||||||
|
| |||||||
Michigan – 2.5% |
| |||||||
City of Detroit MI | 4,385 | 4,697,425 | ||||||
5.50%, 04/01/2045-04/01/2050 | 3,860 | 4,304,402 | ||||||
City of Detroit MI Sewage Disposal System Revenue | 4,400 | 4,746,236 | ||||||
5.25%, 07/01/2039 (Pre-refunded/ETM) | 4,825 | 5,224,655 | ||||||
City of Detroit MI Water Supply System Revenue | 1,060 | 1,093,666 | ||||||
Detroit City School District | 120 | 127,846 | ||||||
Grand Rapids Economic Development Corp. | 1,655 | 1,705,375 |
36 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Great Lakes Water Authority Water Supply System Revenue | $ | 1,025 | $ | 1,199,578 | ||||
Series 2016D | 25,210 | 30,057,379 | ||||||
Kalamazoo Economic Development Corp. | 7,960 | 8,333,081 | ||||||
Kalamazoo Hospital Finance Authority | 20,100 | 22,150,698 | ||||||
Michigan Finance Authority | 2,000 | 2,322,600 | ||||||
Michigan Finance Authority | 2,100 | 2,404,644 | ||||||
Series 2015D-1 | 2,000 | 2,350,820 | ||||||
Series 2015D-2 | 3,400 | 3,971,098 | ||||||
Michigan Finance Authority | 3,850 | 4,608,334 | ||||||
Series 2019A | 6,635 | 8,005,857 | ||||||
Michigan Finance Authority | 5,000 | 5,436,500 | ||||||
Series 2020B | 16,665 | 1,897,477 | ||||||
Michigan Finance Authority | 7,950 | 8,623,447 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Michigan Strategic Fund | $ | 8,600 | $ | 9,740,618 | ||||
Wayne State University | 4,000 | 4,804,240 | ||||||
|
| |||||||
137,805,976 | ||||||||
|
| |||||||
Minnesota – 0.2% |
| |||||||
City of Wayzata MN | 1,000 | 1,039,360 | ||||||
Duluth Economic Development Authority | 2,925 | 3,397,401 | ||||||
Housing & Redevelopment Authority of The City of St. Paul Minnesota | 2,455 | 2,788,789 | ||||||
Minnesota Higher Education Facilities Authority | 1,900 | 2,159,179 | ||||||
|
| |||||||
9,384,729 | ||||||||
|
| |||||||
Mississippi – 0.4% |
| |||||||
Mississippi Hospital Equipment & Facilities Authority | �� | 15,900 | 18,024,689 | |||||
Mississippi Hospital Equipment & Facilities Authority | 720 | 822,514 | ||||||
5.00%, 01/01/2035 | 1,230 | 1,536,270 | ||||||
|
| |||||||
20,383,473 | ||||||||
|
| |||||||
Missouri – 1.4% |
| |||||||
Cape Girardeau County Industrial Development Authority | 2,925 | 3,145,282 |
38 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Health & Educational Facilities Authority of the State of Missouri | $ | 1,000 | $ | 1,088,740 | ||||
Series 2019I | 37,870 | 38,776,516 | ||||||
5.00%, 02/01/2042-02/01/2048 | 3,220 | 3,652,012 | ||||||
Kansas City Industrial Development Authority | 3,155 | 2,964,722 | ||||||
Kansas City Industrial Development Authority | 1,460 | 511,730 | ||||||
6.00%, 11/15/2046-11/15/2051(g) | 8,365 | 2,931,932 | ||||||
Lee’s Summit Industrial Development Authority | 620 | 635,103 | ||||||
Series 2016A | 3,060 | 3,124,375 | ||||||
Series 2018 | 6,940 | 7,101,147 | ||||||
Missouri Joint Municipal Electric Utility Commission | 3,240 | 3,723,246 | ||||||
St. Louis County Industrial Development Authority | 2,000 | 1,956,420 | ||||||
5.125%, 12/01/2045 | 4,500 | 4,265,820 | ||||||
|
| |||||||
73,877,045 | ||||||||
|
| |||||||
Montana – 0.0% |
| |||||||
Montana Facility Finance Authority | 1,085 | 1,289,099 | ||||||
|
| |||||||
Nebraska – 0.5% |
| |||||||
Central Plains Energy Project | 2,975 | 3,187,147 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2017A | $ | 19,955 | $ | 26,692,658 | ||||
|
| |||||||
29,879,805 | ||||||||
|
| |||||||
Nevada – 0.9% |
| |||||||
City of Carson City NV | 3,935 | 4,470,227 | ||||||
City of Reno NV | 25,500 | 3,489,165 | ||||||
City of Sparks NV | 3,540 | 3,449,411 | ||||||
Clark County School District | 13,410 | 16,235,567 | ||||||
5.00%, 06/15/2036 | 3,700 | 3,968,879 | ||||||
AGM Series 2019B | 5,185 | 5,458,924 | ||||||
Las Vegas Redevelopment Agency | 1,800 | 2,006,892 | ||||||
State of Nevada Department of Business & Industry | 1,890 | 1,919,182 | ||||||
Tahoe-Douglas Visitors Authority | 8,050 | 8,574,093 | ||||||
|
| |||||||
49,572,340 | ||||||||
|
| |||||||
New Hampshire – 0.9% |
| |||||||
New Hampshire Business Finance Authority | 17,317 | 18,854,283 | ||||||
New Hampshire Business Finance Authority | 1,960 | 1,927,660 | ||||||
Series 2020B | 3,525 | 3,467,014 | ||||||
New Hampshire Health and Education Facilities Authority Act | 15,080 | 21,395,353 |
40 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Hampshire Health and Education Facilities Authority Act | $ | 2,940 | $ | 3,037,696 | ||||
|
| |||||||
48,682,006 | ||||||||
|
| |||||||
New Jersey – 8.6% |
| |||||||
New Jersey Economic Development Authority | 3,455 | 3,665,133 | ||||||
Series 2014P | 5,000 | 5,454,750 | ||||||
Series 2015X | 15,920 | 16,331,373 | ||||||
Series 2017A | 1,640 | 1,819,367 | ||||||
Series 2017B | 7,505 | 7,505,000 | ||||||
Series 2017D | 7,520 | 8,371,957 | ||||||
Series 2018A | 5,885 | 6,555,083 | ||||||
New Jersey Economic Development Authority | 3,450 | 3,554,949 | ||||||
5.00%, 11/01/2033 | 3,770 | 4,360,193 | ||||||
New Jersey Economic Development Authority | 10,660 | 11,566,361 | ||||||
New Jersey Economic Development Authority | 7,740 | 9,003,925 | ||||||
New Jersey Economic Development Authority | 7,085 | 7,907,285 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey Economic Development Authority | $ | 735 | $ | 769,339 | ||||
New Jersey Economic Development Authority | 8,270 | 8,445,407 | ||||||
Series 2000B | 1,475 | 1,531,050 | ||||||
New Jersey Educational Facilities Authority | 1,805 | 1,888,499 | ||||||
5.00%, 07/01/2045 | 4,460 | 5,127,038 | ||||||
New Jersey Health Care Facilities Financing Authority | 1,300 | 1,561,079 | ||||||
New Jersey Health Care Facilities Financing Authority | 8,645 | 10,184,203 | ||||||
New Jersey Health Care Facilities Financing Authority | 1,070 | 1,175,545 | ||||||
New Jersey Health Care Facilities Financing Authority | 2,040 | 2,253,058 | ||||||
New Jersey Transportation Trust Fund Authority | 45,225 | 52,161,237 | ||||||
Series 2018A | 38,885 | 44,437,128 |
42 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey Transportation Trust Fund Authority | $ | 8,495 | $ | 9,585,809 | ||||
Series 2014A | 1,000 | 1,076,660 | ||||||
Series 2015A | 8,450 | 9,077,581 | ||||||
Series 2018A | 44,405 | 50,752,339 | ||||||
Series 2019B | 2,715 | 2,851,902 | ||||||
5.00%, 06/15/2032 | 3,480 | 4,011,848 | ||||||
New Jersey Turnpike Authority | 2,500 | 2,696,725 | ||||||
Series 2015E | 15,400 | 17,579,268 | ||||||
Series 2016A | 6,500 | 7,613,645 | ||||||
Series 2017A | 15,000 | 17,831,500 | ||||||
Series 2017B | 13,540 | 16,525,610 | ||||||
Series 2019A | 11,320 | 13,538,494 | ||||||
Tobacco Settlement Financing Corp./NJ | 1,425 | 1,764,791 | ||||||
Series 2018B | 85,045 | 96,187,596 | ||||||
|
| |||||||
466,722,727 | ||||||||
|
| |||||||
New Mexico – 0.2% |
| |||||||
City of Santa Fe NM | 2,180 | 2,281,185 | ||||||
New Mexico Hospital Equipment Loan Council | 1,060 | 1,113,594 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Mexico Hospital Equipment Loan Council | $ | 6,615 | $ | 6,821,481 | ||||
|
| |||||||
10,216,260 | ||||||||
|
| |||||||
New York – 8.0% |
| |||||||
Build NYC Resource Corp. | 34,700 | 37,198,400 | ||||||
Build NYC Resource Corp. | 2,000 | 2,111,080 | ||||||
City of New York NY | 17,500 | 20,966,675 | ||||||
Series 2020A | 42,875 | 55,860,511 | ||||||
Dutchess County Local Development Corp. | 13,520 | 15,061,821 | ||||||
Metropolitan Transportation Authority | 2,540 | 2,605,811 | ||||||
Series 2013D | 2,000 | 2,058,880 | ||||||
Series 2013E | 4,425 | 4,581,379 | ||||||
Series 2015B | 3,715 | 3,905,988 | ||||||
Series 2015D | 5,135 | 5,425,436 | ||||||
Series 2016A | 3,440 | 3,652,007 | ||||||
Series 2016C | 1,705 | 1,749,944 | ||||||
Series 2016D | 1,060 | 1,141,917 | ||||||
Series 2017C | 20,300 | 22,076,153 | ||||||
Series 2020A | 855 | 925,820 |
44 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2020C | $ | 3,000 | $ | 3,174,420 | ||||
5.00%, 11/15/2050 | 6,435 | 6,951,409 | ||||||
5.25%, 11/15/2055 | 2,000 | 2,203,180 | ||||||
Series 2020D | 5,000 | 5,427,050 | ||||||
Monroe County Industrial Development Corp./NY | 6,520 | 6,677,523 | ||||||
Monroe County Industrial Development Corp./NY | 1,080 | 1,218,586 | ||||||
Nassau County Industrial Development Agency | 75 | 45,000 | ||||||
6.70%, 01/01/2049 | 444 | 266,419 | ||||||
Series 2014B | 57 | 45,939 | ||||||
Series 2014C | 514 | 51,377 | ||||||
New York City Housing Development Corp. | 3,645 | 3,700,513 | ||||||
New York Counties Tobacco Trust V | 30,000 | 3,569,400 | ||||||
New York Liberty Development Corp. | 100 | 104,054 | ||||||
New York Liberty Development Corp. | 4,990 | 6,852,867 | ||||||
New York Liberty Development Corp. | 2,620 | 2,499,035 | ||||||
New York State Dormitory Authority | 4,200 | 4,861,492 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New York State Thruway Authority | $ | 2,000 | $ | 2,111,040 | ||||
New York State Thruway Authority | 3,800 | 4,396,980 | ||||||
New York Transportation Development Corp. | 22,450 | 23,004,066 | ||||||
4.375%, 10/01/2045 | 35,385 | 35,767,158 | ||||||
Series 2018 | 51,325 | 56,107,606 | ||||||
New York Transportation Development Corp. | 33,055 | 35,428,277 | ||||||
5.25%, 01/01/2050 | 13,885 | 14,952,062 | ||||||
Niagara Area Development Corp. | 6,045 | 6,124,552 | ||||||
Orange County Funding Corp. | 1,070 | 1,070,942 | ||||||
Port Authority of New York & New Jersey | 3,900 | 4,096,170 | ||||||
Series 2013178 | 5,000 | 5,552,000 | ||||||
Triborough Bridge & Tunnel Authority | 3,000 | 3,674,460 | ||||||
TSASC, Inc./NY | 1,560 | 1,750,897 | ||||||
Ulster County Capital Resource Corp. | 860 | 804,100 | ||||||
5.25%, 09/15/2042-09/15/2053 | 2,330 | 2,119,370 |
46 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Westchester County Local Development Corp. | $ | 3,840 | $ | 3,970,867 | ||||
Westchester County Local Development Corp. | 4,230 | 4,593,061 | ||||||
|
| |||||||
432,493,694 | ||||||||
|
| |||||||
North Carolina – 0.4% |
| |||||||
County of New Hanover NC | 5,830 | 6,834,771 | ||||||
North Carolina Medical Care Commission | 5,000 | 5,002,800 | ||||||
5.00%, 07/01/2045 | 1,000 | 998,530 | ||||||
North Carolina Medical Care Commission | 2,250 | 2,385,810 | ||||||
North Carolina Medical Care Commission | 1,735 | 1,754,137 | ||||||
Series 2017 | 1,000 | 1,001,930 | ||||||
North Carolina Turnpike Authority | 5,000 | 5,930,950 | ||||||
|
| |||||||
23,908,928 | ||||||||
|
| |||||||
North Dakota – 0.4% |
| |||||||
County of Grand Forks ND | 7,725 | 7,068,993 | ||||||
6.375%, 12/15/2043 | 4,750 | 4,047,570 | ||||||
County of Ward ND | 10,230 | 11,088,304 | ||||||
|
| |||||||
22,204,867 | ||||||||
|
|
abfunds.com | AB MUNICIPAL INCOME SHARES | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Ohio – 6.3% |
| |||||||
Akron Bath Copley Joint Township Hospital District | $ | 4,500 | $ | 4,438,305 | ||||
4.00%, 11/15/2036-11/15/2038 | 2,550 | 2,827,009 | ||||||
American Municipal Power, Inc. | 10,000 | 11,580,560 | ||||||
Buckeye Tobacco Settlement Financing Authority | 2,000 | 2,167,820 | ||||||
Series 2020B | 179,725 | 192,278,791 | ||||||
Butler County Port Authority | 675 | 660,366 | ||||||
City of Chillicothe OH | 3,765 | 4,449,703 | ||||||
City of Chillicothe/OH | 3,735 | 4,325,205 | ||||||
County of Allen OH Hospital Facilities Revenue | 10,390 | 11,867,458 | ||||||
County of Cuyahoga/OH | 5,680 | 6,325,759 | ||||||
Series 2017 | 6,490 | 7,310,661 | ||||||
5.25%, 02/15/2047 | 12,860 | 14,835,810 | ||||||
County of Franklin OH | 3,940 | 3,939,724 | ||||||
Series 2013 | 2,300 | 2,333,511 | ||||||
County of Hamilton OH | 18,425 | 21,535,693 | ||||||
County of Marion OH | 2,210 | 2,247,614 |
48 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
County of Montgomery OH | $ | 2,000 | $ | 884,960 | ||||
Series 2018A | 10,105 | 4,467,421 | ||||||
County of Ross OH | 6,000 | 7,080,600 | ||||||
Dayton-Montgomery County Port Authority | 2,500 | 2,103,575 | ||||||
Ohio Air Quality Development Authority | 5,305 | 5,344,788 | ||||||
Ohio Air Quality Development Authority | 7,480 | 7,536,100 | ||||||
Ohio Air Quality Development Authority | 1,780 | 1,794,560 | ||||||
Ohio Higher Educational Facility Commission | 9,690 | 12,014,920 | ||||||
Ohio Water Development Authority Water Pollution Control Loan Fund | 9,565 | 9,636,737 | ||||||
Toledo-Lucas County Port Authority | 1,000 | 977,140 | ||||||
|
| |||||||
344,964,790 | ||||||||
|
| |||||||
Oklahoma – 0.6% |
| |||||||
Comanche County Memorial Hospital | 780 | 823,547 | ||||||
Oklahoma Development Finance Authority | 15,630 | 17,080,558 | ||||||
Oklahoma Development Finance Authority | 14,170 | 16,444,143 | ||||||
|
| |||||||
34,348,248 | ||||||||
|
|
abfunds.com | AB MUNICIPAL INCOME SHARES | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Oregon – 0.3% |
| |||||||
Clackamas County Hospital Facility Authority | $ | 1,000 | $ | 1,007,630 | ||||
Series 2020A | 750 | 792,795 | ||||||
5.375%, 11/15/2055 | 1,300 | 1,377,545 | ||||||
Medford Hospital Facilities Authority | 10,000 | 12,107,165 | ||||||
Oregon State Facilities Authority | 1,750 | 2,125,602 | ||||||
|
| |||||||
17,410,737 | ||||||||
|
| |||||||
Pennsylvania – 7.0% |
| |||||||
Allegheny County Hospital Development Authority | 33,535 | 40,203,719 | ||||||
Allentown Neighborhood Improvement Zone Development Authority | 2,270 | 2,360,482 | ||||||
Beaver County Industrial Development Authority | 10,000 | 10,075,000 | ||||||
Beaver County Industrial Development Authority | 1,455 | 1,465,913 | ||||||
Bensalem Township School District | 8,570 | 9,805,880 | ||||||
Berks County Industrial Development Authority | 1,000 | 1,052,280 |
50 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Chambersburg Area Municipal Authority | $ | 1,350 | $ | 1,375,421 | ||||
6.00%, 10/01/2048 | 9,000 | 9,296,280 | ||||||
Chester County Industrial Development Authority | 1,050 | 1,052,153 | ||||||
City of Philadelphia PA | 1,200 | 1,236,048 | ||||||
Series 2017 | 12,110 | 14,885,982 | ||||||
Series 2019B | 11,300 | 14,035,028 | ||||||
AGM Series 2017A | 13,000 | 15,739,960 | ||||||
City of Philadelphia PA Water & Wastewater Revenue | 5,105 | 6,271,472 | ||||||
Commonwealth of Pennsylvania | 1,120 | 1,359,333 | ||||||
County of Lehigh PA | 6,885 | 8,322,106 | ||||||
Series 2016A | 10,000 | 11,043,800 | ||||||
Crawford County Hospital Authority | 3,375 | 3,634,261 | ||||||
Cumberland County Municipal Authority | 1,815 | 1,741,166 | ||||||
Series 2012 | 1,000 | 1,001,150 | ||||||
Geisinger Pennsylvania Authority | 10,000 | 12,235,600 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 51 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Lancaster County Hospital Authority/PA | $ | 900 | $ | 933,684 | ||||
Montgomery County Higher Education & Health Authority | 1,500 | 1,594,470 | ||||||
Montgomery County Higher Education & Health Authority | 5,900 | 6,297,188 | ||||||
5.00%, 09/01/2051 | 2,300 | 2,664,826 | ||||||
Series 2018 | 3,600 | 4,270,644 | ||||||
Montgomery County Industrial Development Authority/PA | 200 | 213,242 | ||||||
Montgomery County Industrial Development Authority/PA | 500 | 541,235 | ||||||
5.00%, 11/15/2045 | 1,560 | 1,811,831 | ||||||
Montgomery County Industrial Development Authority/PA | 1,040 | 1,062,641 | ||||||
5.25%, 01/01/2040 | 4,740 | 4,799,677 | ||||||
Moon Industrial Development Authority | 5,135 | 5,312,363 | ||||||
6.00%, 07/01/2045 | 2,000 | 2,062,800 | ||||||
Northeastern Pennsylvania Hospital & Education Authority | 265 | 267,926 | ||||||
Series 2016A | 2,925 | 3,032,669 |
52 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2016B | $ | 2,310 | $ | 2,452,309 | ||||
Pennsylvania Economic Development Financing Authority | 2,330 | 2,153,293 | ||||||
Pennsylvania Economic Development Financing Authority | 1,620 | 1,731,731 | ||||||
Pennsylvania Economic Development Financing Authority | 2,830 | 3,233,133 | ||||||
Pennsylvania Economic Development Financing Authority | 1,115 | 1,150,914 | ||||||
4.00%, 01/01/2027-01/01/2032 | 3,180 | 3,622,888 | ||||||
Pennsylvania Economic Development Financing Authority | 24,530 | 27,698,928 | ||||||
Pennsylvania Higher Educational Facilities Authority | 1,000 | 1,166,230 | ||||||
Pennsylvania Turnpike Commission | 4,000 | 4,589,520 | ||||||
Series 2017B | 12,850 | 15,271,919 | ||||||
Series 2018A | 10,000 | 12,118,000 | ||||||
Series 2019A | 9,180 | 11,192,429 | ||||||
Philadelphia Authority for Industrial Development | 1,000 | 1,220,380 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 53 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Philadelphia Authority for Industrial Development | $ | 2,025 | $ | 2,287,760 | ||||
Philadelphia Authority for Industrial Development | 8,765 | 9,087,026 | ||||||
School District of Philadelphia (The) | 2,615 | 3,076,053 | ||||||
Series 2016F | 4,000 | 4,769,630 | ||||||
Series 2018A | 4,000 | 4,867,170 | ||||||
Series 2018B | 3,000 | 3,566,850 | ||||||
Series 2019A | 5,530 | 6,253,400 | ||||||
5.00%, 09/01/2044(c) | 17,900 | 21,611,207 | ||||||
Scranton-Lackawanna Health & Welfare Authority | 12,110 | 9,205,823 | ||||||
Series 2016B | 825 | 803,063 | ||||||
Series 2016C | 2,945 | 984,425 | ||||||
Series 2016D | 58,055 | 2,989,832 | ||||||
State Public School Building Authority | 9,880 | 12,042,433 | ||||||
Union County Hospital Authority | 8,435 | 9,584,129 | ||||||
|
| |||||||
381,788,705 | ||||||||
|
| |||||||
Puerto Rico – 5.1% |
| |||||||
Children’s Trust Fund | 8,370 | 1,266,130 | ||||||
Commonwealth of Puerto Rico | 2,510 | 1,713,075 |
54 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2011A | $ | 2,810 | $ | 1,805,425 | ||||
Series 2012A | 3,490 | 2,168,163 | ||||||
5.75%, 07/01/2028(d)(e) | 1,350 | 838,688 | ||||||
Series 2014A | 10,325 | 6,169,187 | ||||||
AGC Series 2001A | 670 | 764,128 | ||||||
GDB Debt Recovery Authority of Puerto Rico | 8,725 | 5,998,129 | ||||||
Puerto Rico Commonwealth Aqueduct & Sewer Authority | 7,990 | 8,089,875 | ||||||
6.125%, 07/01/2024 | 6,780 | 7,169,850 | ||||||
Series 2012A | 8,140 | 8,251,925 | ||||||
5.00%, 07/01/2022-07/01/2033 | 9,700 | 10,028,462 | ||||||
5.125%, 07/01/2037 | 1,155 | 1,189,650 | ||||||
5.25%, 07/01/2029-07/01/2042 | 12,060 | 12,484,650 | ||||||
5.50%, 07/01/2028 | 4,090 | 4,279,163 | ||||||
5.75%, 07/01/2037 | 2,985 | 3,108,131 | ||||||
6.00%, 07/01/2047 | 2,845 | 2,976,581 | ||||||
Puerto Rico Electric Power Authority | 7,315 | 5,065,638 | ||||||
5.00%, 07/01/2037(d)(e) | 14,970 | 10,366,725 | ||||||
Series 2008W | 1,000 | 693,750 | ||||||
5.50%, 07/01/2038(d)(e) | 10,490 | 7,303,662 | ||||||
Series 2010A | 2,950 | 2,046,563 | ||||||
5.25%, 07/01/2030 | 1,040 | 721,500 | ||||||
Series 2010C | 1,735 | 1,201,488 | ||||||
Series 2010D | 1,050 | 727,125 | ||||||
5.00%, 07/01/2022 | 950 | 657,875 | ||||||
Series 2010X | 12,605 | 8,744,719 | ||||||
5.75%, 07/01/2036(d)(e) | 7,375 | 5,171,719 | ||||||
Series 2010Z | 2,565 | 1,779,469 | ||||||
5.25%, 07/01/2025(d)(e) | 620 | 430,125 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 55 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2012A | $ | 2,510 | $ | 1,738,175 | ||||
5.00%, 07/01/2042(d)(e) | 1,740 | 1,204,950 | ||||||
AGM Series 2007U | 1,050 | 1,071,294 | ||||||
AGM Series 2007V | 25,380 | 29,035,228 | ||||||
NATL Series 2007V | 6,350 | 6,590,551 | ||||||
Puerto Rico Highway & Transportation Authority | 8,600 | 9,847,516 | ||||||
AGC Series 2007C | 1,735 | 2,023,027 | ||||||
AGC Series 2007N | 825 | 950,689 | ||||||
AGM Series 2007C | 1,800 | 2,074,662 | ||||||
NATL Series 2005L | 7,565 | 7,827,505 | ||||||
NATL Series 2007 | 1,000 | 1,053,450 | ||||||
NATL Series 2007N | 480 | 498,955 | ||||||
Puerto Rico Industrial Tourist Educational Medical & Environmental Control Facilities Financing Auth | 23,735 | 24,506,387 | ||||||
Puerto Rico Industrial Tourist Educational Medical & Environmental Control Facilities Financing Auth | 335 | 328,849 | ||||||
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue | 16,565 | 5,503,324 | ||||||
Series 2019A | 15,975 | 16,394,823 | ||||||
4.55%, 07/01/2040 | 1,198 | 1,246,902 | ||||||
5.00%, 07/01/2058 | 39,906 | 42,414,092 | ||||||
|
| |||||||
277,521,949 | ||||||||
|
|
56 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Rhode Island – 0.0% |
| |||||||
Rhode Island Health & Educational Building Corp. | $ | 2,000 | $ | 2,449,960 | ||||
|
| |||||||
South Carolina – 1.7% |
| |||||||
South Carolina Jobs-Economic Development Authority | 9,595 | 11,827,661 | ||||||
South Carolina Jobs-Economic Development Authority | 1,000 | 940,830 | ||||||
5.125%, 05/01/2048 | 1,000 | 941,760 | ||||||
South Carolina Public Service Authority | 575 | 634,346 | ||||||
Series 2013B | 810 | 893,600 | ||||||
Series 2014A | 11,820 | 13,070,792 | ||||||
Series 2014B | 1,160 | 1,296,497 | ||||||
Series 2014C | 3,495 | 3,928,489 | ||||||
Series 2015A | 5,000 | 5,648,700 | ||||||
Series 2016A | 4,815 | 5,685,060 | ||||||
Series 2016B | 38,780 | 45,376,214 | ||||||
|
| |||||||
90,243,949 | ||||||||
|
| |||||||
South Dakota – 0.4% |
| |||||||
South Dakota Health & Educational Facilities Authority | 15,035 | 17,769,867 | ||||||
South Dakota Health & Educational Facilities Authority | 3,260 | 3,925,562 | ||||||
�� |
|
| ||||||
21,695,429 | ||||||||
|
|
abfunds.com | AB MUNICIPAL INCOME SHARES | 57 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Tennessee – 1.0% |
| |||||||
Bristol Industrial Development Board | $ | 9,080 | $ | 8,799,791 | ||||
5.125%, 12/01/2042(a) | 19,270 | 18,136,731 | ||||||
Chattanooga Health Educational & Housing Facility Board | 1,000 | 1,120,610 | ||||||
5.00%, 08/01/2044-08/01/2049 | 11,555 | 13,620,980 | ||||||
Johnson City Health & Educational Facilities Board | 5,250 | 5,465,093 | ||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facilities Board | 5,040 | 2,228,184 | ||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facilities Board | 2,435 | 2,810,428 | ||||||
Series 2017A | 2,335 | 2,705,962 | ||||||
Shelby County Health Educational & Housing Facilities Board | 1,000 | 1,100,910 | ||||||
5.375%, 12/01/2047 (Pre-refunded/ETM) | 800 | 882,800 | ||||||
|
| |||||||
56,871,489 | ||||||||
|
| |||||||
Texas – 5.9% |
| |||||||
Central Texas Regional Mobility Authority | 3,500 | 3,844,470 | ||||||
Series 2015A | 4,905 | 5,493,208 |
58 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2016 | $ | 12,965 | $ | 14,769,109 | ||||
Series 2020A | 6,170 | 7,448,165 | ||||||
Central Texas Turnpike System | 6,800 | 7,646,056 | ||||||
City of Houston TX | 1,965 | 2,056,824 | ||||||
City of Houston TX Airport System Revenue | 4,250 | 4,448,757 | ||||||
Series 2014 | 16,960 | 17,344,144 | ||||||
Series 2015B | 2,960 | 3,017,711 | ||||||
Series 2018 | 22,875 | 23,885,160 | ||||||
Clifton Higher Education Finance Corp. | 530 | 552,281 | ||||||
Series 2013 | 1,000 | 1,098,820 | ||||||
Series 2016A | 2,180 | 2,641,375 | ||||||
Dallas County Flood Control District No. 1 | 1,650 | 1,727,715 | ||||||
Decatur Hospital Authority | 3,150 | 3,363,003 | ||||||
Grand Parkway Transportation Corp. | 5,340 | 5,831,654 | ||||||
Irving Hospital Authority | 7,305 | 8,330,476 | ||||||
Mission Economic Development Corp. | 25,410 | 26,918,338 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 59 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Hope Cultural Education Facilities Finance Corp. | $ | 8,315 | $ | 7,407,251 | ||||
New Hope Cultural Education Facilities Finance Corp. | 2,050 | 1,991,411 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 4,500 | 4,465,530 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 3,800 | 3,871,194 | ||||||
North East Texas Regional Mobility Authority | 4,940 | 5,411,276 | ||||||
North Texas Education Finance Corp. | 280 | 301,017 | ||||||
North Texas Tollway Authority | 8,975 | 10,095,529 | ||||||
Series 2015A | 7,000 | 8,071,070 | ||||||
Series 2017B | 7,400 | 8,691,870 | ||||||
Port Beaumont Navigation District | 3,315 | 3,309,199 | ||||||
Red River Health Facilities Development Corp. | 1,790 | 1,928,779 | ||||||
Red River Health Facilities Development Corp. | 1,315 | 1,357,448 |
60 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Red River Health Facilities Development Corp. | $ | 1,740 | $ | 1,766,257 | ||||
Sanger Industrial Development Corp. | 2,180 | 545,000 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 200 | 130,000 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 1,115 | 921,481 | ||||||
Series 2015A | 3,540 | 2,846,939 | ||||||
Series 2015B | 4,000 | 3,730,200 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 6,475 | 6,670,019 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 5,350 | 5,556,261 | ||||||
Texas Municipal Gas Acquisition & Supply Corp. I | 9,775 | 11,443,983 | ||||||
Texas Private Activity Bond Surface Transportation Corp. | 1,255 | 1,376,748 | ||||||
Texas Private Activity Bond Surface Transportation Corp. | 9,100 | 10,149,312 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 61 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Texas Private Activity Bond Surface Transportation Corp. | $ | 55,065 | $ | 62,595,689 | ||||
Series 2013 | 3,600 | 4,067,712 | ||||||
Texas Transportation Commission | 7,500 | 8,495,850 | ||||||
Uptown Development Authority | 1,015 | 1,149,000 | ||||||
|
| |||||||
318,763,291 | ||||||||
|
| |||||||
Utah – 0.2% |
| |||||||
Salt Lake City Corp. Airport Revenue | 7,245 | 8,367,033 | ||||||
Timber Lakes Water Special Service District | 5 | 5,169 | ||||||
|
| |||||||
8,372,202 | ||||||||
|
| |||||||
Vermont – 0.0% |
| |||||||
Vermont Economic Development Authority | 1,100 | 1,214,191 | ||||||
Vermont Economic Development Authority | 200 | 201,796 | ||||||
|
| |||||||
1,415,987 | ||||||||
|
| |||||||
Virginia – 1.2% |
| |||||||
Arlington County Industrial Development Authority | 4,620 | 5,324,984 | ||||||
5.00%, 07/01/2036 | 850 | 1,082,951 | ||||||
Cherry Hill Community Development Authority | 1,000 | 1,016,200 | ||||||
Chesapeake Bay Bridge & Tunnel District | 1,000 | 1,131,380 |
62 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Chesterfield County Economic Development Authority | $ | 1,030 | $ | 1,033,440 | ||||
Fairfax County Economic Development Authority | 1,955 | 2,031,695 | ||||||
Tobacco Settlement Financing Corp./VA | 7,490 | 7,521,608 | ||||||
Virginia College Building Authority | 1,110 | 1,110,888 | ||||||
Series 2015B | 1,000 | 1,026,080 | ||||||
Virginia Small Business Financing Authority | 16,405 | 17,196,705 | ||||||
5.50%, 01/01/2042 | 3,580 | 3,736,733 | ||||||
Virginia Small Business Financing Authority | 2,250 | 2,510,910 | ||||||
Virginia Small Business Financing Authority | 18,500 | 19,643,300 | ||||||
|
| |||||||
64,366,874 | ||||||||
|
| |||||||
Washington – 2.3% |
| |||||||
Kalispel Tribe of Indians | 750 | 833,970 | ||||||
King County Public Hospital District No. 4 | 2,235 | 2,346,303 | ||||||
Pend Oreille County Public Utility District No. 1 Box Canyon | 9,000 | 9,731,520 | ||||||
Port of Seattle WA | 3,380 | 3,971,095 | ||||||
Series 2015C | 5,035 | 5,629,483 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 63 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
State of Washington | $ | 12,015 | $ | 15,471,946 | ||||
Washington Health Care Facilities Authority | 20,435 | 24,346,616 | ||||||
Washington Health Care Facilities Authority | 2,350 | 2,811,540 | ||||||
Series 2017B | 1,855 | 2,225,907 | ||||||
Washington Health Care Facilities Authority | 5,490 | 5,998,890 | ||||||
5.00%, 09/01/2039-09/01/2050 | 5,725 | 6,961,448 | ||||||
Washington Health Care Facilities Authority | 18,005 | 19,992,015 | ||||||
Washington State Housing Finance Commission | 3,550 | 3,628,597 | ||||||
Washington State Housing Finance Commission | 2,790 | 2,915,158 | ||||||
Series 2019A | 11,855 | 12,140,125 | ||||||
Washington State Housing Finance Commission | 3,215 | 3,425,743 | ||||||
|
| |||||||
122,430,356 | ||||||||
|
| |||||||
West Virginia – 0.0% |
| |||||||
West Virginia Hospital Finance Authority | 2,100 | 2,272,074 | ||||||
|
|
64 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Wisconsin – 1.8% |
| |||||||
UMA Education, Inc. | $ | 21,005 | $ | 22,201,929 | ||||
Wisconsin Health & Educational Facilities Authority | 20,345 | 23,561,138 | ||||||
Wisconsin Health & Educational Facilities Authority | 1,035 | 1,071,608 | ||||||
4.00%, 02/15/2036-02/15/2037 | 2,650 | 3,038,013 | ||||||
5.00%, 02/15/2028-02/15/2031 | 3,500 | 4,462,440 | ||||||
Wisconsin Health & Educational Facilities Authority | 1,000 | 1,145,090 | ||||||
Wisconsin Health & Educational Facilities Authority | 3,690 | 3,711,316 | ||||||
Wisconsin Health & Educational Facilities Authority | 7,405 | 8,508,647 | ||||||
Wisconsin Public Finance Authority | 1,340 | 1,313,977 | ||||||
Wisconsin Public Finance Authority | 600 | 660,474 | ||||||
5.00%, 11/15/2041 | 1,500 | 1,754,790 | ||||||
Wisconsin Public Finance Authority | 3,335 | 3,534,500 | ||||||
Wisconsin Public Finance Authority | 1,500 | 1,651,740 | ||||||
5.00%, 01/01/2038-01/01/2040 | 1,750 | 2,137,564 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 65 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Wisconsin Public Finance Authority | $ | 2,060 | $ | 2,242,640 | ||||
Series 2016D | 720 | 774,662 | ||||||
Wisconsin Public Finance Authority | 2,650 | 2,792,156 | ||||||
Wisconsin Public Finance Authority | 3,225 | 3,396,614 | ||||||
Wisconsin Public Finance Authority | 1,550 | 1,618,696 | ||||||
Wisconsin Public Finance Authority | 1,000 | 1,061,510 | ||||||
Wisconsin Public Finance Authority | 4,650 | 4,914,548 | ||||||
Wisconsin Public Finance Authority | 545 | 568,064 | ||||||
|
| |||||||
96,122,116 | ||||||||
|
| |||||||
Total Municipal Obligations | 5,764,300,964 | |||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 0.9% | ||||||||
Investment Companies – 0.9% | ||||||||
AB Fixed Income Shares, Inc. – | 49,846,274 | 49,846,274 | ||||||
|
| |||||||
Total Investments – 106.9% | 5,814,147,238 | |||||||
Other assets less liabilities – (6.9)% | (376,623,132 | ) | ||||||
|
| |||||||
Net Assets – 100.0% | $ | 5,437,524,106 | ||||||
|
|
66 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INFLATION (CPI) SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 371,020 | 01/15/2028 | 0.735% | CPI# | Maturity | $ | 32,703,795 | $ | — | $ | 32,703,795 | |||||||||||||||
USD | 219,860 | 01/15/2028 | 1.230% | CPI# | Maturity | 10,354,823 | — | 10,354,823 | ||||||||||||||||||
USD | 85,450 | 01/15/2030 | 1.572% | CPI# | Maturity | 2,773,575 | — | 2,773,575 | ||||||||||||||||||
USD | 85,450 | 01/15/2030 | 1.587% | CPI# | Maturity | 2,634,201 | — | 2,634,201 | ||||||||||||||||||
USD | 33,985 | 01/15/2030 | 1.714% | CPI# | Maturity | 575,390 | — | 575,390 | ||||||||||||||||||
USD | 33,985 | 01/15/2030 | 1.731% | CPI# | Maturity | 511,768 | — | 511,768 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | 49,553,552 | $ | — | $ | 49,553,552 | |||||||||||||||||||||
|
|
|
|
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 250,000 | 10/15/2024 | 3 Month LIBOR | 1.582% | Quarterly/ Semi-Annual | $ | 12,305,802 | $ | — | $ | 12,305,802 | |||||||||||||||
USD | 80,600 | 01/15/2025 | 3 Month LIBOR | 1.566% | Quarterly/ Semi-Annual | 4,389,024 | — | 4,389,024 | ||||||||||||||||||
USD | 146,650 | 01/16/2025 | 3 Month LIBOR | 1.623% | Quarterly/ Semi-Annual | 8,382,668 | — | 8,382,668 | ||||||||||||||||||
USD | 63,810 | 04/14/2034 | 1.022% | 3 Month LIBOR | Semi-Annual/ Quarterly | 353,877 | — | 353,877 | ||||||||||||||||||
USD | 40,000 | 04/15/2044 | 0.768% | 3 Month LIBOR | Semi-Annual/ Quarterly | 4,261,132 | — | 4,261,132 | ||||||||||||||||||
USD | 25,000 | 04/15/2044 | 0.755% | 3 Month LIBOR | Semi-Annual/ Quarterly | 2,735,099 | — | 2,735,099 | ||||||||||||||||||
USD | 25,000 | 04/15/2044 | 0.931% | 3 Month LIBOR | Semi-Annual/ Quarterly | 1,797,843 | — | 1,797,843 | ||||||||||||||||||
USD | 40,000 | 04/15/2044 | 1.281% | 3 Month LIBOR | Semi-Annual/ Quarterly | (105,631 | ) | — | (105,631 | ) | ||||||||||||||||
USD | 47,210 | 04/15/2044 | 1.463% | 3 Month LIBOR | Semi-Annual/ Quarterly | (1,959,953 | ) | — | (1,959,953 | ) | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | 32,159,861 | $ | — | $ | 32,159,861 | |||||||||||||||||||||
|
|
|
|
|
|
abfunds.com | AB MUNICIPAL INCOME SHARES | 67 |
PORTFOLIO OF INVESTMENTS (continued)
INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||||||||
Swap | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||||
Citibank, NA | USD 100 | 01/09/2021 | | 30 Year Muni Rate Lock | | 2.250% | Maturity | $ | 5,265 | $ | — | $ | 5,265 | |||||||||||||||||||
Citibank, NA | USD 52,610 | 10/09/2029 | 1.120% | SIFMA* | Quarterly | (2,210,013 | ) | — | (2,210,013 | ) | ||||||||||||||||||||||
Citibank, NA | USD 52,610 | 10/09/2029 | 1.125% | SIFMA* | Quarterly | (2,235,659 | ) | — | (2,235,659 | ) | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (4,440,407 | ) | $ | — | $ | (4,440,407 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
* | Variable interest rate based on the Securities Industry & Financial Markets Association (SIFMA) Municipal Swap Index. |
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate market value of these securities amounted to $530,737,882 or 9.8% of net assets. |
(b) | When-Issued or delayed delivery security. |
(c) | Security represents the underlying municipal obligation of an inverse floating rate obligation held by the Fund (see Note H). |
(d) | Defaulted. |
(e) | Non-income producing security. |
(f) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Louisiana Public Facilities Authority | 11/22/2013 | $ | 1,973,785 | $ | 28 | 0.00 | % | |||||||||
Louisiana Public Facilities Authority | 07/31/2014 | 868,862 | 13 | 0.00 | % | |||||||||||
Sanger Industrial Development Corp. | 08/31/2012 | 2,205,877 | 545,000 | 0.01 | % |
68 | AB MUNICIPAL INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(g) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.10% of net assets as of October 31, 2020, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Kansas City Industrial Development Authority | 12/18/2015 | $ | 4,841,922 | $ | 2,931,932 | 0.05 | % | |||||||||
Scranton-Lackawanna Health & Welfare Authority | 11/29/2017 | 5,746,390 | 2,989,832 | 0.06 | % |
(h) | Affiliated investments. |
(i) | The rate shown represents the 7-day yield as of period end. |
(j) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
As of October 31, 2020, the Fund’s percentages of investments in municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity are 2.0% and 0.0%, respectively.
Glossary:
AGC – Assured Guaranty Corporation
AGM – Assured Guaranty Municipal
BAM – Build American Mutual
CCRC – Congregate Care Retirement Center
COP – Certificate of Participation
ETM – Escrowed to Maturity
LIBOR – London Interbank Offered Rate
NATL – National Interstate Corporation
SD – School District
UPMC – University of Pittsburgh Medical Center
XLCA – XL Capital Assurance Inc.
See notes to financial statements.
abfunds.com | AB MUNICIPAL INCOME SHARES | 69 |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2020 (unaudited)
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $5,627,889,753) | $ | 5,764,300,964 | ||
Affiliated issuers (cost $49,846,274) | 49,846,274 | |||
Cash | 204,533 | |||
Cash collateral due from broker | 77,982,007 | |||
Interest receivable | 77,087,111 | |||
Receivable for investment securities sold | 18,658,037 | |||
Receivable for shares of beneficial interest sold | 12,889,254 | |||
Receivable for variation margin on centrally cleared swaps | 144,331 | |||
Receivable due from Adviser | 6,377 | |||
Unrealized appreciation on interest rate swaps | 5,265 | |||
Affiliated dividends receivable | 1,274 | |||
|
| |||
Total assets | 6,001,125,427 | |||
|
| |||
Liabilities |
| |||
Payable for floating rate notes issued* | 466,585,000 | |||
Payable for investment securities purchased | 54,604,810 | |||
Dividends payable | 17,294,802 | |||
Unrealized depreciation on interest rate swaps | 4,445,672 | |||
Payable for shares of beneficial interest redeemed | 2,154,898 | |||
Other liabilities | 18,516,139 | |||
|
| |||
Total liabilities | 563,601,321 | |||
|
| |||
Net Assets | $ | 5,437,524,106 | ||
|
| |||
Composition of Net Assets |
| |||
Shares of beneficial interest, at par | $ | 4,587 | ||
Additional paid-in capital | 5,264,075,461 | |||
Distributable earnings | 173,444,058 | |||
|
| |||
$ | 5,437,524,106 | |||
|
| |||
Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 458,713,045 common shares outstanding) | $ | 11.85 | ||
|
|
* | Represents short-term floating rate certificates issued by tender option bond trusts (see Note H). |
See notes to financial statements.
70 | AB MUNICIPAL INCOME SHARES | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (unaudited)
Investment Income | ||||||||
Interest | $ | 99,580,292 | ||||||
Dividends—Affiliated issuers | 39,538 | |||||||
Other income(a) | 35,461 | $ | 99,655,291 | |||||
|
| |||||||
Expenses | ||||||||
Interest expense | 1,268,565 | |||||||
|
| |||||||
Total expenses | 1,268,565 | |||||||
|
| |||||||
Net investment income | 98,386,726 | |||||||
|
| |||||||
Realized and Unrealized Gain on Investment Transactions | ||||||||
Net realized gain on: | ||||||||
Investment transactions | 4,687,028 | |||||||
Swaps | 17,942,198 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 391,008,824 | |||||||
Swaps | 49,631,905 | |||||||
|
| |||||||
Net gain on investment transactions | 463,269,955 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 561,656,681 | ||||||
|
|
(a) | Other income includes a reimbursement for investment in affiliated issuer (see Note B). |
See notes to financial statements.
abfunds.com | AB MUNICIPAL INCOME SHARES | 71 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 98,386,726 | $ | 154,370,738 | ||||
Net realized gain (loss) on investment transactions | 22,629,226 | (56,688,486 | ) | |||||
Net change in unrealized appreciation/depreciation of investments | 440,640,729 | (342,584,629 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 561,656,681 | (244,902,377 | ) | |||||
Distribution to Shareholders | (100,955,385 | ) | (154,514,928 | ) | ||||
Transactions in Shares of Beneficial Interest | ||||||||
Net increase | 290,912,039 | 1,575,752,846 | ||||||
|
|
|
| |||||
Total increase | 751,613,335 | 1,176,335,541 | ||||||
Net Assets |
| |||||||
Beginning of period | 4,685,910,771 | 3,509,575,230 | ||||||
|
|
|
| |||||
End of period | $ | 5,437,524,106 | $ | 4,685,910,771 | ||||
|
|
|
|
See notes to financial statements.
72 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
October 31, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Corporate Shares (the “Trust”) is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust, which is a Massachusetts Business Trust, operates as a “series” company currently offering five separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares, AB Taxable Multi-Sector Income Shares, AB Impact Municipal Income Shares and AB Tax-Aware Real Return Income Shares. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Municipal Income Shares (the “Fund”).
Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. 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 Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
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 Trust’s Board of Trustees (the “Board”).
In general, the market values 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
abfunds.com | AB MUNICIPAL INCOME SHARES | 73 |
NOTES TO FINANCIAL STATEMENTS (continued)
the counter (“OTC”) market 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, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures 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 any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, 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. 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. Open-end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
74 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes 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 (including those valued based on their market values as described in Note A.1 above). 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 Fund. Unobservable inputs reflect the Fund’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 Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more
abfunds.com | AB MUNICIPAL INCOME SHARES | 75 |
NOTES TO FINANCIAL STATEMENTS (continued)
widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 5,764,300,964 | $ | – 0 | – | $ | 5,764,300,964 | ||||||
Short-Term Investments | 49,846,274 | – 0 | – | – 0 | – | 49,846,274 | ||||||||||
Liabilities: | ||||||||||||||||
Floating Rate Notes(a) | (466,585,000 | ) | – 0 | – | – 0 | – | (466,585,000 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | (416,738,726 | ) | 5,764,300,964 | – 0 | – | 5,347,562,238 | ||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Centrally Cleared Inflation (CPI) Swaps | – 0 | – | 49,553,552 | – 0 | – | 49,553,552 | (c) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 34,225,445 | – 0 | – | 34,225,445 | (c) | |||||||||
Interest Rate Swaps | – 0 | – | 5,265 | – 0 | – | 5,265 | ||||||||||
Liabilities: | ||||||||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (2,065,584 | ) | – 0 | – | (2,065,584 | )(c) | ||||||||
Interest Rate Swaps | – 0 | – | (4,445,672 | ) | – 0 | – | (4,445,672 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (416,738,726 | ) | $ | 5,841,573,970 | $ | – 0 | – | $ | 5,424,835,244 | ||||||
|
|
|
|
|
|
|
|
(a) | The Fund may hold liabilities in which the fair value approximates the carrying amount for financial statement purposes. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
76 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
3. Taxes
It is the Fund’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.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’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 Fund’s financial statements.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund 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 Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for distributions received from REIT investments or from regulated investment companies as dividend income, realized gain, or return of capital based on information provided by the REIT or the investment company.
5. 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 advisory agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee is paid by their investment adviser to the Adviser. In certain cases, participants may have a direct relationship with the Adviser without the involvement of a third party
abfunds.com | AB MUNICIPAL INCOME SHARES | 77 |
NOTES TO FINANCIAL STATEMENTS (continued)
investment adviser, in which case the participant would pay a fee directly to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The advisory agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.
The Fund has entered into a distribution agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.
AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of ..20% of the portfolio’s average daily net assets and bears its own expenses. The Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to reimburse the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended October 31, 2020, such reimbursement amounted to $35,461.
A summary of the Fund’s transactions in AB mutual funds for the six months ended October 31, 2020 is as follows:
Fund | Market Value 4/30/20 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 69,468 | $ | 785,303 | $ | 804,925 | $ | 49,846 | $ | 40 |
78 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximate 65% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2020 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 1,180,434,809 | $ | 383,890,691 | ||||
U.S. government securities | – 0 | – | 45,800,391 |
abfunds.com | AB MUNICIPAL INCOME SHARES | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 300,474,480 | ||
Gross unrealized depreciation | (86,790,263 | ) | ||
|
| |||
Net unrealized appreciation | $ | 213,684,217 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates or credit risk. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement
80 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The
abfunds.com | AB MUNICIPAL INCOME SHARES | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended October 31, 2020, the Fund held interest rate swaps for hedging and non-hedging purposes.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the six months ended October 31, 2020, the Fund held inflation (CPI) swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of
82 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
During the six months ended October 31, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative | Statement of | Fair Value | Statement of Liabilities | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 83,778,997 | * | Receivable/Payable for variation margin on centrally cleared swaps | $ | 2,065,584 | * | ||||
Interest rate contracts | Unrealized appreciation on interest rate swaps |
| 5,265 |
| Unrealized depreciation on interest rate swaps |
| 4,445,672 |
| ||||
|
|
|
| |||||||||
Total | $ | 83,784,262 | $ | 6,511,256 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. |
This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments.
Derivative Type | Location of Gain or (Loss) on | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | 17,942,198 | $ | 49,631,905 | |||||
|
|
|
| |||||||
Total | $ | 17,942,198 | $ | 49,631,905 | ||||||
|
|
|
|
abfunds.com | AB MUNICIPAL INCOME SHARES | 83 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2020:
Interest Rate Swaps: | ||||
Average notional amount | $ | 105,320,000 | ||
Inflation Swaps: | ||||
Average notional amount | $ | 173,831,500 | (a) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 1,085,532,857 | ||
Centrally Cleared Inflation Swaps: | ||||
Average notional amount | $ | 1,162,527,429 |
(a) | Positions were open for five months during the period. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
Citibank, NA | $ | 5,265 | $ | (5,265 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 5,265 | $ | (5,265 | ) | $ | – 0 | – | $ | – 0 | – | $ | 0 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivative Liabilities | |||||||||||||||
Citibank, NA | $ | 4,445,672 | $ | (5,265 | ) | $ | (4,440,407 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 4,445,672 | $ | (5,265 | ) | $ | (4,440,407 | ) | $ | – 0 | – | $ | 0 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
84 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | Six Months Ended October 31, 2020 | Year Ended April 30, 2020 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Shares sold | 63,982,254 | 190,409,250 | $ | 745,446,006 | $ | 2,239,043,371 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | – 0 | – | 37 | – 0 | – | 448 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (39,058,566 | ) | (56,641,214 | ) | (454,533,967 | ) | (663,290,973 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 24,923,688 | 133,768,073 | $ | 290,912,039 | $ | 1,575,752,846 | ||||||||||||||||||
|
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely
abfunds.com | AB MUNICIPAL INCOME SHARES | 85 |
NOTES TO FINANCIAL STATEMENTS (continued)
affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
The Fund may invest in the municipal securities of Puerto Rico or other US territories and their governmental agencies and municipalities, which are exempt from federal, state, and, where applicable, local income taxes. These municipal securities may have more risks than those of other US issuers of municipal securities. Puerto Rico experienced a significant downturn during the recession. Puerto Rico’s downturn was particularly severe, and Puerto Rico continues to face a very challenging economic and fiscal environment. Municipal securities issued by Puerto Rico issuers have extremely low ratings by the credit rating organizations. More recently Puerto Rico has defaulted on its debt payments, and if the general economic situation in Puerto Rico persists, the volatility and credit quality of Puerto Rican municipal securities will continue to be adversely affected, and the market for such securities may experience continued volatility. In addition, Puerto Rico’s difficulties have resulted in increased volatility in portions of the broader municipal securities market from time to time, and this may recur in the future.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the U.S. federal income tax treatment of certain types of municipal securities.
Tax Risk—There is no guarantee that all of the Fund’s income will remain exempt from federal or state income taxes. From time to time, the U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders
86 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
from the Fund by increasing taxes on that income. In such event, the Fund’s net asset value, or NAV, could also decline as yields on municipal bonds, which are typically lower than those on taxable bonds, would be expected to increase to approximately the yield of comparable taxable bonds. Actions or anticipated actions affecting the tax exempt status of municipal bonds could also result in significant shareholder redemptions of Fund shares as investors anticipate adverse effects on the Fund or seek higher yields to offset the potential loss of the tax deduction. As a result, the Fund would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Fund’s yield. The federal income tax treatment of payments in respect of certain derivative contracts is unclear.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During the periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in
abfunds.com | AB MUNICIPAL INCOME SHARES | 87 |
NOTES TO FINANCIAL STATEMENTS (continued)
higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Illiquid Investments Risk—Illiquid investments risk exists when particular investments, such as lower-rated securities, are or become difficult to purchase or sell, possibly preventing the Fund from selling such investments at an advantageous price. The Fund is subject to illiquid investments risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk than most other types of investments.
Derivatives Risk—The Fund 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 Fund, 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 on the statement of assets and liabilities.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation
88 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 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 Adviser. The Fund did not utilize the Facility during the six months ended October 31, 2020.
NOTE G
Distributions to Shareholders
The tax character of distributions to be paid for the year ending April 30, 2021 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended April 30, 2020 and April 30, 2019 were as follows:
2020 | 2019 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 3,709,081 | $ | 2,482,625 | ||||
|
|
|
| |||||
Total taxable distributions | 3,709,081 | 2,482,625 | ||||||
Tax-exempt distributions | 150,805,847 | 118,557,123 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 154,514,928 | $ | 121,039,748 | ||||
|
|
|
|
abfunds.com | AB MUNICIPAL INCOME SHARES | 89 |
NOTES TO FINANCIAL STATEMENTS (continued)
As of April 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 14,476,209 | ||
Accumulated capital and other losses | (53,855,071 | )(a) | ||
Unrealized appreciation/(depreciation) | (232,296,868 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (271,675,730 | )(c) | |
|
|
(a) | As of April 30, 2020, the Fund had a net capital loss carryforward of $53,855,071. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax treatment of swaps, the tax deferral of losses on wash sales, and the tax treatment of tender option bonds. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the tax treatment of defaulted securities and dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30, 2020, the Fund had a net short-term capital loss carryforward of $53,855,071, which may be carried forward for an indefinite period.
NOTE H
Floating Rate Notes Issued in Connection with Securities Held
The Fund may engage in tender option bond (“TOB”) transactions in which the Fund transfers a fixed rate bond (“Fixed Rate Bond”) into a Special Purpose Vehicle (the “SPV”, which is generally organized as a trust). The Fund buys a residual interest in the assets and cash flows of the SPV, often referred to as an inverse floating rate obligation (“Inverse Floater”). The SPV also issues floating rate notes (“Floating Rate Notes”) which are sold to third parties. The Floating Rate Notes pay interest at rates that generally reset weekly and their holders have the option to tender their notes to a liquidity provider for redemption at par. The Inverse Floater held by the Fund gives the Fund the right (1) to cause the holders of the Floating Rate Notes to tender their notes at par, and (2) to have the trustee transfer the Fixed Rate Bond held by the SPV to the Fund, thereby collapsing the SPV. The SPV may also be collapsed in certain other circumstances. In accordance with U.S. GAAP requirements regarding accounting for transfers and servicing of financial assets and extinguishments of liabilities, the Fund accounts for the transaction described above as a secured borrowing by including the Fixed Rate Bond in its portfolio of investments and the Floating Rate Notes as a liability under the caption “Payable for floating rate notes issued” in its statement of assets and liabilities. Interest expense related to the Fund’s liability with respect to Floating Rate Notes is recorded as incurred. The interest expense is also included in the Fund’s expense ratio. At October 31, 2020, the amount of the Fund’s Floating Rate Notes outstanding was $466,585,000 and the
90 | AB MUNICIPAL INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
related interest rate was 0.16% to 0.47%. For the six months ended October 31, 2020, the average amount of Floating Rate Notes outstanding and the daily weighted average interest rate were $280,881,622 and 0.87%, respectively.
The Fund may also purchase Inverse Floaters in the secondary market without first owning the underlying bond. Such an Inverse Floater is included in the Fund’s portfolio of investments but is not required to be treated as a secured borrowing and reflected in the Fund’s financial statements as a secured borrowing.
NOTE I
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 Fund’s financial statements through this date.
abfunds.com | AB MUNICIPAL INCOME SHARES | 91 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
Six Months (unaudited) | Year Ended April 30, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.80 | $ 11.70 | $ 11.32 | $ 11.25 | $ 11.59 | $ 11.14 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .22 | .44 | .45 | .44 | .44 | .48 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | 1.06 | (.90 | ) | .38 | .07 | (.34 | ) | .46 | ||||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | 1.28 | (.46 | ) | .83 | .51 | .10 | .94 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.44 | ) | (.45 | ) | (.44 | ) | (.44 | ) | (.49 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.85 | $ 10.80 | $ 11.70 | $ 11.32 | $ 11.25 | $ 11.59 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(b) | 11.85 | % | (4.23 | )% | 7.53 | % | 4.55 | % | .87 | % | 8.69 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of | $5,437,524 | $4,685,911 | $3,509,575 | $2,760,892 | $1,667,126 | $1,112,540 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses(c) | .05 | %^ | .01 | % | .01 | % | .01 | % | .00 | %(d) | .01 | % | ||||||||||||
Net investment income | 3.74 | %^ | 3.67 | % | 3.91 | % | 3.82 | % | 3.85 | % | 4.25 | % | ||||||||||||
Portfolio turnover rate | 8 | % | 12 | % | 14 | % | 19 | % | 23 | % | 8 | % |
(a) | Based on average shares outstanding. |
(b) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
(c) | The expense ratios, excluding interest expense are .00%, .00%, .00%, .00%, .00% and .00%, respectively. |
(d) | Amount is less than .005%. |
^ | Annualized. |
See notes to financial statements.
92 | AB MUNICIPAL INCOME SHARES | abfunds.com |
BOARD OF TRUSTEES
Marshall C. Turner, Jr.(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS
R.B. (Guy) Davidson III(2),^, Vice President Terrance T. Hults(2), Vice President Matthew J. Norton(2), Vice President Andrew Potter(2), Vice President Emilie D. Wrapp, Secretary | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company
Principal Underwriter AllianceBernstein Investments, Inc.
Transfer Agent AllianceBernstein Investor Services, | Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004
Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 |
1 | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s Portfolio are made by the Adviser’s Municipal Bond Investment Team. Messrs. Davidson, Hults, Norton and Potter are the investment professionals primarily responsible for the day-to-day management of the Fund’s Portfolio. |
^ | Mr. Davidson is expected to retire from the Adviser effective December 30, 2020. |
abfunds.com | AB MUNICIPAL INCOME SHARES | 93 |
Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Trustees (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
94 | AB MUNICIPAL INCOME SHARES | abfunds.com |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested trustees (the “directors”) of AB Corporate Shares (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Municipal Income Shares (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).*
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors noted that the Fund is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The directors also noted that no advisory fee is payable by the Fund, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Fund’s ordinary expenses. The directors noted that the Company acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The directors further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Fund as an investment vehicle for their clients.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the underlying fund advised by the Adviser in which the Fund invests.
* | Following transactions completed on November 13, 2019 that may have been deemed to have been an “assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
abfunds.com | AB MUNICIPAL INCOME SHARES | 95 |
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2017 and 2018 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution
96 | AB MUNICIPAL INCOME SHARES | abfunds.com |
expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund in the periods reviewed was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the underlying fund advised by the Adviser in which the Fund invests. The directors noted that the Adviser is compensated by the Sponsors. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing the Fund’s performance against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended July 31, 2019 and (in the case of comparisons with the broad-based securities market index) for the period from inception. The directors were cognizant that the Fund was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Fund. At the directors’ request, the Adviser provided information showing the weighting of the Fund in a current SMA and the overall performance of the SMA versus its stated benchmark. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees
The directors considered the advisory fee rate payable by the Fund to the Adviser (zero) and information provided by the 15(c) service provider showing the fees payable by other fund families used in wrap fee programs similar to that of the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds.
The directors noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Fund. The directors reviewed the fee arrangements between the Adviser and each of
abfunds.com | AB MUNICIPAL INCOME SHARES | 97 |
the current Sponsors and noted that such fees were negotiated on an arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the directors acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Fund paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Fund (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to Fund management at the Fund level is the same for all Sponsors. The directors also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.
The Adviser informed the directors that there were no institutional products managed by the Adviser that utilize investment strategies similar to those of the Fund.
The directors did not consider comparative expense information for the Fund because the Fund does not bear ordinary expenses.
Economies of Scale
The directors did not consider the extent to which fee levels in the Advisory Agreement for the Fund reflect economies of scale because the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Fund and the Fund’s expense ratio is zero. They did note, however, that the fee payable to the Adviser by the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.
98 | AB MUNICIPAL INCOME SHARES | abfunds.com |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
abfunds.com | AB MUNICIPAL INCOME SHARES | 99 |
NOTES
100 | AB MUNICIPAL INCOME SHARES | abfunds.com |
AB MUNICIPAL INCOME SHARES
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
MIS-0152-1020
OCT 10.31.20
SEMI-ANNUAL REPORT
AB TAXABLE MULTI-SECTOR INCOME SHARES
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you Invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
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 AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT | ![]() |
Dear Shareholder,
We are pleased to provide this report for AB Taxable Multi-Sector Income Shares (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 1 |
SEMI-ANNUAL REPORT
December 15, 2020
This report provides management’s discussion of fund performance for AB Taxable Multi-Sector Income Shares for the semi-annual reporting period ended October 31, 2020. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by the Adviser.
The Fund’s investment objective is to generate income and price appreciation.
NAV RETURNS AS OF OCTOBER 31, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB TAXABLE MULTI-SECTOR INCOME SHARES | 2.19% | 2.89% | ||||||
Bloomberg Barclays US Aggregate ex Government Bond Index | 2.66% | 5.45% |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays US Aggregate ex Government Bond Index, for the six- and 12-month periods ended October 31, 2020.
During the six-month period, the Fund underperformed the benchmark. Security selection was the largest detractor, relative to the benchmark, primarily from selections in consumer noncyclical, US municipal bonds, banking, technology and capital goods. Industry allocation contributed due to allocations in agency mortgage-backed securities, investment-grade credit default swaps and real estate investment trusts (“REITs”) that more than offset losses in sovereign bonds and US Treasuries. Yield-curve positioning in maturities over 10 years also contributed. Currency decisions did not have a meaningful impact on performance during the period.
During the 12-month period, the Fund underperformed the benchmark. The Fund’s shorter-than-benchmark duration was the primary detractor, as yields fell across the curve during the period. Industry allocations also detracted due to exposures to agency mortgage-backed securities, US municipal bonds, electric and capital goods, all of which were partially offset by investment-grade credit default swaps. Security selection contributed, mostly from selection within energy, electric, REITs and capital goods that exceeded a loss within commercial mortgage-backed securities. Currency decisions did not have a meaningful impact on performance during the period.
The Fund utilized derivatives in the form of interest rate swaps for hedging purposes, which had an immaterial impact on absolute returns during both periods, and credit default swaps for investment purposes, which had an
2 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
immaterial impact for the six-month period and detracted for the 12-month period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global fixed-income market returns were positive yet volatile over the six-month period ended October 31, 2020. Government bonds advanced modestly. Emerging- and developed-market high-yield corporate bonds led gains, followed by emerging- and developed-market investment-grade corporates, as investors searched for higher yields in a period of falling interest rates. Corporate bonds in the US outperformed their European counterparts. Emerging-market local bonds also rebounded, and securitized assets provided positive, yet muted, results. The US dollar fell against all major developed-market currencies and a majority of emerging-market currencies. Brent crude oil prices rose 90% from recent historic lows as economies started to open up and rebound.
The Fund’s Senior Investment Management Team (the “Team”) continues to seek attractively priced securities through top-down and bottom-up research, while mitigating overall risk. The Team invests primarily in single-sector, investment-grade issues of global corporates but has leeway to invest in below investment-grade bonds as well.
INVESTMENT POLICIES
The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Fund may invest in a broad range of securities in both developed and emerging markets. The Fund may invest across all fixed-income sectors, including corporate and US and non-US government securities. The Fund may invest up to 50% of its assets in below investment-grade bonds (“junk bonds”). The Fund expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term.
The Fund may invest without limit in US dollar-denominated foreign fixed-income securities and may invest up to 50% of its assets in non-US dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed- and emerging-market debt securities.
The Adviser selects securities for purchase or sale based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.
(continued on next page)
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 3 |
The Fund may also invest in mortgage-related and other asset-backed securities, loan participations, inflation-indexed securities, structured securities, variable, floating, and inverse floating-rate instruments and preferred stock, and may use other investment techniques. The Fund may use leverage for investment purposes. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements, forward contracts and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures contracts, forwards or swap agreements.
Currencies can have a dramatic effect on returns of non-US dollar-denominated fixed-income securities, significantly adding to returns in some years and greatly diminishing them in others. The Adviser evaluates currency and fixed-income positions separately and may seek to hedge the currency exposure resulting from the Fund’s fixed-income securities positions when it finds the currency exposure unattractive. To hedge a portion of its currency risk, the Fund may from time to time invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
4 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Aggregate ex Government Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays US Aggregate ex Government Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for corporate securities, mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and any accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest-rate
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 5 |
DISCLOSURES AND RISKS (continued)
sensitivity, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange risk may negatively affect the value of the Fund’s investments or reduce its returns.
Mortgage-Related and/or Other Asset-Backed Securities Risk: Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by nongovernmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or
6 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS (continued)
illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the US federal income tax treatment of certain types of municipal securities.
Sector Risk: The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Leverage Risk: To the extent the Fund uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.
Management Risk: The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 7 |
DISCLOSURES AND RISKS (continued)
An Important Note About Historical Performance
The performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227 4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
8 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2020 (unaudited)
NAV Returns | ||||
1 Year | 2.89% | |||
5 Years | 2.56% | |||
10 Years | 2.44% |
AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2020 (unaudited)
NAV Returns | ||||
1 Year | 3.21% | |||
5 Years | 2.57% | |||
10 Years | 2.52% |
The prospectus fee table shows the fees and the total operating expenses of the Fund as 0.01% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses, except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. 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.
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.
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 hypothetical example 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 May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Actual | $ | 1,000 | $ | 1,021.90 | $ | 0 | 0.00 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,025.21 | $ | 0 | 0.00 | % |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates. |
** | Assumes 5% annual return before expenses. |
10 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO SUMMARY
October 31, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $274.2
1 | All data are as of October 31, 2020. The Fund’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 11 |
PORTFOLIO OF INVESTMENTS
October 31, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
CORPORATES – INVESTMENT | ||||||||
Industrial – 48.1% | ||||||||
Basic – 2.6% | ||||||||
Air Products and Chemicals, Inc. | $ | 1,600 | $ | 1,658,032 | ||||
DuPont de Nemours, Inc. | 2,000 | 2,019,240 | ||||||
Ecolab, Inc. | 1,475 | 1,524,973 | ||||||
EI du Pont de Nemours and Co. | 1,265 | 1,310,742 | ||||||
Glencore Finance Canada Ltd. | 505 | 525,751 | ||||||
Glencore Funding LLC | 225 | 232,765 | ||||||
|
| |||||||
7,271,503 | ||||||||
|
| |||||||
Capital Goods – 5.2% |
| |||||||
3M Co. | 850 | 896,453 | ||||||
Caterpillar Financial Services Corp. | 700 | 719,607 | ||||||
2.95%, 02/26/2022 | 915 | 946,586 | ||||||
CNH Industrial Capital LLC | 950 | 950,000 | ||||||
Eaton Corp. | 1,265 | 1,322,241 | ||||||
Illinois Tool Works, Inc. | 1,550 | 1,686,291 | ||||||
John Deere Capital Corp. | 636 | 652,460 | ||||||
2.30%, 06/07/2021 | 1,100 | 1,113,728 | ||||||
Parker-Hannifin Corp. | 1,000 | 1,067,300 | ||||||
Raytheon Technologies Corp. | 2,175 | 2,239,184 | ||||||
Republic Services, Inc. | 1,000 | 1,061,830 | ||||||
Waste Management, Inc. | 1,630 | 1,699,324 | ||||||
|
| |||||||
14,355,004 | ||||||||
|
| |||||||
Communications - Media – 3.4% |
| |||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 1,750 | 1,854,335 |
12 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Comcast Corp. | $ | 500 | $ | 537,430 | ||||
3.375%, 02/15/2025 | 675 | 744,694 | ||||||
Fox Corp. | 1,350 | 1,403,865 | ||||||
4.03%, 01/25/2024 | 435 | 477,321 | ||||||
Omnicom Group, Inc./Omnicom Capital, Inc. | 450 | 470,731 | ||||||
3.65%, 11/01/2024 | 800 | 877,944 | ||||||
ViacomCBS, Inc. | 600 | 654,018 | ||||||
Walt Disney Co. (The) | 725 | 725,950 | ||||||
3.00%, 09/15/2022 | 1,500 | 1,572,420 | ||||||
|
| |||||||
9,318,708 | ||||||||
|
| |||||||
Communications - | ||||||||
AT&T, Inc. | 355 | 369,221 | ||||||
3.00%, 06/30/2022 | 375 | 389,123 | ||||||
Rogers Communications, Inc. | 2,000 | 2,106,220 | ||||||
Verizon Communications, Inc. | 1,386 | 1,371,211 | ||||||
|
| |||||||
4,235,775 | ||||||||
|
| |||||||
Consumer Cyclical - Automotive – 2.5% |
| |||||||
BMW Finance NV | 675 | 694,690 | ||||||
BMW US Capital LLC | 1,065 | 1,089,953 | ||||||
Cummins, Inc. | 1,000 | 998,960 | ||||||
General Motors Financial Co., Inc. | 1,000 | 1,008,870 | ||||||
2.45%, 11/06/2020 | 220 | 220,024 | ||||||
Harley-Davidson Financial Services, Inc. | 1,025 | 1,039,360 | ||||||
Toyota Motor Credit Corp. | 1,660 | 1,701,234 | ||||||
|
| |||||||
6,753,091 | ||||||||
|
| |||||||
Consumer Cyclical - Other – 1.2% |
| |||||||
DR Horton, Inc. | 1,000 | 1,001,580 | ||||||
Las Vegas Sands Corp. | 1,000 | 1,011,520 | ||||||
Marriott International, Inc./MD | 350 | 360,801 |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series Y | $ | 800 | $ | 799,360 | ||||
|
| |||||||
3,173,261 | ||||||||
|
| |||||||
Consumer Cyclical - Retailers – 1.0% |
| |||||||
Costco Wholesale Corp. | 1,000 | 1,077,800 | ||||||
Walmart, Inc. | 1,570 | 1,692,852 | ||||||
|
| |||||||
2,770,652 | ||||||||
|
| |||||||
Consumer Non-Cyclical – 13.3% |
| |||||||
Abbott Laboratories | 1,300 | 1,423,500 | ||||||
AbbVie, Inc. | 650 | 655,636 | ||||||
2.30%, 11/21/2022(a) | 1,325 | 1,372,713 | ||||||
3.375%, 11/14/2021 | 615 | 633,321 | ||||||
AmerisourceBergen Corp. | 1,350 | 1,478,736 | ||||||
Amgen, Inc. | 1,600 | 1,651,440 | ||||||
Baxalta, Inc. | 23 | 23,999 | ||||||
Biogen, Inc. | 1,479 | 1,563,510 | ||||||
Bristol-Myers Squibb Co. | 1,025 | 1,060,424 | ||||||
2.75%, 02/15/2023 | 225 | 236,547 | ||||||
3.25%, 02/20/2023 | 815 | 865,481 | ||||||
Bunge Ltd. Finance Corp. | 1,375 | 1,377,338 | ||||||
Cigna Corp. | 1,825 | 1,873,308 | ||||||
CommonSpirit Health | 1,000 | 1,047,770 | ||||||
CVS Health Corp. | 400 | 403,496 | ||||||
DH Europe Finance II SARL | 1,850 | 1,908,256 | ||||||
Eli Lilly & Co. | 1,275 | 1,315,010 | ||||||
Gilead Sciences, Inc. | 565 | 575,130 | ||||||
3.70%, 04/01/2024 | 1,300 | 1,414,400 | ||||||
Hershey Co. (The) | 1,300 | 1,313,312 |
14 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Johnson & Johnson | $ | 1,335 | $ | 1,368,041 | ||||
McCormick & Co., Inc./MD | 830 | 899,197 | ||||||
McKesson Corp. | 1,500 | 1,638,375 | ||||||
Merck & Co., Inc. | 1,130 | 1,223,598 | ||||||
PepsiCo, Inc. | 750 | 757,373 | ||||||
3.50%, 07/17/2025 | 1,110 | 1,246,663 | ||||||
Pfizer, Inc. | 1,000 | 1,066,770 | ||||||
Philip Morris International, Inc. | 1,000 | 1,098,020 | ||||||
Shire Acquisitions Investments Ireland DAC | 1,600 | 1,697,200 | ||||||
Thermo Fisher Scientific, Inc. | 1,000 | 1,057,330 | ||||||
Zimmer Biomet Holdings, Inc. | 1,055 | 1,054,620 | ||||||
Zoetis, Inc. | 1,000 | 1,053,580 | ||||||
|
| |||||||
36,354,094 | ||||||||
|
| |||||||
Energy – 3.8% |
| |||||||
BP Capital Markets America, Inc. | 775 | 807,790 | ||||||
Chevron Corp. | 1,665 | 1,695,170 | ||||||
Energy Transfer Operating LP | 500 | 522,115 | ||||||
4.65%, 06/01/2021 | 10 | 10,129 | ||||||
Energy Transfer Partners LP/Regency Energy Finance Corp. | 750 | 793,290 | ||||||
Exxon Mobil Corp. | 1,655 | 1,701,505 | ||||||
Husky Energy, Inc. | 1,200 | 1,243,884 | ||||||
Marathon Petroleum Corp. | 1,200 | 1,290,780 | ||||||
MPLX LP | 1,250 | 1,249,963 | ||||||
Schlumberger Finance Canada Ltd. | 1,000 | 1,000,770 | ||||||
|
| |||||||
10,315,396 | ||||||||
|
|
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Services – 3.4% |
| |||||||
Amazon.com, Inc. | $ | 875 | $ | 914,603 | ||||
2.50%, 11/29/2022 | 1,305 | 1,356,548 | ||||||
Booking Holdings, Inc. | 1,685 | 1,763,352 | ||||||
eBay, Inc. | 485 | 500,287 | ||||||
3.80%, 03/09/2022 | �� | 1,000 | 1,041,500 | |||||
Mastercard, Inc. | 1,590 | 1,617,634 | ||||||
Moody’s Corp. | 750 | 783,660 | ||||||
4.50%, 09/01/2022 | 1,300 | 1,383,759 | ||||||
|
| |||||||
9,361,343 | ||||||||
|
| |||||||
Technology – 9.7% |
| |||||||
Alphabet, Inc. | 1,500 | 1,644,165 | ||||||
Analog Devices, Inc. | 1,000 | 1,019,920 | ||||||
Apple, Inc. | 1,250 | 1,312,813 | ||||||
3.00%, 02/09/2024 | 800 | 859,016 | ||||||
Autodesk, Inc. | 800 | 911,008 | ||||||
Baidu, Inc. | 375 | 386,133 | ||||||
Cisco Systems, Inc. | 1,650 | 1,671,087 | ||||||
Fidelity National Information Services, Inc. | 850 | 904,375 | ||||||
Fiserv, Inc. | 1,000 | 1,067,360 | ||||||
Hewlett Packard Enterprise Co. | 1,715 | 1,747,345 | ||||||
Honeywell International, Inc. | 585 | 585,339 | ||||||
2.15%, 08/08/2022 | 1,300 | 1,339,234 | ||||||
IBM Credit LLC | 255 | 263,948 | ||||||
Intel Corp. | 1,025 | 1,158,004 | ||||||
International Business Machines Corp. | 1,500 | 1,557,015 | ||||||
3.625%, 02/12/2024 | 1,000 | 1,094,410 |
16 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
KLA Corp. | $ | 1,250 | $ | 1,423,437 | ||||
Microsoft Corp. | 1,300 | 1,332,695 | ||||||
Oracle Corp. | 1,175 | 1,189,676 | ||||||
3.625%, 07/15/2023 | 500 | 542,705 | ||||||
QUALCOMM, Inc. | 1,094 | 1,082,830 | ||||||
salesforce.com, Inc. | 2,100 | 2,242,443 | ||||||
Texas Instruments, Inc. | 1,325 | 1,416,080 | ||||||
|
| |||||||
26,751,038 | ||||||||
|
| |||||||
Transportation - Airlines – 0.4% |
| |||||||
Southwest Airlines Co. | 1,000 | 1,071,720 | ||||||
|
| |||||||
Transportation - Services – 0.1% |
| |||||||
Aviation Capital Group LLC | 17 | 16,973 | ||||||
3.875%, 05/01/2023(a) | 79 | 79,011 | ||||||
4.875%, 10/01/2025(a) | 69 | 68,108 | ||||||
|
| |||||||
164,092 | ||||||||
|
| |||||||
131,895,677 | ||||||||
|
| |||||||
Financial Institutions – 16.7% |
| |||||||
Banking – 12.9% |
| |||||||
Banco Santander SA | 1,000 | 1,057,790 | ||||||
Bank of America Corp. | 535 | 536,808 | ||||||
2.881%, 04/24/2023 | 1,175 | 1,213,810 | ||||||
3.458%, 03/15/2025 | 500 | 540,990 | ||||||
Bank of New York Mellon Corp. (The) | 1,000 | 1,033,800 | ||||||
Capital One Bank USA NA | 1,600 | 1,625,632 | ||||||
Citigroup, Inc. | 1,000 | 1,024,190 | ||||||
2.876%, 07/24/2023 | 1,300 | 1,349,179 | ||||||
Goldman Sachs Group, Inc. (The) | 48 | 48,931 | ||||||
2.905%, 07/24/2023 | 1,000 | 1,038,510 | ||||||
2.908%, 06/05/2023 | 1,300 | 1,346,943 |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
JPMorgan Chase & Co. | $ | 1,800 | $ | 1,839,312 | ||||
2.776%, 04/25/2023 | 1,320 | 1,365,316 | ||||||
3.797%, 07/23/2024 | 725 | 786,016 | ||||||
Lloyds Banking Group PLC | 1,350 | 1,360,638 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 1,300 | 1,320,449 | ||||||
Mizuho Financial Group, Inc. | 2,000 | 2,019,600 | ||||||
Morgan Stanley | 1,435 | 1,469,053 | ||||||
Nationwide Building Society | 200 | 217,004 | ||||||
PNC Bank NA | 1,475 | 1,500,060 | ||||||
Royal Bank of Canada | 1,500 | 1,549,680 | ||||||
Royal Bank of Scotland Group PLC | 1,000 | 1,091,250 | ||||||
State Street Corp. | 1,000 | 1,032,198 | ||||||
3.776%, 12/03/2024 | 1,000 | 1,096,490 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 2,000 | 2,076,360 | ||||||
Synchrony Bank | 775 | 785,555 | ||||||
Toronto-Dominion Bank (The) | 1,000 | 1,067,300 | ||||||
US Bancorp | 1,275 | 1,353,463 | ||||||
Wells Fargo Bank NA | 1,050 | 1,064,448 | ||||||
Zions Bancorp NA | 1,555 | 1,589,101 | ||||||
|
| |||||||
35,399,876 | ||||||||
|
| |||||||
Finance – 0.9% |
| |||||||
AIG Global Funding | 500 | 515,765 | ||||||
3.35%, 06/25/2021(a) | 600 | 611,838 | ||||||
Air Lease Corp. | 1,015 | 1,020,572 | ||||||
3.875%, 07/03/2023 | 300 | 313,242 | ||||||
|
| |||||||
2,461,417 | ||||||||
|
|
18 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Other Finance – 0.5% |
| |||||||
Enterprise Community Loan Fund, Inc. | $ | 1,180 | $ | 1,229,808 | ||||
|
| |||||||
REITS – 2.4% |
| |||||||
American Tower Corp. | 675 | 689,526 | ||||||
3.00%, 06/15/2023 | 575 | 609,494 | ||||||
3.50%, 01/31/2023 | 600 | 637,350 | ||||||
Healthpeak Properties, Inc. | 1,000 | 1,091,160 | ||||||
Host Hotels & Resorts LP | 1,275 | 1,318,325 | ||||||
Simon Property Group LP | 1,500 | 1,614,840 | ||||||
Ventas Realty LP | 119 | 124,275 | ||||||
3.50%, 04/15/2024 | 500 | 539,265 | ||||||
|
| |||||||
6,624,235 | ||||||||
|
| |||||||
45,715,336 | ||||||||
|
| |||||||
Utility – 5.2% |
| |||||||
Electric – 4.8% |
| |||||||
CMS Energy Corp. | 850 | 890,723 | ||||||
Dominion Energy, Inc. | 1,500 | 1,524,525 | ||||||
DTE Energy Co. | 565 | 586,978 | ||||||
Duke Energy Progress LLC | 1,000 | 999,800 | ||||||
Eversource Energy | 1,920 | 1,931,578 | ||||||
Exelon Corp. | 548 | 551,946 | ||||||
National Rural Utilities Cooperative Finance Corp. | 995 | 1,004,731 | ||||||
3.05%, 02/15/2022 | 300 | 308,283 | ||||||
NextEra Energy Capital Holdings, Inc. | 600 | 628,458 | ||||||
Public Service Enterprise Group, Inc. | 845 | 881,563 |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Sempra Energy | $ | 1,000 | $ | 1,085,980 | ||||
Southern California Edison Co. | 1,775 | 1,909,421 | ||||||
Southern Co. (The) | 875 | 885,194 | ||||||
|
| |||||||
13,189,180 | ||||||||
|
| |||||||
Other Utility – 0.4% |
| |||||||
American Water Capital Corp. | 1,135 | 1,247,649 | ||||||
|
| |||||||
14,436,829 | ||||||||
|
| |||||||
Total Corporates – Investment Grade | 192,047,842 | |||||||
|
| |||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 10.6% | ||||||||
United States – 10.6% |
| |||||||
Buckeye Tobacco Settlement Financing Authority | 755 | 750,553 | ||||||
1.95%, 06/01/2026 | 400 | 409,508 | ||||||
Central Texas Turnpike System | 1,000 | 1,008,870 | ||||||
Chicago Housing Authority | 1,000 | 1,025,020 | ||||||
Chicago O’Hare International Airport | 2,000 | 1,995,800 | ||||||
City & County of Denver CO Airport System Revenue | 750 | 748,823 | ||||||
City of Houston TX Airport System Revenue | 1,000 | 1,001,410 | ||||||
City of Jacksonville | 1,500 | 1,495,005 | ||||||
City of San Francisco CA Public Utilities Commission Water Revenue | 500 | 507,690 |
20 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Colorado Health Facilities Authority | $ | 800 | $ | 807,256 | ||||
2.237%, 11/01/2022 | 100 | 101,707 | ||||||
2.396%, 11/01/2023 | 1,050 | 1,074,812 | ||||||
County of Riverside CA | 200 | 206,978 | ||||||
Florida Development Finance Corp. | 1,740 | 1,739,669 | ||||||
Inland Empire Tobacco Securitization Corp. | 1,000 | 1,053,840 | ||||||
Massachusetts Development Finance Agency | 385 | 389,558 | ||||||
New York State Dormitory Authority | 250 | 255,055 | ||||||
Ohio Turnpike & Infrastructure Commission | 700 | 709,569 | ||||||
Pennsylvania Turnpike Commission | 760 | 787,831 | ||||||
Port Authority of New York & New Jersey | 2,375 | 2,401,932 | ||||||
Port of Portland OR Airport Revenue | 600 | 599,826 | ||||||
1.00%, 07/01/2023 | 1,200 | 1,198,572 | ||||||
Reedy Creek Improvement District | 700 | 715,680 | ||||||
State Board of Administration Finance Corp. | 1,010 | 1,020,544 | ||||||
State of Hawaii | 1,000 | 987,560 | ||||||
State of Hawaii Airports System Revenue | 1,000 | 1,001,530 | ||||||
State of Nevada Department of Business & Industry | 1,000 | 999,470 | ||||||
State of Wisconsin | 1,000 | 1,005,950 |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Tobacco Settlement Finance Authority/WV 3.00%, 06/01/2035 | $ | 2,050 | $ | 2,048,381 | ||||
Transbay Joint Powers Authority | 910 | 896,441 | ||||||
|
| |||||||
Total Local Governments – US Municipal Bonds (cost $28,773,830) | 28,944,840 | |||||||
|
| |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 1.7% | ||||||||
Risk Share Floating Rate – 1.6% | ||||||||
Bellemeade Re Ltd. | 383 | 375,087 | ||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 116 | 116,886 | ||||||
Series 2015-DNA1, Class M3 | 233 | 240,369 | ||||||
Series 2015-HQA1, Class M3 | 221 | 229,451 | ||||||
Series 2016-DNA1, Class M3 | 320 | 336,775 | ||||||
Series 2016-DNA4, Class M3 | 240 | 248,789 | ||||||
Series 2016-HQA4, Class M3 | 249 | 257,140 | ||||||
Series 2017-DNA3, Class M2 | 250 | 252,656 | ||||||
Series 2019-DNA3, Class M2 | 54 | 53,266 | ||||||
Federal National Mortgage Association Connecticut Avenue Securities | 291 | 275,874 |
22 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2014-C03, Class 2M2 | $ | 189 | $ | 188,635 | ||||
Series 2015-C01, Class 2M2 | 22 | 22,451 | ||||||
Series 2016-C01, Class 1M2 | 387 | 411,882 | ||||||
Series 2016-C02, Class 1M2 | 412 | 433,373 | ||||||
Series 2016-C03, Class 1M2 | 194 | 204,505 | ||||||
Series 2016-C06, Class 1M2 | 159 | 164,226 | ||||||
Series 2016-C07, Class 2M2 | 140 | 145,840 | ||||||
Series 2017-C02, Class 2M2 | 304 | 306,460 | ||||||
Series 2017-C06, Class 2M2 | 156 | 155,604 | ||||||
|
| |||||||
4,419,269 | ||||||||
|
| |||||||
Agency Fixed Rate – 0.1% |
| |||||||
Federal Home Loan Mortgage Corp. REMICs Series 4029, Class LD | 194 | 197,618 | ||||||
Series 4459, Class CA | 41 | 45,176 | ||||||
|
| |||||||
242,794 | ||||||||
|
| |||||||
Total Collateralized Mortgage Obligations | 4,662,063 | |||||||
|
| |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 1.5% | ||||||||
Non-Agency Floating Rate CMBS – 1.1% | ||||||||
BAMLL Commercial Mortgage Securities Trust | 1,000 | 944,983 |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
DBWF Mortgage Trust | $ | 1,000 | $ | 972,506 | ||||
Invitation Homes Trust | 328 | 328,210 | ||||||
Starwood Retail Property Trust | 975 | 721,757 | ||||||
|
| |||||||
2,967,456 | ||||||||
|
| |||||||
Non-Agency Fixed Rate CMBS – 0.4% |
| |||||||
Citigroup Commercial Mortgage Trust | 7 | 7,632 | ||||||
GS Mortgage Securities Trust | 277 | 278,450 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 750 | 766,569 | ||||||
LSTAR Commercial Mortgage Trust | 89 | 90,805 | ||||||
|
| |||||||
1,143,456 | ||||||||
|
| |||||||
Agency CMBS – 0.0% |
| |||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass Through Certificates | ||||||||
Series K021, Class A1 | 35 | 35,443 | ||||||
Series K025, Class A1 | 41 | 41,325 | ||||||
|
| |||||||
76,768 | ||||||||
|
| |||||||
Total Commercial Mortgage-Backed Securities | 4,187,680 | |||||||
|
| |||||||
ASSET-BACKED SECURITIES – 1.3% | ||||||||
Credit Cards - Fixed Rate – 0.6% | ||||||||
Chase Issuance Trust | 105 | 105,998 |
24 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
World Financial Network Credit Card Master Trust | $ | 1,350 | $ | 1,384,014 | ||||
|
| |||||||
1,490,012 | ||||||||
|
| |||||||
Autos - Fixed Rate – 0.4% |
| |||||||
CarMax Auto Owner Trust | 425 | 427,265 | ||||||
GM Financial Consumer Automobile Receivables Trust | 239 | 239,231 | ||||||
Honda Auto Receivables Owner Trust | 400 | 401,911 | ||||||
|
| |||||||
1,068,407 | ||||||||
|
| |||||||
Other ABS - Fixed Rate – 0.3% |
| |||||||
SoFi Consumer Loan Program LLC | ||||||||
Series 2017-2, Class A | 19 | 19,433 | ||||||
Series 2017-5, Class A2 | 315 | 317,311 | ||||||
SoFi Consumer Loan Program Trust | 435 | 439,113 | ||||||
Verizon Owner Trust | 67 | 66,570 | ||||||
|
| |||||||
842,427 | ||||||||
|
| |||||||
Total Asset-Backed Securities | 3,400,846 | |||||||
|
| |||||||
CORPORATES – NON-INVESTMENT | ||||||||
Industrial – 0.5% |
| |||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||
Ford Motor Credit Co. LLC | 325 | 324,724 | ||||||
|
| |||||||
Energy – 0.4% |
| |||||||
Western Midstream Operating LP | 945 | 945,945 | ||||||
|
| |||||||
Total Corporates – Non-Investment Grade | 1,270,669 | |||||||
|
|
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
SHORT-TERM INVESTMENTS – 13.2% | ||||||||
Investment Companies – 12.9% | ||||||||
AB Fixed Income Shares, Inc. – AB Government Money Market Portfolio – | 35,468,430 | $ | 35,468,430 | |||||
|
| |||||||
Principal Amount (000) | ||||||||
Short-Term Municipal Notes – 0.3% | ||||||||
New York – 0.3% | ||||||||
County of Erie | ||||||||
3.00%, 06/24/2021 | $ | 310 | 315,041 | |||||
New York State Dormitory Authority | ||||||||
5.00%, 03/31/2021 | 520 | 530,275 | �� | |||||
|
| |||||||
Total Short-Term Municipal Notes | 845,316 | |||||||
|
| |||||||
Total Short-Term Investments | 36,313,746 | |||||||
|
| |||||||
Total Investments – 98.8% | 270,827,686 | |||||||
Other assets less liabilities – 1.2% | 3,387,728 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 274,215,414 | ||||||
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note C)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Spread at October 31, | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
CDX-NAIG Series 35, 5 Year Index, 12/20/2025* | (1.00 | )% | Quarterly | 0.66 | % | USD 38,250 | $ | (701,995 | ) | $ | (825,949 | ) | $ | 123,954 |
* | Termination date |
26 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||||
Notional Amount | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
USD | 4,820 | 08/19/2025 | 0.34% | 3 Month LIBOR | | Semi-Annual/ Quarterly | | $ | 21,127 | $ | — | $ | 21,127 | |||||||||||||||
USD | 5,700 | 09/23/2025 | 0.34% | 3 Month LIBOR | | Semi-Annual/ Quarterly | | 27,364 | — | 27,364 | ||||||||||||||||||
USD | 13,140 | 03/16/2026 | 0.46% | 3 Month LIBOR | | Semi-Annual/ Quarterly | | 20,282 | — | 20,282 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 68,773 | $ | — | $ | 68,773 | |||||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note C)
Swap Counterparty & | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2020 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB-. Series 9, 09/17/2058* | (3.00 | )% | Monthly | 9.62 | % | USD | 105 | $ | 27,157 | $ | 3,528 | $ | 23,629 | |||||||||||||||||||
JPMorgan Securities, LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB-. Series 9, 09/17/2058* | (3.00 | ) | Monthly | 9.62 | USD | 1,560 | 403,598 | 136,628 | 266,970 | |||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 05/11/2063* | 2.00 | Monthly | 9.67 | USD | 2,500 | (311,888 | ) | 23,315 | (335,203 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 180 | (58,218 | ) | (17,342 | ) | (40,876 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 59 | (19,088 | ) | (7,927 | ) | (11,161 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 32 | (10,353 | ) | (3,131 | ) | (7,222 | ) | |||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 224 | (72,449 | ) | (22,146 | ) | (50,303 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 18 | (5,823 | ) | (1,777 | ) | (4,046 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 335 | (108,378 | ) | (32,269 | ) | (76,109 | ) | |||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 291 | (94,144 | ) | (27,208 | ) | (66,936 | ) | |||||||||||||||||||||
JPMorgan Securities, LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 25.00 | USD | 1,066 | (344,868 | ) | (159,021 | ) | (185,847 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (594,454 | ) | $ | (107,350 | ) | $ | (487,104 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 27 |
PORTFOLIO OF INVESTMENTS (continued)
* | Termination date |
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate market value of these securities amounted to $18,770,687 or 6.8% of net assets. |
(b) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2020. |
(c) | Affiliated investments. |
(d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
(e) | The rate shown represents the 7-day yield as of period end. |
Glossary:
ABS – Asset-Backed Securities
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
LIBOR – London Interbank Offered Rate
REIT – Real Estate Investment Trust
REMICs – Real Estate Mortgage Investment Conduits
See notes to financial statements.
28 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2020 (unaudited)
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $233,168,774) | $ | 235,359,256 | ||
Affiliated issuers (cost $35,468,430) | 35,468,430 | |||
Cash | 3,127 | |||
Cash collateral due from broker | 1,570,639 | |||
Interest receivable | 1,547,493 | |||
Receivable for investment securities sold | 707,908 | |||
Receivable for shares of beneficial interest sold | 508,282 | |||
Market value on credit default swaps (net premiums paid $163,471) | 430,755 | |||
Receivable for variation margin on centrally cleared swaps | 24,201 | |||
Receivable due from Adviser | 5,361 | |||
Affiliated dividends receivable | 932 | |||
|
| |||
Total assets | 275,626,384 | |||
|
| |||
Liabilities |
| |||
Market value on credit default swaps (net premiums received $270,821) | 1,025,209 | |||
Dividends payable | 321,025 | |||
Payable for shares of beneficial interest redeemed | 64,736 | |||
|
| |||
Total liabilities | 1,410,970 | |||
|
| |||
Net Assets | $ | 274,215,414 | ||
|
| |||
Composition of Net Assets |
| |||
Shares of beneficial interest, at par | $ | 274 | ||
Additional paid-in capital | 272,021,860 | |||
Distributable earnings | 2,193,280 | |||
|
| |||
$ | 274,215,414 | |||
|
| |||
Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 27,360,511 common shares outstanding) | $ | 10.02 | ||
|
|
See notes to financial statements.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 29 |
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (unaudited)
Investment Income |
| |||||||
Interest | $ | 1,942,137 | ||||||
Dividends—Affiliated issuers | 8,019 | |||||||
Other income(a) | 9,659 | |||||||
|
| |||||||
Total investment income | $ | 1,959,815 | ||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 923,761 | |||||||
Swaps | (270,568 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 1,884,465 | |||||||
Swaps | 332,161 | |||||||
|
| |||||||
Net gain on investment transactions | 2,869,819 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 4,829,634 | ||||||
|
|
(a) | Other income includes a reimbursement for investment in affiliated issuer (see Note B). |
See notes to financial statements.
30 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 1,959,815 | $ | 5,269,562 | ||||
Net realized gain on investment transactions | 653,193 | 1,362,084 | ||||||
Net change in unrealized appreciation/depreciation of investments | 2,216,626 | (912,238 | ) | |||||
|
|
|
| |||||
Net increase in net assets from operations | 4,829,634 | 5,719,408 | ||||||
Distribution to Shareholders | (2,000,984 | ) | (5,605,173 | ) | ||||
Transactions in Shares of Beneficial Interest | ||||||||
Net increase | 92,878,825 | 24,093,885 | ||||||
|
|
|
| |||||
Total increase | 95,707,475 | 24,208,120 | ||||||
Net Assets | ||||||||
Beginning of period | 178,507,939 | 154,299,819 | ||||||
|
|
|
| |||||
End of period | $ | 274,215,414 | $ | 178,507,939 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 31 |
NOTES TO FINANCIAL STATEMENTS
October 31, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Corporate Shares (the “Trust”) is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust, which is a Massachusetts Business Trust, operates as a “series” company currently offering five separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares, AB Taxable Multi-Sector Income Shares, AB Impact Municipal Income Shares and AB Tax-Aware Real Return Income Shares. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Taxable Multi-Sector Income Shares (the “Fund”).
Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. 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 Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
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 Trust’s Board of Trustees (the “Board”).
In general, the market values 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
32 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
the counter (“OTC”) market 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, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures 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 any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, 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. 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. Open-end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes 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 (including those valued based on their market values as described in Note A.1 above). 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 Fund. Unobservable inputs reflect the Fund’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 Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential
34 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates—Investment Grade | $ | – 0 | – | $ | 192,047,842 | $ | – 0 | – | $ | 192,047,842 | ||||||
Local Governments—US Municipal Bonds | – 0 | – | 28,944,840 | – 0 | – | 28,944,840 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 4,662,063 | – 0 | – | 4,662,063 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 4,187,680 | – 0 | – | 4,187,680 | ||||||||||
Asset-Backed Securities | – 0 | – | 3,400,846 | – 0 | – | 3,400,846 | ||||||||||
Corporates—Non-Investment Grade | – 0 | – | 1,270,669 | – 0 | – | 1,270,669 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 35,468,430 | – 0 | – | – 0 | – | 35,468,430 | ||||||||||
Short-Term Municipal Notes | – 0 | – | 845,316 | – 0 | – | 845,316 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 35,468,430 | 235,359,256 | – 0 | – | 270,827,686 | |||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 68,773 | – 0 | – | 68,773 | (b) | |||||||||
Credit Default Swaps | – 0 | – | 430,755 | – 0 | – | 430,755 | ||||||||||
Liabilities: | ||||||||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (701,995 | ) | – 0 | – | (701,995 | )(b) | ||||||||
Credit Default Swaps | – 0 | – | (1,025,209 | ) | – 0 | – | (1,025,209 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 35,468,430 | $ | 234,131,580 | $ | – 0 | – | $ | 269,600,010 | |||||||
|
|
|
|
|
|
|
|
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
3. Taxes
It is the Fund’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.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’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 Fund’s financial statements.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund 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 Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for distributions received from REIT investments or from regulated investment companies as dividend income, realized gain, or return of capital based on information provided by the REIT or the investment company.
5. 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 Advisory Agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating
36 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee is paid by their investment adviser to the Adviser. In certain cases, participants may have a direct relationship with the Adviser without the involvement of a third party investment adviser, in which case the participant would pay a fee directly to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The Advisory Agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.
The Fund has entered into a distribution agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.
AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of ..20% of the portfolio’s average daily net assets and bears its own expenses. The Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to reimburse its advisory fee from the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended October 31, 2020, such reimbursement amounted to $9,659.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of the Fund’s transactions in AB mutual funds for the six months ended October 31, 2020 is as follows:
Fund | Market Value 4/30/20 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 656 | $ | 140,099 | $ | 105,287 | $ | 35,468 | $ | 8 |
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximate 65% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
38 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2020 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 126,389,771 | $ | 65,160,441 | ||||
U.S. government securities | 19,666,843 | 18,486,498 |
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 3,354,319 | ||
Gross unrealized depreciation | (1,458,214 | ) | ||
|
| |||
Net unrealized appreciation | $ | 1,896,105 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust
40 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended October 31, 2020, the Fund held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 41 |
NOTES TO FINANCIAL STATEMENTS (continued)
in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation. In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty.
Credit default swaps may involve greater risks than if a Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended October 31, 2020, the Fund held credit default swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted
42 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
During the six months ended October 31, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 123,954 | * | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | | 68,773 | * | ||||||||
Credit contracts | Market value on credit default swaps | 430,755 | Market value on credit default swaps | $ | 1,025,209 | |||||||
|
|
|
| |||||||||
Total | $ | 623,482 | $ | 1,025,209 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | (66,179 | ) | $ | 108,254 | ||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (204,389 | ) | 223,907 | ||||||
|
|
|
| |||||||
Total | $ | (270,568) | $ | 332,161 | ||||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2020:
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 35,168,571 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 1,665,000 | ||
Average notional amount of sale contracts | $ | 4,705,000 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 34,500,000 |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
Citigroup Global Markets, Inc. | $ | 27,157 | $ | (27,157 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
JPMorgan Securities, LLC | 403,598 | (344,868 | ) | – 0 | – | – 0 | – | 58,730 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 430,755 | $ | (372,025 | ) | $ | – 0 | – | $ | – 0 | – | $ | 58,730 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
44 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivative Liabilities | |||||||||||||||
Citigroup Global Markets, Inc. | $ | 399,547 | $ | (27,157 | ) | $ | (358,000 | ) | $ | – 0 | – | $ | 14,390 | |||||||
Credit Suisse International | 186,650 | – 0 | – | – 0 | – | – 0 | – | 186,650 | ||||||||||||
Goldman Sachs International | 94,144 | – 0 | – | – 0 | – | – 0 | – | 94,144 | ||||||||||||
JPMorgan Securities, LLC | 344,868 | (344,868 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,025,209 | $ | (372,025 | ) | $ | (358,000 | ) | $ | – 0 | – | $ | 295,184 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund 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 Fund 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 Fund 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 Fund 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 D
Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Shares sold | 11,007,847 | 27,279,165 | $ | 109,755,113 | $ | 270,823,547 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,690,938 | ) | (24,944,045 | ) | (16,876,288 | ) | (246,729,662 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 9,316,909 | 2,335,120 | $ | 92,878,825 | $ | 24,093,885 | ||||||||||||||||||
|
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline,
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During periods of very low or negative interest rates, the Fund’s returns may be adversely affected
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
46 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Mortgage-Related and/or Other Asset-Backed Securities Risk—Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by non-governmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the U.S. federal income tax treatment of certain types of municipal securities
Sector Risk—The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information technology sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
Derivatives Risk—The Fund 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 Fund, 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 on the statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or
48 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 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 Adviser. The Fund did not utilize the Facility during the six months ended October 31, 2020.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 49 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
Distributions to Shareholders
The tax character of distributions to be paid for the year ending April 30, 2021 will be determined at the end of the current fiscal year.
The tax character of distributions paid during the fiscal years ended April 30, 2020 and April 30, 2019 were as follows:
2020 | 2019 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 5,605,173 | $ | 3,965,321 | ||||
|
|
|
| |||||
Total distributions paid | $ | 5,605,173 | $ | 3,965,321 | ||||
|
|
|
|
As of April 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital and other losses | $ | (231,628 | )(a) | |
Other losses | (225,401 | )(b) | ||
Unrealized appreciation/(depreciation) | 248,787 | (c) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (208,242 | )(d) | |
|
|
(a) | As of April 30, 2020, the Fund had a net capital loss carryforward of $231,628. During the fiscal year, the Fund utilized $920,684 of capital loss carry forwards to offset current year net realized gains. |
(b) | As of April 30, 2020 the Fund had a qualified late-year ordinary loss deferral of $225,401. |
(c) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the the tax treatment of swaps. |
(d) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward realized capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30,2020, the Fund had a net short-term capital loss carryforward of $231,628, which may be carried forward for an indefinite period.
NOTE H
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 Fund’s financial statements through this date.
50 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
Six Months (unaudited) | Year Ended April 30, | |||||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 9.89 | $ 9.82 | $ 9.70 | $ 9.84 | $ 9.91 | $ 9.97 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .08 | .24 | .25 | .20 | .17 | .14 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | .14 | .09 | .13 | (.14 | ) | (.01 | ) | (.02 | )† | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase in net asset value from operations | .22 | .33 | .38 | .06 | .16 | .12 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.26 | ) | (.26 | ) | (.20 | ) | (.23 | ) | (.18 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.02 | $ 9.89 | $ 9.82 | $ 9.70 | $ 9.84 | $ 9.91 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(b) | 2.19 | % | 3.43 | % | 4.00 | % | .65 | % | 1.48 | % | 1.26 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $274,215 | $178,508 | $154,300 | $129,628 | $74,327 | $307,233 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses | 0 | % | .01 | %(c) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||||||
Net investment income | 1.63 | %^ | 2.47 | % | 2.62 | % | 2.05 | % | 1.67 | % | 1.44 | % | ||||||||||||
Portfolio turnover rate | 39 | % | 124 | % | 45 | % | 81 | % | 85 | % | 109 | % |
(a) | Based on average shares outstanding. |
(b) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
(c) | The expense ratio, excluding bank overdraft expense is .00%. |
† | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accordance with the Fund’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
^ | Annualized. |
See notes to financial statements.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 51 |
BOARD OF TRUSTEES
Marshall C. Turner, Jr(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Scott A. DiMaggio(2), Vice President Shawn E. Keegan(2), Vice President Douglas J. Peebles(2),* Senior Vice President Emilie D. Wrapp, Secretary | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company
Principal Underwriter AllianceBernstein Investments, Inc.
Transfer Agent AllianceBernstein Investor Services, Inc. | Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004
Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 |
1 | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the Adviser’s Core Fixed-Income Team. Messrs. DiMaggio, Keegan and Peebles are the investment professionals primarily responsible for the day-to-day management of the Fund’s portfolio. |
* | Mr. Peebles is expected to retire from the Adviser effective December 30, 2020. |
52 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 53 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested trustees (the “directors”) of AB Corporate Shares (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Taxable Multi-Sector Income Shares (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).*
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors noted that the Fund is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The directors also noted that no advisory fee is payable by the Fund, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Fund’s ordinary expenses. The directors noted that the Company acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The directors further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Fund as an investment vehicle for their clients.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the underlying fund advised by the Adviser in which the Fund invests.
* | Following transactions completed on November 13, 2019 that may have been deemed to have been an “assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
54 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2017 and 2018 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 55 |
expenses. The directors noted that the Fund was not profitable to the Adviser in the periods reviewed.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the underlying fund advised by the Adviser in which the Fund invests. The directors noted that the Adviser is compensated by the Sponsors. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing the Fund’s performance against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended July 31, 2019 and (in the case of comparisons with the broad-based securities market index) for the period from inception. The directors were cognizant that the Fund was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Fund. At the directors’ request, the Adviser provided information showing the weighting of the Fund in a current SMA and the overall performance of the SMA versus its stated benchmark. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees
The directors considered the advisory fee rate payable by the Fund to the Adviser (zero) and information provided by the 15(c) service provider showing the fees payable by other fund families used in wrap fee programs similar to that of the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds.
The directors noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Fund. The directors reviewed the fee arrangements between the Adviser and each of
56 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
the current Sponsors and noted that such fees were negotiated on an arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the directors acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Fund paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Fund (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to Fund management at the Fund level is the same for all Sponsors. The directors also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to those of the Fund, on the other. The directors recognized that such information was of limited utility in light of the Fund’s unusual fee arrangement. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors previously discussed these matters with an independent fee consultant. The directors also compared the advisory fee rate for the Fund with that for another fund advised by the Adviser utilizing similar investment strategies.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 57 |
substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the Fund, and the different risk profile, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors did not consider comparative expense information for the Fund because the Fund does not bear ordinary expenses.
Economies of Scale
The directors did not consider the extent to which fee levels in the Advisory Agreement for the Fund reflect economies of scale because the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Fund and the Fund’s expense ratio is zero. They did note, however, that the fee payable to the Adviser by the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.
58 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
abfunds.com | AB TAXABLE MULTI-SECTOR INCOME SHARES | 59 |
NOTES
60 | AB TAXABLE MULTI-SECTOR INCOME SHARES | abfunds.com |
AB TAXABLE MULTI-SECTOR INCOME SHARES
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
TMSIS-0152-1020
OCT 10.31.20
SEMI-ANNUAL REPORT
AB TAX-AWARE REAL RETURN INCOME SHARES
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
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 AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT | ![]() |
Dear Shareholder,
We are pleased to provide this report for AB Tax-Aware Real Return Income Shares (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 1 |
SEMI-ANNUAL REPORT
December 17, 2020
This report provides management’s discussion of fund performance for AB Tax-Aware Real Return Income Shares for the semi-annual reporting period ended October 31, 2020. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by the Adviser.
The Fund commenced investment operations on May 2, 2011 and continued operations through March 20, 2014, the date on which all shares of the Fund were redeemed. Between March 20, 2014 and November 12, 2019, the Fund did not conduct investment operations. The Fund resumed investment operations on November 13, 2019. The performance information shown is only for the current activation period. Because the Fund has had periods in which it was not conducting investment operations, its performance is not comparable to the performance of other mutual funds.
The investment objective of the Fund is to maximize real after-tax return for investors subject to federal income taxation.
NAV RETURNS AS OF OCTOBER 31, 2020 (unaudited)
6 Months | Since Inception1 | |||||||
AB TAX-AWARE REAL RETURN INCOME SHARES | 15.69% | 3.62% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | 3.81% | 7.22% |
1 | Current activation date: 11/12/2019. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays 1-10 Year Treasury Inflation Protected Securities (“TIPS”) Index, for the six-month period and period since the Fund’s inception on November 12, 2019, through October 31, 2020.
The Fund outperformed the benchmark for the six-month period but underperformed since inception. The Fund invests primarily in municipal bonds and uses tax-efficient hedges for inflation protection. Over both periods, the Fund’s lower-than-benchmark interest-rate risk detracted, relative to the benchmark, as rates fell. An overweight to tax-exempt bonds versus taxable bonds added to performance over both periods. An overweight to municipal credit detracted since inception but contributed for the six-month period. The use of consumer price index (“CPI”) swaps, a more tax-efficient way of achieving inflation protection, detracted from returns over both periods. Being overweight inflation risk was neutral for returns since inception and added over the six-month period.
2 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
The Fund utilized derivatives for hedging purposes in the form of interest rate swaps, which had no material impact on performance for the six-month period but added to absolute performance for the since-inception period; CPI swaps added for the six-month period but detracted for the since-inception period; total return swaps had no material impact on performance for either period.
MARKET REVIEW AND INVESTMENT STRATEGY
Despite record volatility across most financial markets as the COVID-19 pandemic developed last spring, municipal performance was positive over both the six-month and since-inception periods ended October 31, 2020. Following the onset of the virus, the US economy quickly contracted; however, according to the Federal Reserve Bank of New York, the US economy stopped contracting in early May, and began a steady recovery through the rest of the summer. With respect to monetary policy, the US Federal Reserve (“the Fed”) Board of Governors stated that short-term interest rates were likely to be held at current low levels for the next few years. Consistent with the improving economy and steady monetary policy, municipals have continued to perform well following the sharp sell-off in March.
While outflows from open-end municipal bond funds and a general lack of liquidity across most markets sparked the sell-off in March, these themes have since largely abated, as investors have taken comfort in the significant federal support provided to state and local governments. On the monetary side, the Fed established the Municipal Liquidity Facility, which can purchase as much as $500 billion in short-term notes directly from municipalities, helping alleviate near-term liquidity concerns for eligible municipalities. The fiscal side brought issuers additional support in the form of the CARES Act, which included $150 billion to state and local governments, $120 billion to hospitals, $31 billion for education, $25 billion for transportation and $10 billion to airports.
The Fund’s Senior Investment Management Team (the “Team”) continues to focus on real after-tax return by investing in municipal bonds that generate income exempt from federal income taxes. In seeking to manage volatility and interest-rate risk, the Team focuses on intermediate-term bonds and seeks to provide inflation protection by entering inflation swap agreements or investing in other inflation-protected instruments.
INVESTMENT POLICIES
The Fund seeks real after-tax return for investors who are subject to federal income taxes. Real return is the rate of return after adjusting for inflation. The Fund pursues its objective by investing primarily in municipal securities that pay interest exempt from federal taxation and by using inflation protection derivatives instruments. Municipal securities may pay interest that is subject to the federal alternative minimum tax for certain taxpayers.
(continued on next page)
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 3 |
The Fund may invest in fixed-income securities with any maturity or duration. The Fund may also invest without limit in fixed-income securities that are rated below investment grade (commonly known as “junk bonds”).
The Adviser selects securities for purchase or sale based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.
The Fund may make significant use of derivatives, including swaps, futures, options and forwards. To provide inflation protection, the Fund will enter into various kinds of inflation swap agreements. The Fund may use other inflation-protected instruments. Payments to the Fund pursuant to swaps will result in taxable income, either ordinary income or capital gains, rather than income exempt from federal taxation. The Fund may at times seek a substantial amount of inflation protection and, consequently, may generate substantial taxable income. It is expected that the Fund’s primary use of derivatives will be for the purposes of inflation protection.
The Fund may also invest in: forward commitments; zero-coupon municipal securities and variable, floating and inverse floating rate municipal securities; and certain types of mortgage-related securities.
The Fund may utilize leverage for investment purposes through the use of tender option bond transactions (“TOBs”). The Adviser will consider the impact of TOBs, swaps and other derivatives in making its assessments of the Fund’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
4 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays 1-10 Year TIPS Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays 1-10 Year TIPS Index represents the performance of US Treasury inflation-indexed securities with maturities between one and ten years. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and any accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments and negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 5 |
DISCLOSURES AND RISKS (continued)
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the US federal income tax treatment of certain types of municipal securities.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
6 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
DISCLOSURES AND RISKS (continued)
Leverage Risk: To the extent the Fund uses leveraging techniques, such as TOBs, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.
Illiquid Investments Risk: Illiquid investments risk exists when particular investments, such as lower-rated securities, are or become difficult to purchase or sell, possibly preventing the Fund from selling such investments at an advantageous price. The Fund is subject to illiquid investments risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk than most other types of investments.
Management Risk: The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227 4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes. The Fund has been in operation only for a short period of time, and therefore has a very limited historical performance period. This limited performance period is unlikely to be representative of the performance the Portfolio will achieve over a longer period.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 7 |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2020 (unaudited)
NAV Returns | ||||
Since Inception1 | 3.62% |
AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2020 (unaudited)
NAV Returns | ||||
Since Inception1 | 3.52% |
The prospectus fee table shows the fees and the total operating expenses of the Fund as 0.01% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.
1 | Current activation date: 11/12/2019. |
8 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. 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, 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 under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example 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 May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Actual | $ | 1,000 | $ | 1,156.90 | $ | – 0 | – | 0.00 | % | |||||||
Hypothetical** | $ | 1,000 | $ | 1,025.21 | $ | – 0 | – | 0.00 | % |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates. |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 9 |
PORTFOLIO SUMMARY
October 31, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $20.4
1 | All data are as of October 31, 2020. The Fund’s quality rating breakdown is expressed as a percentage of the Fund’s total investments in municipal securities and may vary over time. The quality ratings are determined by using the S&P Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the pre-refunded category includes bonds which are secured by U.S. Government securities and therefore are deemed high-quality investment-grade by the Adviser. If applicable, Not Applicable (N/A) includes non-creditworthy investments, such as equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a nationally recognized statistical rating organization. The Adviser evaluates the creditworthiness of non-rated securities based on a number of factors including, but not limited to, cash flows, enterprise value and economic environment. |
10 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS
October 31, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 79.8% |
| |||||||
Long-Term Municipal Bonds – 79.8% |
| |||||||
Alabama – 3.3% |
| |||||||
Lower Alabama Gas District (The) | $ | 580 | $ | 662,975 | ||||
|
| |||||||
Alaska – 2.5% |
| |||||||
Alaska Industrial Development & Export Authority | 445 | 510,597 | ||||||
|
| |||||||
Arizona – 1.6% |
| |||||||
City of Phoenix Civic Improvement Corp. | 275 | 334,043 | ||||||
|
| |||||||
Colorado – 3.3% |
| |||||||
Weld County School District No. RE-2 Eaton | 530 | 679,491 | ||||||
|
| |||||||
Connecticut – 10.2% |
| |||||||
City of New Haven | 70 | 81,649 | ||||||
Connecticut State Health & Educational Facilities Authority | 515 | 644,219 | ||||||
Connecticut State Health & Educational Facilities Authority | 1,055 | 1,076,807 | ||||||
State of Connecticut | 215 | 280,755 | ||||||
|
| |||||||
2,083,430 | ||||||||
|
| |||||||
Delaware – 4.3% |
| |||||||
State of Delaware | 850 | 880,736 | ||||||
|
| |||||||
District of Columbia – 3.1% |
| |||||||
District of Columbia | 490 | 640,817 | ||||||
|
|
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 11 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Florida – 2.0% |
| |||||||
Capital Projects Finance Authority/FL | $ | 250 | $ | 279,835 | ||||
Greater Orlando Aviation Authority | 95 | 117,804 | ||||||
|
| |||||||
397,639 | ||||||||
|
| |||||||
Illinois – 6.2% |
| |||||||
Illinois Finance Authority | 100 | 111,947 | ||||||
Sales Tax Securitization Corp. | 270 | 315,965 | ||||||
State of Illinois | 175 | 189,808 | ||||||
Series 2018A | 295 | 321,827 | ||||||
Series 2019A | 290 | 316,431 | ||||||
|
| |||||||
1,255,978 | ||||||||
|
| |||||||
Kentucky – 7.0% |
| |||||||
City of Ashland KY | 100 | 116,347 | ||||||
Kentucky Public Energy Authority | 570 | 665,179 | ||||||
Louisville/Jefferson County Metropolitan Government | 575 | 647,082 | ||||||
|
| |||||||
1,428,608 | ||||||||
|
| |||||||
Louisiana – 0.5% |
| |||||||
Parish of St. James LA | 100 | 109,062 | ||||||
|
| |||||||
Michigan – 1.5% |
| |||||||
Michigan Finance Authority | 100 | 104,319 |
12 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Michigan State University | $ | 160 | $ | 206,160 | ||||
|
| |||||||
310,479 | ||||||||
|
| |||||||
Missouri – 1.2% |
| |||||||
Missouri Highway & Transportation Commission | 225 | 235,631 | ||||||
|
| |||||||
New Jersey – 1.9% |
| |||||||
New Jersey Transportation Trust Fund Authority | 330 | 387,239 | ||||||
|
| |||||||
New York – 6.6% |
| |||||||
Metropolitan Transportation Authority | 260 | 266,737 | ||||||
Series 2012F | 265 | 271,866 | ||||||
New York City Transitional Finance Authority Future Tax Secured Revenue | 200 | 252,612 | ||||||
New York Liberty Development Corp. | 210 | 200,304 | ||||||
New York State Urban Development Corp. | 355 | 361,120 | ||||||
|
| |||||||
1,352,639 | ||||||||
|
| |||||||
North Carolina – 2.0% |
| |||||||
Raleigh Durham Airport Authority | 340 | 416,605 | ||||||
|
| |||||||
Ohio – 6.3% |
| |||||||
Buckeye Tobacco Settlement Financing Authority | 495 | 637,688 | ||||||
State of Ohio | 545 | 646,888 | ||||||
|
| |||||||
1,284,576 | ||||||||
|
|
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Other – 0.5% |
| |||||||
Federal Home Loan Mortgage Corp. Multifamily VRD Certificates | $ | 100 | $ | 108,406 | ||||
|
| |||||||
Pennsylvania – 8.5% |
| |||||||
City of Philadelphia PA | 155 | 199,997 | ||||||
Commonwealth Financing Authority | 120 | 143,497 | ||||||
Lower Merion School District | 710 | 790,457 | ||||||
Pennsylvania Turnpike Commission | 575 | 603,991 | ||||||
|
| |||||||
1,737,942 | ||||||||
|
| |||||||
Texas – 1.0% |
| |||||||
City of Houston TX Airport System Revenue | 100 | 102,265 | ||||||
Port Beaumont Navigation District | 100 | 98,524 | ||||||
|
| |||||||
200,789 | ||||||||
|
| |||||||
Virginia – 1.2% | ||||||||
Virginia College Building Authority | 190 | 235,108 | ||||||
|
| |||||||
Washington – 0.9% | ||||||||
City of Seattle WA Municipal Light & Power Revenue | 165 | 186,952 | ||||||
|
| |||||||
West Virginia – 3.2% | ||||||||
State of West Virginia | 515 | 659,689 | ||||||
|
|
14 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Wisconsin – 1.0% | ||||||||
UMA Education, Inc. | $ | 50 | $ | 53,022 | ||||
Wisconsin Public Finance Authority | 140 | 152,989 | ||||||
|
| |||||||
206,011 | ||||||||
|
| |||||||
Total Municipal Obligations | 16,305,442 | |||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 11.1% | ||||||||
Investment Companies – 11.1% | ||||||||
AB Fixed Income Shares, Inc. – AB Government Money Market Portfolio – Class AB, | 2,275,789 | 2,275,789 | ||||||
|
| |||||||
Total Investments – 90.9% | 18,581,231 | |||||||
Other assets less liabilities – 9.1% | 1,857,096 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 20,438,327 | ||||||
|
|
CENTRALLY CLEARED INFLATION (CPI) SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 4,000 | 12/24/2021 | 1.753% | CPI# | Maturity | $ | (42,818 | ) | $ | — | $ | (42,818 | ) | |||||||||||||
USD | 3,000 | 02/10/2023 | 1.558% | CPI# | Maturity | (22,169 | ) | — | (22,169 | ) | ||||||||||||||||
USD | 2,500 | 12/24/2024 | 1.846% | CPI# | Maturity | (33,299 | ) | — | (33,299 | ) | ||||||||||||||||
USD | 2,000 | 02/10/2027 | 1.755% | CPI# | Maturity | (4,960 | ) | — | (4,960 | ) | ||||||||||||||||
USD | 2,600 | 12/24/2029 | 1.978% | CPI# | Maturity | (30,241 | ) | — | (30,241 | ) | ||||||||||||||||
USD | 1,000 | 02/10/2035 | 1.914% | CPI# | Maturity | 9,713 | — | 9,713 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | (123,774 | ) | $ | — | $ | (123,774 | ) | |||||||||||||||||||
|
|
|
|
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 15 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||
USD | 5,800 | 11/25/2021 | 1.585% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | $ | (122,238 | ) | $ | — | $ | (122,238 | ) | |||||||||||||||
USD | 5,300 | 01/23/2023 | 1.672% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | (192,331 | ) | — | (192,331 | ) | ||||||||||||||||||
USD | 14,400 | 11/29/2024 | 1.538% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | (777,474 | ) | — | (777,474 | ) | ||||||||||||||||||
USD | 4,700 | 11/25/2026 | 1.581% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | (321,804 | ) | — | (321,804 | ) | ||||||||||||||||||
USD | 3,500 | 01/23/2031 | 1.890% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | (366,017 | ) | — | (366,017 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
$ | (1,779,864 | ) | $ | — | $ | (1,779,864 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
TOTAL RETURN SWAPS (see Note C)
Counterparty & Referenced Obligation | Rate Paid/ Received | Payment Frequency | Current Notional (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||||||
Barclays Bank PLC |
| |||||||||||||||||||||||
Barclays Capital US Inflation Linked Bonds 1 to 10 Year | | 3 Month LIBOR Plus 0.25% | | Maturity | USD | 8,901 | 12/23/2020 | $ | 506,732 | |||||||||||||||
Barclays Capital US Inflation Linked Bonds 1 to 10 Year | | 3 Month LIBOR Plus 0.25% | | Maturity | USD | 14,572 | 12/29/2020 | 835,699 | ||||||||||||||||
Barclays Capital US Inflation Linked Bonds 1 to 10 Year | | 3 Month LIBOR Plus 0.25% | | Maturity | USD | 8,967 | 01/23/2021 | 492,493 | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | 1,834,924 | |||||||||||||||||||||||
|
|
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate market value of these securities amounted to $522,003 or 2.6% of net assets. |
(b) | Affiliated investments. |
(c) | The rate shown represents the 7-day yield as of period end. |
(d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
As of October 31, 2020, the Fund’s percentages of investments in municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity are 0.0% and 0.0%, respectively.
Glossary:
CPI – Consumer Price Index
LIBOR – London Interbank Offered Rate
See notes to financial statements.
16 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2020 (unaudited)
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $16,170,768) | $ | 16,305,442 | ||
Affiliated issuers (cost $2,275,789) | 2,275,789 | |||
Cash | 2,758 | |||
Cash collateral due from broker | 1,039,641 | |||
Unrealized appreciation on total return swaps | 1,834,924 | |||
Interest receivable | 212,753 | |||
Receivable for shares of beneficial interest sold | 9,986 | |||
Receivable for variation margin on centrally cleared swaps | 5,310 | |||
Receivable due from Adviser | 387 | |||
Affiliated dividends receivable | 69 | |||
|
| |||
Total assets | 21,687,059 | |||
|
| |||
Liabilities |
| |||
Cash collateral due to broker | 1,220,000 | |||
Payable for shares of beneficial interest redeemed | 28,732 | |||
|
| |||
Total liabilities | 1,248,732 | |||
|
| |||
Net Assets | $ | 20,438,327 | ||
|
| |||
Composition of Net Assets |
| |||
Shares of beneficial interest, at par | $ | 20 | ||
Additional paid-in capital | 20,131,360 | |||
Distributable earnings | 306,947 | |||
|
| |||
$ | 20,438,327 | |||
|
| |||
Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 1,975,152 common shares outstanding) | $ | 10.35 | ||
|
|
See notes to financial statements.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 17 |
STATEMENT OF OPERATIONS
Six Months Ended October 31, 2020 (unaudited)
Investment Income | ||||||||
Interest | $ | 154,980 | ||||||
Dividends—Affiliated issuers | 412 | |||||||
Other income(a) | 556 | |||||||
|
| |||||||
Total investment income | $ | 155,948 | ||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized loss on: | ||||||||
Investment transactions | (31,031 | ) | ||||||
Swaps | (116,952 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 912,128 | |||||||
Swaps | 1,882,770 | |||||||
|
| |||||||
Net gain on investment transactions | 2,646,915 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 2,802,863 | ||||||
|
|
(a) | Other income includes a reimbursement for investment in affiliated issuer (see Note B). |
See notes to financial statements.
18 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended October 31, 2020 (unaudited) | November 12, 2019(a) to April 30, 2020 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 155,948 | $ | 136,348 | ||||
Net realized gain (loss) on investment transactions | (147,983 | ) | 111,323 | |||||
Net change in unrealized appreciation/depreciation of investments | 2,794,898 | (2,728,938 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 2,802,863 | (2,481,267 | ) | |||||
Distribution to Shareholders | (7,898 | ) | (7,743 | ) | ||||
Transactions in Shares of Beneficial Interest | ||||||||
Net increase (decrease) | (1,116,824 | ) | 21,249,196 | |||||
|
|
|
| |||||
Total increase | 1,678,141 | 18,760,186 | ||||||
Net Assets | ||||||||
Beginning of period | 18,760,186 | – 0 | – | |||||
|
|
|
| |||||
End of period | $ | 20,438,327 | $ | 18,760,186 | ||||
|
|
|
|
(a) | Commencement of operations. |
See notes to financial statements.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 19 |
NOTES TO FINANCIAL STATEMENTS
October 31, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Corporate Shares (the “Trust”) is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust, which is a Massachusetts Business Trust, operates as a “series” company currently offering five separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares, AB Taxable Multi-Sector Income Shares, AB Impact Municipal Income Shares and AB Tax-Aware Real Return Income Shares. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Tax-Aware Real Return Income Shares (the “Fund”). The Fund commenced investment operations on May 2, 2011 and continued operations through March 20, 2014, the date on which all shares of the Fund were redeemed. Between March 20, 2014 and November 12, 2019, the Fund did not conduct investment operations. The Fund resumed investment operations on November 12, 2019.
Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. 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 Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
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 Trust’s Board of Trustees (the “Board”).
In general, the market values 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
20 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 (“OTC”) market 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, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures 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 any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, 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. 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. Open-end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 21 |
NOTES TO FINANCIAL STATEMENTS (continued)
occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values 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 Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes 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 (including those valued based on their market values as described in Note A.1 above). 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 Fund. Unobservable inputs reflect the Fund’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 Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available,
22 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
| |||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 16,305,442 | $ | – 0 | – | $ | 16,305,442 | ||||||
Short-Term Investments | 2,275,789 | – 0 | – | – 0 | – | 2,275,789 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 2,275,789 | 16,305,442 | – 0 | – | 18,581,231 | |||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: |
| |||||||||||||||
Centrally Cleared Inflation (CPI) Swaps | – 0 | – | 9,713 | – 0 | – | 9,713 | (b) | |||||||||
Total Return Swaps | – 0 | – | 1,834,924 | – 0 | – | 1,834,924 | ||||||||||
Liabilities: |
| |||||||||||||||
Centrally Cleared Inflation (CPI) Swaps | – 0 | – | (133,487 | ) | – 0 | – | (133,487 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (1,779,864 | ) | – 0 | – | (1,779,864 | )(b) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 2,275,789 | $ | 16,236,728 | $ | – 0 | – | $ | 18,512,517 | |||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
3. Taxes
It is the Fund’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.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current tax year) and has concluded that no provision for income tax is required in the Fund’s financial statements.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 23 |
NOTES TO FINANCIAL STATEMENTS (continued)
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund 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 Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for distributions received from REIT investments or from regulated investment companies as dividend income, realized gain, or return of capital based on information provided by the REIT or the investment company.
5. 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 Advisory Agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee is paid by their investment adviser to the Adviser. In certain cases, participants may have a direct relationship with the Adviser without the involvement of a third party investment adviser, in which case the participant would pay a fee directly to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The Advisory Agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.
The Fund has entered into a distribution agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.
24 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of ..20% of the portfolio’s average daily net assets and bears its own expenses. The Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to reimburse its advisory fee from the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended October 31, 2020, such reimbursement amounted to $556.
A summary of the Fund’s transactions in AB mutual funds for the six months ended October 31, 2020 is as follows:
Fund | Market Value 4/30/20 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 789 | $ | 5,493 | $ | 4,006 | $ | 2,276 | $ | 0 | * |
* | Amount is less than $500. |
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximate 65% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 25 |
NOTES TO FINANCIAL STATEMENTS (continued)
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2020 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 643,410 | $ | 444,904 | ||||
U.S. government securities | – 0 | – | – 0 | – |
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 2,110,745 | ||
Gross unrealized depreciation | (2,044,785 | ) | ||
|
| |||
Net unrealized appreciation | $ | 65,960 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets or currencies. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In
26 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 27 |
NOTES TO FINANCIAL STATEMENTS (continued)
agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended October 31, 2020, the Fund held interest rate swaps for hedging purposes.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
28 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended October 31, 2020, the Fund held inflation (CPI) swaps for hedging purposes.
Total Return Swaps:
The Fund may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty.
During the six months ended October 31, 2020, the Fund held total return swaps for hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended October 31, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 9,713 | * | Receivable/Payable for variation margin on centrally cleared swaps | $ | 1,913,351 | * | ||||
Equity contracts | Unrealized appreciation on total return swaps | 1,834,924 | ||||||||||
|
|
|
| |||||||||
Total | $ | 1,844,637 | $ | 1,913,351 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | 109,805 | $ | 2,594,741 | |||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (226,757 | ) | (711,971 | ) | |||||
|
|
|
| |||||||
Total | $ | (116,952 | ) | $ | 1,882,770 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2020:
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 33,700,000 | ||
Centrally Cleared Inflation Swaps: | ||||
Average notional amount | $ | 15,100,000 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 30,300,000 |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
30 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
Barclays Bank PLC | $ | 1,834,924 | $ | – 0 | – | $ | (1,220,000 | ) | $ | (614,924 | ) | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,834,924 | $ | – 0 | – | $ | (1,220,000 | ) | $ | (614,924 | ) | $ | 0 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
NOTE D
Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | Six Months Ended October 31, 2020 (unaudited) | Year Ended April 30, 2020 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Shares sold | 157,076 | 2,550,264 | $ | 1,583,168 | $ | 25,272,794 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (277,153 | ) | (455,035 | ) | (2,699,992 | ) | (4,023,598 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (120,077 | ) | 2,095,229 | $ | (1,116,824 | ) | $ | 21,249,196 | ||||||||||||||||
|
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations. Very low or negative interest rates could magnify the risks associated with changes in interest rates. During the periods of very low or negative interest rates, the Fund’s returns may be adversely affected.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments and negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, public health crises, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism, public health crises (including the occurrence of a contagious disease or illness) and catastrophic natural disasters, such as hurricanes, fires or earthquakes. For example, the novel coronavirus (COVID-19) pandemic has significantly stressed the financial resources of many issuers of municipal securities, which could impair any
32 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
such issuer’s ability to meet its financial obligations when due and adversely impact the value of its securities held by the Fund. As the full effects of the COVID-19 pandemic on state and local economies and on issuers of municipal securities are still uncertain, the financial difficulties of issuers of municipal securities may continue or worsen, adversely affecting the performance of the Fund. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
Congress has previously considered making changes to the municipal securities provisions of the Internal Revenue Code that could change the U.S. federal income tax treatment of certain types of municipal securities
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Derivatives Risk—The Fund 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 Fund, 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 on the statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Illiquid Investments Risk— Illiquid investments risk exists when particular investments, such as lower-rated securities, are or become difficult to purchase or sell, possibly preventing the Fund from selling such investments at an advantageous price. The Fund is subject to illiquid investments risk
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater illiquid investments risk than most other types of investments.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
34 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Management Risk—The Fund 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, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 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 Fund did not utilize the Facility during the six months ended October 31, 2020.
NOTE G
Distributions to Shareholders
The tax character of distributions to be paid for the year ending April 30, 2021 will be determined at the end of the current fiscal year.
The tax character of distributions paid during the period ended April 30, 2020 was as follows:
2020 | ||||
Distributions paid from: | ||||
Ordinary income | $ | – 0 | – | |
|
| |||
Total taxable distributions | – 0 | – | ||
Tax-exempt distributions | 7,743 | |||
|
| |||
Total distributions paid | $ | 7,743 | ||
|
|
As of April 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 81,682 | ||
Undistributed tax-exempt income | 84,477 | |||
Accumulated capital and other losses | (50,198 | )(a) | ||
Unrealized appreciation/(depreciation) | (2,603,734 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (2,487,773 | )(c) | |
|
|
(a) | As of April 30, 2020, the Fund had a net capital loss carryforward of $50,198. |
(b) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax treatment of swaps. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable. |
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward realized capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30, 2020, the Fund had a net short-term capital loss carryforward of $50,198, which may be carried forward for an indefinite period.
NOTE H
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 Fund’s financial statements through this date.
36 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period
Six Months Ended October 31, 2020 | November 12, 2020 | |||||||
|
| |||||||
Net asset value, beginning of period | $ 8.95 | $ 10.00 | ||||||
|
| |||||||
Income From Investment Operations |
| |||||||
Net investment income(b) | .08 | .07 | ||||||
Net realized and unrealized gain (loss) on investment transactions | 1.32 | (1.11 | ) | |||||
|
| |||||||
Net increase (decrease) in net asset value from operations | 1.40 | (1.04 | ) | |||||
|
| |||||||
Less: Dividends |
| |||||||
Dividends from net investment income | (.00 | )(c) | (.01 | ) | ||||
|
| |||||||
Net asset value, end of period | $ 10.35 | $ 8.95 | ||||||
|
| |||||||
Total Return |
| |||||||
Total investment return based on net asset value(d) | 15.69 | % | (10.43 | )% | ||||
Ratios/Supplemental Data |
| |||||||
Net assets, end of period (000’s omitted) | $20,438 | $18,760 | ||||||
Ratio to average net assets of: |
| |||||||
Expenses^ | .00 | % | .01 | %(e) | ||||
Net investment income^ | 1.56 | % | 1.55 | % | ||||
Portfolio turnover rate | 3 | % | 10 | % |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | The expense ratios, excluding bank overdraft expense, is .00%. |
^ | Annualized. |
See notes to financial statements.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 37 |
BOARD OF TRUSTEES
Marshall C. Turner, Jr.(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS
R.B. (Guy) Davidson III(2)^, Vice President Terrance T. Hults(2), Vice President Matthew J. Norton(2), Vice President Andrew D. Potter(2), Vice President | Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company
Principal Underwriter AllianceBernstein Investments, Inc.
Transfer Agent AllianceBernstein Investor Services, | Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004
Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 |
1 | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the Adviser’s Municipal Bond Investment Team. Messrs. Davidson, Hults, Norton and Potter are the investment professionals primarily responsible for the day-to-day management of the Fund’s portfolio. |
^ | Mr. Davidson is expected to retire from the Adviser effective December 30, 2020. |
38 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 39 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested trustees (the “directors”) of AB Corporate Shares (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Tax-Aware Real Return Income Shares (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).*
Prior to approval of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors noted that the Fund is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The directors also noted that no advisory fee is payable by the Fund to the Adviser, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Fund’s ordinary expenses. The directors noted that the Company acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided to the Fund under the Advisory Agreement. The directors further noted that the Adviser would receive payments from the wrap fee program sponsors (the “Sponsors”) that use the Fund as an investment vehicle for their clients.
The directors considered their knowledge of the nature and quality of the services to be provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the AB Funds.
* | Following transactions completed on November 13, 2019 that may have been deemed to have been an “assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
40 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services to be performed, expenses to be incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services To Be Provided
The directors considered the scope and quality of services to be provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the AB Funds. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Fund under the Advisory Agreement.
Costs of Services To Be Provided and Profitability
Because the Fund had not yet commenced operations, the directors were unable to consider historical information about the profitability of the Fund. However, the Adviser agreed to provide the directors with profitability information in connection with future proposed continuances of the Advisory Agreement. They also considered the costs to be borne by the Adviser in providing services to the Fund and that the Fund was unlikely to be profitable to the Adviser unless it achieves a material level of net assets.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund. The directors noted that the Adviser would be compensated by the Sponsors. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
Since the Fund had not yet commenced operations, no performance or other historical information for the Fund was available. The Adviser
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 41 |
manages another fund with an investment strategy similar to that proposed for the Fund, and, at the Meeting, the directors reviewed performance information for that fund.
Advisory Fees
The directors considered the advisory fee rate payable by the Fund to the Adviser (zero) and reviewed information prepared by an analytical service that is not affiliated with the Adviser showing the advisory fees payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds.
The directors noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser would be indirectly compensated by the Sponsors for its services to the Fund. While the Adviser’s fee arrangements with the Sponsors would vary, the directors acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Fund to be paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it would provide to the Fund (the “implied fee”) and that the Adviser believes that while the Sponsors would pay the Adviser different fee rates, the rate of fee attributable to Fund management at the Fund level would be the same for all Sponsors. The directors also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.
The Adviser informed the directors that there were no institutional products managed by it that utilize investment strategies similar to those proposed for the Fund.
Since the Fund would not bear ordinary expenses, the directors did not consider comparative expense information.
Economies of Scale
Since the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Fund and the Fund’s expense ratio would be zero, the directors did not consider the extent to which fee levels in the Advisory Agreement reflect economies of scale.
42 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
abfunds.com | AB TAX-AWARE REAL RETURN INCOME SHARES | 43 |
NOTES
44 | AB TAX-AWARE REAL RETURN INCOME SHARES | abfunds.com |
AB TAX-AWARE REAL RETURN INCOME SHARES
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
TARRIS-0152-1020
ITEM 2. CODE OF ETHICS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the registrant.
ITEM 6. INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 13. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
12 (b) (1) | ||
12 (b) (2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (c) | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AB Corporate Shares
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President | ||
Date: | December 28, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President | ||
Date: | December 28, 2020 |
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer | ||
Date: | December 28, 2020 |