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: 811-02383
AB BOND FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
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: October 31, 2017
Date of reporting period: April 30, 2017
ITEM 1. REPORTS TO STOCKHOLDERS.
APR 04.30.17
SEMI-ANNUAL REPORT
AB ALL MARKET REAL RETURN PORTFOLIO
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 All Market Real Return Portfolio (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 ALL MARKET REAL RETURN PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
June 12, 2017
This report provides management’s discussion of fund performance for AB All Market Real Return Portfolio for the semi-annual reporting period ended April 30, 2017.
The Fund’s investment objective is to maximize real return over inflation.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB ALL MARKET REAL RETURN PORTFOLIO | ||||||||
Class 1 Shares1 | 5.00% | 6.44% | ||||||
Class 2 Shares1 | 5.14% | 6.81% | ||||||
Class A Shares | 4.87% | 6.28% | ||||||
Class C Shares | 4.64% | 5.54% | ||||||
Advisor Class Shares2 | 5.01% | 6.56% | ||||||
Class R Shares2 | 4.77% | 6.07% | ||||||
Class K Shares2 | 4.83% | 6.27% | ||||||
Class I Shares2 | 5.07% | 6.64% | ||||||
Class Z Shares2 | 5.07% | 6.64% | ||||||
MSCI AC World Commodity Producers Index (net) | 4.23% | 6.64% |
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to the Adviser’s institutional clients or through other limited arrangements. |
2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Morgan Stanley Capital International All Country (“MSCI AC”) World Commodity Producers Index (net), for the six- and 12-month periods ended April 30, 2017.
During the six-month period, all share classes of the Fund outperformed the benchmark, before sales charges. The outperformance was driven largely by strategic allocations to diversified inflation equities since December 2016, while strategic allocations to global real estate investment trusts (“REITs”) and commodity futures lagged the benchmark. Selections within foreign currencies and security selection in commodity producers and commodity futures contributed to returns. Allocations to inflation
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(“CPI”) swaps and inflation-indexed securities, added as well. Security selection in REITs and allocation decisions in commodity equities detracted.
During the 12-month period, all share classes underperformed the benchmark, except Class 2 shares, which outperformed, and Class I and Z shares, which performed in-line, before sales charges. The underperformance was driven mainly by strategic allocations to global REITs and commodity futures, both of which lagged the benchmark during the period. However, allocation and selection decisions across commodity producers, REITs and commodity futures, foreign currency selection, CPI swaps and inflation-indexed securities contributed, thus offsetting the drag from the strategic allocation.
The Fund utilized derivatives for hedging and investment purposes, including currency forwards, inflation swaps and written options, which added to absolute returns during both periods. Treasury futures, total return swaps and purchased options for hedging and investment purposes detracted during both periods.
MARKET REVIEW AND INVESTMENT STRATEGY
During the six-month period, market movements revolved around changes in investors’ outlook for future growth and inflation, driven largely by the result of the US presidential election and actions by OPEC. Investor sentiment rose rapidly during the six-month period on optimism for future nominal growth from fiscal stimulus measures such as tax reform and infrastructure spending. In addition, commodities saw renewed strength as base metal prices rose on the back of strong economic data from China and higher expectations of increased demand from infrastructure spending. Meanwhile, oil prices soared due to the largely unanticipated decision of OPEC countries and Russia to cut production in 2017.
The Fund benefited from the repricing of investor views for a period of better nominal growth and rising inflation from very low levels. The Fund was positioned to capture the reflation theme in a variety of ways, such as commodities, market inflation expectations (CPI swaps) and diversified inflation equities, and was therefore able to participate strongly in the upswing of expectations. These factors also led to a selloff in defensive assets as investors positioned for ‘risk on’, so safe haven assets such as gold, the Japanese yen and treasuries sold off sharply. REITs underperformed broad equities due to their sensitivity to interest rates. The Fund was positioned with an underweight to REITs and thus benefited from the positioning.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 3 |
INVESTMENT POLICIES
The Fund seeks to maximize real return. Real return is the rate of return after adjusting for inflation. The Fund pursues an aggressive investment strategy involving a variety of asset classes. The Fund invests primarily in instruments that the Adviser expects to outperform broad equity indices during periods of rising inflation. Under normal circumstances, the Fund expects to invest its assets principally in the following instruments that, in the judgment of the Adviser, are affected directly or indirectly by the level and change in rate of inflation: inflation-indexed fixed-income securities, such as Treasury inflation-protected securities (“TIPS”) and similar bonds issued by governments outside of the United States; commodities; commodity-related equity securities; real estate equity securities; inflation-sensitive equity securities, which the Fund defines as equity securities of companies that the Adviser believes have the ability to pass along increasing costs to consumers and maintain or grow margins in rising inflation environments, including equity securities of utilities and infrastructure-related companies (“inflation-sensitive equities”); securities and derivatives linked to the price of other assets (such as commodities, stock indices and real estate); and currencies. The Fund expects its investments in fixed-income securities to have a broad range of maturities and quality levels.
The Fund will seek inflation protection from investments around the globe, both in developed- and emerging-market countries. In selecting securities for purchase and sale, the Adviser will utilize its qualitative and quantitative resources to determine overall inflation sensitivity, asset allocation and security selection. The Adviser assesses the securities’ risks and inflation sensitivity as well as the securities’ impact on the overall risks and inflation sensitivity of the Fund. When its analysis indicates that changes are necessary, the Adviser intends to implement them through a combination of changes to underlying positions and the use of inflation swaps and other types of derivatives, such as interest rate swaps.
The Fund anticipates that its targeted investment mix, other than its investments in inflation-indexed fixed-income securities, will focus on commodity-related equity securities, commodities and commodity derivatives, real estate equity securities and inflation-sensitive equities to provide a balance between expected return and inflation protection. The Fund may vary its investment allocations among these asset classes, at times significantly. Its commodities investments will include significant exposure to energy commodities, but will also include agricultural products, and industrial and precious metals, such as gold. The Fund’s investments in real estate equity securities will include REITs and other real estate-related securities.
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(continued on next page)
The Fund will invest in both US and non-US dollar-denominated equity or fixed-income securities. The Fund may invest in currencies for hedging or investment purposes, both in the spot market and through long or short positions in currency-related derivatives. The Fund does not ordinarily expect to hedge its foreign currency exposure because it will be balanced by investments in US dollar-denominated securities, although it may hedge the exposure under certain circumstances.
The Fund may invest significantly to the extent permitted by applicable law in derivatives, such as options, futures contracts, forwards, swaps or structured notes. The Fund intends to use leverage for investment purposes through the use of cash made available by derivatives transactions to make other investments in accordance with its investment policies. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of derivatives 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.
The Fund may seek to gain exposure to physical commodities traded in the commodities markets through investments in a variety of derivative instruments, including investments in commodity index-linked notes. The Adviser expects that the Fund will seek to gain exposure to commodities and commodity-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the “Subsidiary”). The Subsidiary is advised by the Adviser and has the same investment objective and substantially similar investment policies and restrictions as the Fund except that the Subsidiary, unlike the Fund, may invest, without limitation, in commodities and commodity-related instruments. The Fund will be subject to the risks associated with the commodities, derivatives and other instruments in which the Subsidiary invests, to the extent of its investment in the Subsidiary. The Fund limits its investment in the Subsidiary to no more than 25% of its net assets. Investment in the Subsidiary is expected to provide the Fund with commodity exposure within the limitations of federal tax requirements that apply to the Fund.
The Fund is “non-diversified”, which means that it may concentrate its assets in a smaller number of issuers than a diversified fund.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The MSCI AC World Commodity Producers Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI AC World Commodity Producers Index is a free float-adjusted, market capitalization index designed to track the performance of global listed commodity producers, including emerging markets. Commodities sectors include: energy, grains, industrial metals, petroleum, precious metals and softs. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns include the reinvestment of dividends after deduction of non-US withholding tax. 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, commodity and bond markets fluctuate. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events 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. 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. The Fund may be subject to heightened interest rate risk due to rising rates as the current period of historically low rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Commodity Risk: Investing in commodities and commodity-linked derivative instruments, either directly or through the Subsidiary, may subject the Fund to greater volatility than investments in traditional securities.
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DISCLOSURES AND RISKS (continued)
The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.
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.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
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 less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Subsidiary Risk: By investing in the Subsidiary, the Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. The derivatives and other investments held by the Subsidiary are generally similar to those that are permitted to be held by the Fund and are subject to the same risks that apply to similar investments if held directly by the Fund. The Subsidiary is not registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and, unless otherwise noted in the Fund’s prospectus, is not subject to all of the investor protections of the 1940 Act. However, the Fund wholly owns and controls the Subsidiary, and the Fund and the Subsidiary are managed by the Adviser, making it unlikely the Subsidiary will take actions contrary to the interests of the Fund or its shareholders.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 7 |
DISCLOSURES AND RISKS (continued)
Real Estate Risk: The Fund’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Non-Diversification Risk: The Fund may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s NAV.
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.
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 investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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 visiting www.abfunds.com. For Class 1 shares, go to www.bernstein.com and click on “Investments”, then “Mutual Fund Information—Mutual Fund Performance at a Glance”.
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. For Class 1 shares, go to www.bernstein.com, click on “Investments”, then “Mutual Fund Information—Prospectuses, SAIs, and Shareholder Reports”. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales
8 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 9 |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS 1 SHARES1 | ||||||||
1 Year | 6.44% | 6.44% | ||||||
5 Years | -3.61% | -3.61% | ||||||
Since Inception2 | -0.43% | -0.43% | ||||||
CLASS 2 SHARES1 | ||||||||
1 Year | 6.81% | 6.81% | ||||||
5 Years | -3.36% | -3.36% | ||||||
Since Inception2 | -0.18% | -0.18% | ||||||
CLASS A SHARES | ||||||||
1 Year | 6.28% | 1.78% | ||||||
5 Years | -3.72% | -4.55% | ||||||
Since Inception2 | -0.52% | -1.11% | ||||||
CLASS C SHARES | ||||||||
1 Year | 5.54% | 4.54% | ||||||
5 Years | -4.40% | -4.40% | ||||||
Since Inception2 | -1.22% | -1.22% | ||||||
ADVISOR CLASS SHARES3 | ||||||||
1 Year | 6.56% | 6.56% | ||||||
5 Years | -3.45% | -3.45% | ||||||
Since Inception2 | -0.25% | -0.25% | ||||||
CLASS R SHARES3 | ||||||||
1 Year | 6.07% | 6.07% | ||||||
5 Years | -3.92% | -3.92% | ||||||
Since Inception2 | -0.74% | -0.74% | ||||||
CLASS K SHARES3 | ||||||||
1 Year | 6.27% | 6.27% | ||||||
5 Years | -3.69% | -3.69% | ||||||
Since Inception2 | -0.49% | -0.49% | ||||||
CLASS I SHARES3 | ||||||||
1 Year | 6.64% | 6.64% | ||||||
5 Years | -3.39% | -3.39% | ||||||
Since Inception2 | -0.21% | -0.21% | ||||||
CLASS Z SHARES3 | ||||||||
1 Year | 6.64% | 6.64% | ||||||
Since Inception2 | -4.61% | -4.61% |
(footnotes continued on next page)
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HISTORICAL PERFORMANCE (continued)
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 1.18%, 0.92%, 1.38%, 2.13%, 1.12%, 1.68%, 1.37%, 0.94% and 0.94% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limited the Fund’s annual operating expense ratios to 1.17%, 0.92%, 1.32%, 2.07%, 1.07%, 1.57%, 1.32%, 0.93% and 0.94% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. These waivers/reimbursements may not be terminated before January 31, 2018 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to the Adviser’s institutional clients or through other limited arrangements. |
2 | Inception dates: 3/8/2010 for all share classes excluding Class Z shares; 1/31/2014 for Class Z shares. |
3 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 14.10% | |||
5 Years | -3.63% | |||
Since Inception2 | -0.39% | |||
CLASS 2 SHARES1 | ||||
1 Year | 14.49% | |||
5 Years | -3.37% | |||
Since Inception2 | -0.13% | |||
CLASS A SHARES | ||||
1 Year | 9.08% | |||
5 Years | -4.57% | |||
Since Inception2 | -1.08% | |||
CLASS C SHARES | ||||
1 Year | 12.04% | |||
5 Years | -4.43% | |||
Since Inception2 | -1.19% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 14.13% | |||
5 Years | -3.47% | |||
Since Inception2 | -0.20% | |||
CLASS R SHARES3 | ||||
1 Year | 13.80% | |||
5 Years | -3.93% | |||
Since Inception2 | -0.68% | |||
CLASS K SHARES3 | ||||
1 Year | 14.01% | |||
5 Years | -3.69% | |||
Since Inception2 | -0.43% | |||
CLASS I SHARES3 | ||||
1 Year | 14.41% | |||
5 Years | -3.42% | |||
Since Inception2 | -0.16% | |||
CLASS Z SHARES3 | ||||
1 Year | 14.41% | |||
Since Inception2 | -4.62% |
(footnotes continued on next page)
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HISTORICAL PERFORMANCE (continued)
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to the Adviser’s institutional clients or through other limited arrangements. |
2 | Inception dates: 3/8/2010 for all share classes excluding Class Z shares; 1/31/2014 for Class Z shares. |
3 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 13 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
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 November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,048.70 | $ | 6.45 | 1.27 | % | $ | 6.65 | 1.31 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.50 | $ | 6.36 | 1.27 | % | $ | 6.56 | 1.31 | % |
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EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,046.40 | $ | 10.25 | 2.02 | % | $ | 10.45 | 2.06 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,014.78 | $ | 10.09 | 2.02 | % | $ | 10.29 | 2.06 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,050.10 | $ | 5.13 | 1.01 | % | $ | 5.34 | 1.05 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | $ | 5.26 | 1.05 | % | ||||||||||||
Class R | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,047.70 | $ | 7.82 | 1.54 | % | $ | 8.02 | 1.58 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.16 | $ | 7.70 | 1.54 | % | $ | 7.90 | 1.58 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,048.30 | $ | 6.55 | 1.29 | % | $ | 6.75 | 1.33 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.40 | $ | 6.46 | 1.29 | % | $ | 6.66 | 1.33 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,050.70 | $ | 4.47 | 0.88 | % | $ | 4.68 | 0.92 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.43 | $ | 4.41 | 0.88 | % | $ | 4.61 | 0.92 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,050.00 | $ | 5.69 | 1.12 | % | $ | 5.90 | 1.16 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.24 | $ | 5.61 | 1.12 | % | $ | 5.81 | 1.16 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,051.40 | $ | 4.22 | 0.83 | % | $ | 4.43 | 0.87 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.68 | $ | 4.16 | 0.83 | % | $ | 4.36 | 0.87 | % | ||||||||||||
Class Z | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,050.70 | $ | 4.17 | 0.82 | % | $ | 4.37 | 0.86 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.73 | $ | 4.11 | 0.82 | % | $ | 4.31 | 0.86 | % |
* | Expenses are equal to the Portfolio’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. Currently the Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s effective expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 15 |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,418.6
1 | The portfolio breakdown is expressed as an approximate percentage of the Fund’s net assets inclusive of derivative exposure, based on the Adviser’s internal classification guidelines. |
2 | 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). |
16 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
TEN LARGEST HOLDINGS1
April 30, 2017 (unaudited)
Security | U.S. $ Value | Percent of Net Assets | ||||||
Japanese Government CPI Linked Bond Series 21 | $ | 126,461,689 | 8.9 | % | ||||
Vanguard Global ex-U.S. Real Estate ETF | 56,429,600 | 4.0 | ||||||
Royal Dutch Shell PLC – Class A & Class B | 41,791,082 | 2.9 | ||||||
Exxon Mobil Corp. | 22,686,779 | 1.6 | ||||||
VanEck Vectors Oil Services ET | 21,356,196 | 1.5 | ||||||
SPDR S&P Dividend ETF | 18,266,620 | 1.3 | ||||||
Vanguard REIT ETF | 18,213,138 | 1.3 | ||||||
BP PLC | 16,506,793 | 1.2 | ||||||
iShares MSCI Europe Financials ETF | 14,126,643 | 1.0 | ||||||
iShares Global Financials ETF | 14,030,196 | 1.0 | ||||||
$ | 349,868,736 | 24.7 | % |
1 | Long-term investments. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 17 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
COMMON STOCKS – 52.0% | ||||||||
Real Estate – 20.9% | ||||||||
Diversified Real Estate Activities – 1.8% | ||||||||
Ayala Land, Inc. | 1,875,060 | $ | 1,325,055 | |||||
City Developments Ltd. | 205,600 | 1,586,563 | ||||||
LendLease Group | 188,830 | 2,267,027 | ||||||
Mitsubishi Estate Co., Ltd. | 84,000 | 1,608,415 | ||||||
Mitsui Fudosan Co., Ltd. | 307,800 | 6,772,295 | ||||||
Pakuwon Jati Tbk PT | 3,274,500 | 153,121 | ||||||
Shenzhen Investment Ltd. | 908,000 | 411,481 | ||||||
Sumitomo Realty & Development Co., Ltd. | 167,000 | 4,511,596 | ||||||
Wharf Holdings Ltd. (The) | 612,000 | 5,217,929 | ||||||
Wheelock & Co., Ltd. | 144,000 | 1,121,675 | ||||||
|
| |||||||
24,975,157 | ||||||||
|
| |||||||
Diversified REITs – 3.0% | ||||||||
Armada Hoffler Properties, Inc. | 199,140 | 2,839,736 | ||||||
Empire State Realty Trust, Inc. – Class A | 172,220 | 3,582,176 | ||||||
Fibra Uno Administracion SA de CV | 794,803 | 1,385,240 | ||||||
Gecina SA | 6,655 | 946,530 | ||||||
GPT Group (The) | 718,951 | 2,824,096 | ||||||
Gramercy Property Trust | 129,242 | 3,591,635 | ||||||
Growthpoint Properties Ltd. | 1,419,482 | 2,720,431 | ||||||
H&R Real Estate Investment Trust | 105,100 | 1,783,170 | ||||||
Heiwa Real Estate REIT, Inc. | 1,038 | 786,040 | ||||||
Hispania Activos Inmobiliarios SOCIMI SA | 111,490 | 1,683,287 | ||||||
Hulic Reit, Inc. | 758 | 1,217,152 | ||||||
ICADE | 30,880 | 2,293,073 | ||||||
Kenedix Office Investment Corp. – Class A | 248 | 1,405,142 | ||||||
KLCCP Stapled Group | 62,500 | 112,711 | ||||||
Liberty Property Trust | 78,510 | 3,185,151 | ||||||
Mapletree Greater China Commercial Trust(a) | 561,400 | 429,774 | ||||||
Merlin Properties Socimi SA | 270,309 | 3,196,542 | ||||||
Mirvac Group | 1,303,020 | 2,213,181 | ||||||
Premier Investment Corp. | 1,228 | 1,320,722 | ||||||
Redefine Properties Ltd. | 1,478,168 | 1,216,644 | ||||||
SA Corporate Real Estate Ltd. | 1,133,251 | 466,402 | ||||||
Washington Real Estate Investment Trust | 104,280 | 3,302,548 | ||||||
|
| |||||||
42,501,383 | ||||||||
|
| |||||||
Health Care REITs – 1.1% | ||||||||
Healthcare Realty Trust, Inc. | 106,150 | 3,481,720 | ||||||
Medical Properties Trust, Inc. | 202,890 | 2,651,772 | ||||||
Sabra Health Care REIT, Inc. | 88,060 | 2,394,351 | ||||||
Welltower, Inc. | 97,910 | 6,994,691 | ||||||
|
| |||||||
15,522,534 | ||||||||
|
|
18 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Hotel & Resort REITs – 0.4% | ||||||||
Park Hotels & Resorts, Inc. | 99,900 | $ | 2,564,433 | |||||
Summit Hotel Properties, Inc. | 164,349 | 2,716,689 | ||||||
|
| |||||||
5,281,122 | ||||||||
|
| |||||||
Industrial REITs – 1.4% | ||||||||
Goodman Group | 476,902 | 2,895,605 | ||||||
LaSalle Logiport REIT | 1,558 | 1,479,903 | ||||||
Macquarie Mexico Real Estate Management SA de CV(b) | 238,172 | 260,879 | ||||||
Mapletree Logistics Trust | 2,130,100 | 1,723,061 | ||||||
Monmouth Real Estate Investment Corp. – Class A | 142,680 | 2,140,200 | ||||||
Pure Industrial Real Estate Trust | 275,980 | 1,320,208 | ||||||
Rexford Industrial Realty, Inc. | 151,290 | 3,773,173 | ||||||
Segro PLC | 366,732 | 2,306,722 | ||||||
STAG Industrial, Inc. | 151,550 | 3,994,858 | ||||||
|
| |||||||
19,894,609 | ||||||||
|
| |||||||
Office REITs – 2.8% | ||||||||
Alexandria Real Estate Equities, Inc. | 42,892 | 4,825,779 | ||||||
Allied Properties Real Estate Investment Trust | 72,334 | 1,941,024 | ||||||
Axiare Patrimonio SOCIMI SA | 99,700 | 1,655,112 | ||||||
Boston Properties, Inc. | 51,382 | 6,504,961 | ||||||
Brandywine Realty Trust | 114,320 | 1,940,010 | ||||||
Columbia Property Trust, Inc. | 151,240 | 3,402,900 | ||||||
Concentradora Hipotecaria SAPI de CV | 1,476,290 | 1,797,403 | ||||||
Corporate Office Properties Trust | 85,260 | 2,791,412 | ||||||
Daiwa Office Investment Corp. | 324 | 1,578,581 | ||||||
Derwent London PLC | 72,250 | 2,754,142 | ||||||
Hudson Pacific Properties, Inc. | 115,390 | 3,964,800 | ||||||
Investa Office Fund | 494,290 | 1,757,310 | ||||||
MCUBS MidCity Investment Corp. | 484 | 1,445,518 | ||||||
Parkway, Inc. | 69,130 | 1,392,970 | ||||||
Workspace Group PLC | 229,260 | 2,567,024 | ||||||
|
| |||||||
40,318,946 | ||||||||
|
| |||||||
Real Estate Development – 1.9% | ||||||||
AP Thailand PCL (Foreign Shares) | 364,400 | 83,752 | ||||||
AP Thailand PCL | 319,700 | 73,368 | ||||||
Bumi Serpong Damai Tbk PT | 1,040,600 | 139,403 | ||||||
Cheung Kong Property Holdings Ltd. | 622,500 | 4,456,608 | ||||||
China Evergrande Group | 1,030,000 | 1,098,591 | ||||||
China Jinmao Holdings Group Ltd. | 1,450,000 | 469,003 | ||||||
China Overseas Land & Investment Ltd. | 2,740,790 | 7,949,901 | ||||||
China Resources Land Ltd. | 1,344,874 | 3,726,682 | ||||||
China Vanke Co., Ltd. – Class H | 408,600 | 1,035,393 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 19 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
CIFI Holdings Group Co., Ltd. | 2,766,000 | $ | 998,606 | |||||
Ciputra Development Tbk PT | 1,472,887 | 141,251 | ||||||
Country Garden Holdings Co., Ltd. | 2,243,000 | 2,133,206 | ||||||
Guangzhou R&F Properties Co., Ltd. – Class H | 280,800 | 472,633 | ||||||
IOI Properties Group Bhd | 247,500 | 118,020 | ||||||
Kaisa Group Holdings Ltd.(b) | 1,593,000 | 477,182 | ||||||
Longfor Properties Co., Ltd. | 421,650 | 729,592 | ||||||
Mah Sing Group Bhd | 216,050 | 74,157 | ||||||
Quality Houses PCL | 1,960,166 | 145,072 | ||||||
Shimao Property Holdings Ltd. | 363,000 | 582,624 | ||||||
Sino-Ocean Group Holding Ltd. | 870,930 | 424,854 | ||||||
Summarecon Agung Tbk PT | 1,440,800 | 146,650 | ||||||
Sunac China Holdings Ltd. | 532,000 | 692,856 | ||||||
Supalai PCL | 301,100 | 214,139 | ||||||
UEM Sunrise Bhd | 218,800 | 62,461 | ||||||
|
| |||||||
26,446,004 | ||||||||
|
| |||||||
Real Estate Operating Companies – 1.7% | ||||||||
Ascendas India Trust | 205,600 | 169,230 | ||||||
BR Malls Participacoes SA(b) | 79,492 | 351,873 | ||||||
CA Immobilien Anlagen AG(b) | 107,229 | 2,348,254 | ||||||
Central Pattana PCL | 759,651 | 1,317,695 | ||||||
Entra ASA(a) | 212,268 | 2,435,173 | ||||||
Fabege AB | 147,830 | 2,545,629 | ||||||
Hongkong Land Holdings Ltd. | 386,000 | 2,974,896 | ||||||
Iguatemi Empresa de Shopping Centers SA | 8,300 | 86,738 | ||||||
Inmobiliaria Colonial SA | 172,887 | 1,340,591 | ||||||
LEG Immobilien AG(b) | 28,170 | 2,420,147 | ||||||
Multiplan Empreendimentos Imobiliarios SA | 11,180 | 238,461 | ||||||
Parque Arauco SA | 506,810 | 1,322,146 | ||||||
SM Prime Holdings, Inc. | 1,397,000 | 833,273 | ||||||
TLG Immobilien AG | 38,290 | 774,800 | ||||||
Vonovia SE | 123,983 | 4,488,703 | ||||||
|
| |||||||
23,647,609 | ||||||||
|
| |||||||
Residential REITs – 2.1% | ||||||||
AvalonBay Communities, Inc. | 40,041 | 7,601,383 | ||||||
Education Realty Trust, Inc. | 93,954 | 3,642,597 | ||||||
Emlak Konut Gayrimenkul Yatirim Ortakligi AS | 274,479 | 227,882 | ||||||
Independence Realty Trust, Inc. | 308,300 | 2,836,360 | ||||||
Japan Rental Housing Investments, Inc. | 2,052 | 1,474,701 | ||||||
Killam Apartment Real Estate Investment Trust | 162,000 | 1,524,999 | ||||||
Mid-America Apartment Communities, Inc. | 63,480 | 6,297,851 |
20 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Sun Communities, Inc. | 46,667 | $ | 3,901,828 | |||||
UNITE Group PLC (The) | 299,895 | 2,513,102 | ||||||
|
| |||||||
30,020,703 | ||||||||
|
| |||||||
Retail REITs – 3.4% | ||||||||
Brixmor Property Group, Inc. | 205,740 | 4,063,365 | ||||||
Eurocommercial Properties NV | 3,977 | 154,549 | ||||||
Frontier Real Estate Investment Corp. | 373 | 1,627,849 | ||||||
Fukuoka REIT Corp. | 1,076 | 1,698,820 | ||||||
GGP, Inc. | 228,400 | 4,935,724 | ||||||
Hyprop Investments Ltd. | 129,366 | �� | 1,194,945 | |||||
IGB Real Estate Investment Trust | 224,800 | 88,035 | ||||||
Kenedix Retail REIT Corp. | 651 | 1,418,009 | ||||||
Klepierre | 84,546 | 3,318,420 | ||||||
Link REIT | 1,031,901 | 7,417,275 | ||||||
Lippo Malls Indonesia Retail Trust | 579,300 | 176,218 | ||||||
Mercialys SA | 121,040 | 2,358,116 | ||||||
Ramco-Gershenson Properties Trust | 173,427 | 2,311,782 | ||||||
Realty Income Corp. | 85,370 | 4,981,340 | ||||||
Resilient REIT Ltd. | 78,511 | 684,001 | ||||||
Retail Opportunity Investments Corp. | 121,580 | 2,504,548 | ||||||
Simon Property Group, Inc. | 39,352 | 6,503,312 | ||||||
Urban Edge Properties | 130,890 | 3,337,695 | ||||||
|
| |||||||
48,774,003 | ||||||||
|
| |||||||
Specialized REITs – 1.3% | ||||||||
Digital Realty Trust, Inc. | 48,830 | 5,607,637 | ||||||
EPR Properties | 52,090 | 3,787,464 | ||||||
Equinix, Inc. | 7,120 | 2,974,024 | ||||||
National Storage Affiliates Trust | 182,520 | 4,471,740 | ||||||
Public Storage | 10,230 | 2,141,957 | ||||||
|
| |||||||
18,982,822 | ||||||||
|
| |||||||
296,364,892 | ||||||||
|
| |||||||
Energy – 16.0% | ||||||||
Integrated Oil & Gas – 9.4% | ||||||||
BP PLC | 2,883,480 | 16,506,793 | ||||||
Chevron Corp. | 101,400 | 10,819,380 | ||||||
Eni SpA | 672,890 | 10,437,204 | ||||||
Exxon Mobil Corp. | 277,854 | 22,686,779 | ||||||
Galp Energia SGPS SA | 192,250 | 2,987,753 | ||||||
LUKOIL PJSC (Sponsored ADR) | 102,310 | 5,069,631 | ||||||
PetroChina Co., Ltd. – Class H | 7,114,000 | 4,998,164 | ||||||
Petroleo Brasileiro SA (Preference Shares)(b) | 576,200 | 2,536,039 | ||||||
Petroleo Brasileiro SA (Sponsored ADR)(b) | 84,500 | 737,685 | ||||||
Repsol SA | 282,620 | 4,460,686 | ||||||
Royal Dutch Shell PLC – Class A | 433,384 | 11,300,412 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 21 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Royal Dutch Shell PLC – Class B | 1,145,966 | $ | 30,490,670 | |||||
TOTAL SA | 116,416 | 5,976,005 | ||||||
YPF SA (Sponsored ADR) | 177,760 | 4,591,541 | ||||||
|
| |||||||
133,598,742 | ||||||||
|
| |||||||
Oil & Gas Drilling – 0.2% | ||||||||
Helmerich & Payne, Inc. | 44,000 | 2,668,160 | ||||||
|
| |||||||
Oil & Gas Equipment & Services – 0.7% | ||||||||
Aker Solutions ASA(a)(b) | 335,670 | 1,911,766 | ||||||
Halliburton Co. | 59,710 | 2,739,495 | ||||||
Petrofac Ltd. | 296,860 | 3,128,612 | ||||||
Petroleum Geo-Services ASA(b) | 553,505 | 1,296,789 | ||||||
RPC, Inc. | 62,150 | 1,129,266 | ||||||
TMK PJSC (GDR)(a) | 116,719 | 609,273 | ||||||
|
| |||||||
10,815,201 | ||||||||
|
| |||||||
Oil & Gas Exploration & Production – 4.8% | ||||||||
Aker BP ASA | 174,071 | 2,947,211 | ||||||
Anadarko Petroleum Corp. | 107,091 | 6,106,329 | ||||||
Canadian Natural Resources Ltd. (Toronto) | 208,287 | 6,634,423 | ||||||
CNOOC Ltd. | 3,288,000 | 3,835,771 | ||||||
Concho Resources, Inc.(b) | 29,300 | 3,711,138 | ||||||
Devon Energy Corp. | 143,650 | 5,672,738 | ||||||
EOG Resources, Inc. | 150,963 | 13,964,077 | ||||||
Gran Tierra Energy, Inc.(b) | 566,550 | 1,427,737 | ||||||
Hess Corp. | 199,077 | 9,720,930 | ||||||
Inpex Corp. | 236,300 | 2,264,327 | ||||||
Occidental Petroleum Corp. | 134,160 | 8,256,206 | ||||||
SM Energy Co. | 164,200 | 3,709,278 | ||||||
|
| |||||||
68,250,165 | ||||||||
|
| |||||||
Oil & Gas Refining & Marketing – 0.9% | ||||||||
Cosan SA Industria e Comercio | 132,000 | 1,543,303 | ||||||
HollyFrontier Corp. | 109,100 | 3,070,074 | ||||||
JXTG Holdings, Inc. | 1,015,800 | 4,583,322 | ||||||
Tupras Turkiye Petrol Rafinerileri AS | 123,840 | 3,119,500 | ||||||
|
| |||||||
12,316,199 | ||||||||
|
| |||||||
227,648,467 | ||||||||
|
| |||||||
Materials – 6.2% | ||||||||
Construction Materials – 0.5% | ||||||||
Anhui Conch Cement Co., Ltd. – Class H | 689,500 | 2,411,218 | ||||||
CRH PLC | 13,044 | 475,116 | ||||||
CRH PLC (London) | 11,144 | 406,321 | ||||||
Fletcher Building Ltd. | 233,640 | 1,371,084 | ||||||
Grupo Cementos de Chihuahua SAB de CV | 388,440 | 1,846,536 | ||||||
|
| |||||||
6,510,275 | ||||||||
|
|
22 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Copper – 0.5% | ||||||||
Antofagasta PLC | 304,310 | $ | 3,301,685 | |||||
First Quantum Minerals Ltd. | 286,710 | 2,732,572 | ||||||
Lundin Mining Corp. | 251,810 | 1,342,937 | ||||||
|
| |||||||
7,377,194 | ||||||||
|
| |||||||
Diversified Chemicals – 0.3% | ||||||||
Arkema SA | 31,778 | 3,364,750 | ||||||
LANXESS AG | 6,480 | 467,897 | ||||||
|
| |||||||
3,832,647 | ||||||||
|
| |||||||
Diversified Metals & Mining – 1.9% | ||||||||
Boliden AB | 127,700 | 3,648,171 | ||||||
Glencore PLC(b) | 2,263,236 | 8,894,830 | ||||||
Korea Zinc Co., Ltd. | 8,450 | 3,158,508 | ||||||
MMC Norilsk Nickel PJSC (ADR) | 290,520 | 4,470,983 | ||||||
Orocobre Ltd.(b) | 251,940 | 594,057 | ||||||
Rio Tinto PLC | 87,260 | 3,442,424 | ||||||
Syrah Resources Ltd.(b) | 647,010 | 1,102,880 | ||||||
Vedanta Resources PLC | 133,870 | 1,198,109 | ||||||
|
| |||||||
26,509,962 | ||||||||
|
| |||||||
Fertilizers & Agricultural Chemicals – 1.1% | ||||||||
Agrium, Inc. (Toronto) | 9,416 | 883,761 | ||||||
Monsanto Co. | 58,669 | 6,841,392 | ||||||
Mosaic Co. (The) | 23,864 | 642,658 | ||||||
Potash Corp. of Saskatchewan, Inc. | 60,189 | 1,015,018 | ||||||
Syngenta AG (REG)(b) | 6,641 | 3,086,294 | ||||||
UPL Ltd. | 240,520 | 3,015,600 | ||||||
|
| |||||||
15,484,723 | ||||||||
|
| |||||||
Forest Products – 0.0% | ||||||||
West Fraser Timber Co., Ltd. | 4,709 | 211,604 | ||||||
|
| |||||||
Gold – 0.9% | ||||||||
Agnico Eagle Mines Ltd. | 126,806 | 6,061,384 | ||||||
Barrick Gold Corp. | 281,370 | 4,704,506 | ||||||
Detour Gold Corp.(b) | 109,720 | 1,386,521 | ||||||
Real Gold Mining Ltd.(b)(c)(d) | 811,000 | – 0 | – | |||||
|
| |||||||
12,152,411 | ||||||||
|
| |||||||
Industrial Gases – 0.0% | ||||||||
Praxair, Inc. | 3,883 | 485,297 | ||||||
|
| |||||||
Paper Packaging – 0.0% | ||||||||
Smurfit Kappa Group PLC | 18,317 | 490,637 | ||||||
|
| |||||||
Paper Products – 0.2% | ||||||||
Mondi PLC | 26,362 | 682,023 | ||||||
Oji Holdings Corp. | 58,000 | 280,720 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 23 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Stora Enso Oyj – Class R | 39,554 | $ | 469,422 | |||||
UPM-Kymmene Oyj | 38,298 | 1,009,025 | ||||||
|
| |||||||
2,441,190 | ||||||||
|
| |||||||
Precious Metals & Minerals – 0.1% | ||||||||
Industrias Penoles SAB de CV | 63,590 | 1,554,514 | ||||||
|
| |||||||
Specialty Chemicals – 0.3% | ||||||||
Ecolab, Inc. | 6,595 | 851,349 | ||||||
Johnson Matthey PLC | 40,579 | 1,565,270 | ||||||
JSR Corp. | 25,800 | 471,510 | ||||||
Sherwin-Williams Co. (The) | 1,599 | 535,153 | ||||||
Shin-Etsu Chemical Co., Ltd. | 4,700 | 408,513 | ||||||
|
| |||||||
3,831,795 | ||||||||
|
| |||||||
Steel – 0.4% | ||||||||
APERAM SA | 30,550 | 1,535,905 | ||||||
Fortescue Metals Group Ltd. | 304,540 | 1,207,090 | ||||||
Novolipetsk Steel PJSC (GDR)(a) | 115,680 | 2,193,316 | ||||||
Severstal PJSC (GDR)(a) | 104,330 | 1,425,094 | ||||||
|
| |||||||
6,361,405 | ||||||||
|
| |||||||
87,243,654 | ||||||||
|
| |||||||
Pharmaceuticals & Biotechnology – 1.1% | ||||||||
Biotechnology – 0.4% | ||||||||
AbbVie, Inc. | 8,293 | 546,840 | ||||||
Amgen, Inc. | 14,709 | 2,402,274 | ||||||
Biogen, Inc.(b) | 3,790 | 1,027,886 | ||||||
Gilead Sciences, Inc. | 18,163 | 1,245,074 | ||||||
|
| |||||||
5,222,074 | ||||||||
|
| |||||||
Life Sciences Tools & Services – 0.1% | ||||||||
Bruker Corp. | 7,006 | 170,876 | ||||||
Illumina, Inc.(b) | 4,637 | 857,196 | ||||||
Waters Corp.(b) | 1,412 | 239,885 | ||||||
|
| |||||||
1,267,957 | ||||||||
|
| |||||||
Pharmaceuticals – 0.6% | ||||||||
Astellas Pharma, Inc. | 156,200 | 2,059,827 | ||||||
BTG PLC(b) | 18,980 | 167,193 | ||||||
Hisamitsu Pharmaceutical Co., Inc. | 8,300 | 424,911 | ||||||
Johnson & Johnson | 19,039 | 2,350,745 | ||||||
Mitsubishi Tanabe Pharma Corp. | 37,000 | 751,575 | ||||||
Novo Nordisk A/S – Class B | 65,071 | 2,533,660 | ||||||
Zoetis, Inc. | 4,153 | 233,025 | ||||||
|
| |||||||
8,520,936 | ||||||||
|
| |||||||
15,010,967 | ||||||||
|
|
24 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Food Beverage & Tobacco – 1.0% | ||||||||
Agricultural Products – 0.4% | ||||||||
Archer-Daniels-Midland Co. | 112,574 | $ | 5,150,261 | |||||
Bunge Ltd. | 10,010 | 791,090 | ||||||
Ingredion, Inc. | 5,182 | 641,635 | ||||||
|
| �� | ||||||
6,582,986 | ||||||||
|
| |||||||
Packaged Foods & Meats – 0.3% | ||||||||
Danone SA | 5,161 | 361,197 | ||||||
Mead Johnson Nutrition Co. – Class A | 8,962 | 795,109 | ||||||
Mondelez International, Inc. – Class A | 30,050 | 1,353,151 | ||||||
Nestle SA (REG) | 5,944 | 457,810 | ||||||
Tyson Foods, Inc. – Class A | 24,760 | 1,591,078 | ||||||
|
| |||||||
4,558,345 | ||||||||
|
| |||||||
Soft Drinks – 0.2% | ||||||||
PepsiCo, Inc. | 24,956 | 2,827,016 | ||||||
|
| |||||||
Tobacco – 0.1% | ||||||||
Altria Group, Inc. | 11,390 | 817,574 | ||||||
|
| |||||||
14,785,921 | ||||||||
|
| |||||||
Capital Goods – 0.9% | ||||||||
Aerospace & Defense – 0.2% | ||||||||
United Technologies Corp. | 22,414 | 2,667,042 | ||||||
|
| |||||||
Agricultural & Farm Machinery – 0.2% | ||||||||
Deere & Co. | 20,652 | 2,304,970 | ||||||
|
| |||||||
Construction & Farm Machinery & Heavy Trucks – 0.0% | ||||||||
Caterpillar, Inc. | 4,679 | 478,474 | ||||||
|
| |||||||
Electrical Components & Equipment – 0.2% | ||||||||
Acuity Brands, Inc. | 1,100 | 193,710 | ||||||
Emerson Electric Co. | 4,466 | 269,210 | ||||||
Legrand SA | 33,728 | 2,183,245 | ||||||
|
| |||||||
2,646,165 | ||||||||
|
| |||||||
Industrial Conglomerates – 0.2% | ||||||||
3M Co. | 4,229 | 828,165 | ||||||
Jardine Matheson Holdings Ltd. | 5,900 | 379,682 | ||||||
Jardine Strategic Holdings Ltd. | 31,700 | 1,339,511 | ||||||
Siemens AG (REG) | 1,706 | 244,714 | ||||||
Smiths Group PLC | 29,019 | 616,899 | ||||||
|
| |||||||
3,408,971 | ||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 25 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Industrial Machinery – 0.1% | ||||||||
Amada Holdings Co., Ltd. | 27,200 | $ | 323,390 | |||||
Atlas Copco AB – Class A | 11,712 | 437,502 | ||||||
Atlas Copco AB – Class B | 9,284 | 308,508 | ||||||
|
| |||||||
1,069,400 | ||||||||
|
| |||||||
Trading Companies & Distributors – 0.0% | ||||||||
Wolseley PLC | 8,539 | 542,714 | ||||||
|
| |||||||
13,117,736 | ||||||||
|
| |||||||
Banks – 0.7% | ||||||||
Diversified Banks – 0.4% | ||||||||
Bankinter SA | 202,405 | 1,781,763 | ||||||
Credicorp Ltd. | 2,547 | 391,372 | ||||||
JPMorgan Chase & Co. | 6,752 | 587,424 | ||||||
Komercni banka as | 12,603 | 488,302 | ||||||
Nordea Bank AB | 187,957 | 2,311,648 | ||||||
|
| |||||||
5,560,509 | ||||||||
|
| |||||||
Regional Banks – 0.2% | ||||||||
Bank of Hawaii Corp. | 5,974 | 486,761 | ||||||
Huishang Bank Corp., Ltd. – Class H | 1,356,000 | 640,801 | ||||||
SVB Financial Group(b) | 10,071 | 1,771,892 | ||||||
|
| |||||||
2,899,454 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance – 0.1% | ||||||||
Aareal Bank AG | 38,110 | 1,532,815 | ||||||
|
| |||||||
9,992,778 | ||||||||
|
| |||||||
Transportation – 0.7% | ||||||||
Airport Services – 0.1% | ||||||||
Auckland International Airport Ltd. | 82,198 | 389,503 | ||||||
BBA Aviation PLC | 33,173 | 133,820 | ||||||
Sydney Airport | 275,960 | 1,425,301 | ||||||
|
| |||||||
1,948,624 | ||||||||
|
| |||||||
Highways & Railtracks – 0.3% | ||||||||
Transurban Group | 321,300 | 2,935,362 | ||||||
Zhejiang Expressway Co., Ltd. – Class H | 436,000 | 542,377 | ||||||
|
| |||||||
3,477,739 | ||||||||
|
| |||||||
Railroads – 0.3% | ||||||||
Canadian National Railway Co. (Toronto) | 9,170 | 662,836 | ||||||
CSX Corp. | 19,691 | 1,001,090 | ||||||
East Japan Railway Co. | 19,600 | 1,758,955 | ||||||
Norfolk Southern Corp. | 7,589 | 891,632 | ||||||
|
| |||||||
4,314,513 | ||||||||
|
| |||||||
9,740,876 | ||||||||
|
|
26 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Diversified Financials – 0.6% | ||||||||
Asset Management & Custody Banks – 0.2% | ||||||||
CI Financial Corp. | 37,463 | $ | 732,766 | |||||
Northern Trust Corp. | 10,045 | 904,050 | ||||||
State Street Corp. | 5,821 | 488,382 | ||||||
T. Rowe Price Group, Inc. | 11,420 | 809,563 | ||||||
|
| |||||||
2,934,761 | ||||||||
|
| |||||||
Consumer Finance – 0.0% | ||||||||
Hitachi Capital Corp. | 16,000 | 391,769 | ||||||
Provident Financial PLC | 4,293 | 178,191 | ||||||
|
| |||||||
569,960 | ||||||||
|
| |||||||
Diversified Capital Markets – 0.1% | ||||||||
Close Brothers Group PLC | 7,723 | 169,206 | ||||||
Investec PLC | 52,149 | 386,345 | ||||||
Macquarie Group Ltd. | 6,122 | 425,276 | ||||||
|
| |||||||
980,827 | ||||||||
|
| |||||||
Financial Exchanges & Data – 0.2% | ||||||||
ASX Ltd. | 17,483 | 662,775 | ||||||
CME Group, Inc. – Class A | 15,394 | 1,788,629 | ||||||
|
| |||||||
2,451,404 | ||||||||
|
| |||||||
Investment Banking & Brokerage – 0.1% | ||||||||
Charles Schwab Corp. (The) | 52,855 | 2,053,417 | ||||||
|
| |||||||
Multi-Sector Holdings – 0.0% | ||||||||
Berkshire Hathaway, Inc. – Class B(b) | 1,147 | 189,496 | ||||||
|
| |||||||
9,179,865 | ||||||||
|
| |||||||
Software & Services – 0.6% | ||||||||
Application Software – 0.2% | ||||||||
Citrix Systems, Inc.(b) | 1,784 | 144,397 | ||||||
Dassault Systemes SE | 2,602 | 232,153 | ||||||
Intuit, Inc. | 18,612 | 2,330,408 | ||||||
|
| |||||||
2,706,958 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 0.0% | ||||||||
Automatic Data Processing, Inc. | 1,529 | 159,765 | ||||||
Paychex, Inc. | 2,420 | 143,458 | ||||||
Wirecard AG | 4,182 | 247,283 | ||||||
|
| |||||||
550,506 | ||||||||
|
| |||||||
Internet Software & Services – 0.1% | ||||||||
United Internet AG | 11,345 | 522,167 | ||||||
VeriSign, Inc.(b) | 5,053 | 449,313 | ||||||
|
| |||||||
971,480 | ||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 27 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
IT Consulting & Other Services – 0.2% | ||||||||
Cap Gemini SA | 2,526 | $ | 252,908 | |||||
Fujitsu Ltd. | 261,000 | 1,629,245 | ||||||
Gartner, Inc.(b) | 1,987 | 226,697 | ||||||
Otsuka Corp. | 12,100 | 648,137 | ||||||
|
| |||||||
2,756,987 | ||||||||
|
| |||||||
Systems Software – 0.1% | ||||||||
Check Point Software Technologies Ltd.(b) | 7,426 | 772,378 | ||||||
Red Hat, Inc.(b) | 1,656 | 145,861 | ||||||
|
| |||||||
918,239 | ||||||||
|
| |||||||
7,904,170 | ||||||||
|
| |||||||
Retailing – 0.5% | ||||||||
Apparel Retail – 0.2% | ||||||||
Ross Stores, Inc. | 33,403 | 2,171,195 | ||||||
Shimamura Co., Ltd. | 2,200 | 301,096 | ||||||
TJX Cos., Inc. (The) | 4,107 | 322,974 | ||||||
|
| |||||||
2,795,265 | ||||||||
|
| |||||||
Automotive Retail – 0.1% | ||||||||
AutoZone, Inc.(b) | 407 | 281,722 | ||||||
O’Reilly Automotive, Inc.(b) | 1,562 | 387,610 | ||||||
|
| |||||||
669,332 | ||||||||
|
| |||||||
Distributors – 0.0% | ||||||||
Genuine Parts Co. | 3,405 | 313,328 | ||||||
|
| |||||||
General Merchandise Stores – 0.0% | ||||||||
Dollar General Corp. | 3,191 | 232,018 | ||||||
|
| |||||||
Home Improvement Retail – 0.0% | ||||||||
Kingfisher PLC | 71,038 | 314,268 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 0.1% | ||||||||
Expedia, Inc. | 6,517 | 871,453 | ||||||
Liberty Interactive Corp. QVC Group – Class A(b) | 31,317 | 663,294 | ||||||
|
| |||||||
1,534,747 | ||||||||
|
| |||||||
Specialty Stores – 0.1% | ||||||||
Staples, Inc. | 31,210 | 304,922 | ||||||
Tiffany & Co. | 1,402 | 128,493 | ||||||
Tractor Supply Co. | 4,710 | 291,596 | ||||||
|
| |||||||
725,011 | ||||||||
|
| |||||||
6,583,969 | ||||||||
|
| |||||||
Consumer Services – 0.4% | ||||||||
Casinos & Gaming – 0.2% | ||||||||
Aristocrat Leisure Ltd. | 155,687 | 2,287,925 | ||||||
|
|
28 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Hotels, Resorts & Cruise Lines – 0.0% | ||||||||
Wyndham Worldwide Corp. | 6,071 | $ | 578,627 | |||||
|
| |||||||
Restaurants – 0.2% | ||||||||
McDonald’s Corp. | 18,718 | 2,619,210 | ||||||
Sodexo SA | 3,094 | 393,221 | ||||||
|
| |||||||
3,012,431 | ||||||||
|
| |||||||
5,878,983 | ||||||||
|
| |||||||
Household & Personal Products – 0.4% | ||||||||
Household Products – 0.4% | ||||||||
Colgate-Palmolive Co. | 32,505 | 2,341,660 | ||||||
Henkel AG & Co. KGaA | 3,151 | 367,567 | ||||||
Procter & Gamble Co. (The) | 32,463 | 2,834,994 | ||||||
|
| |||||||
5,544,221 | ||||||||
|
| |||||||
Technology Hardware & Equipment – 0.4% | ||||||||
Communications Equipment – 0.3% | ||||||||
Cisco Systems, Inc. | 80,799 | 2,752,822 | ||||||
Palo Alto Networks, Inc.(b) | 6,894 | 747,378 | ||||||
|
| |||||||
3,500,200 | ||||||||
|
| |||||||
Electronic Equipment & Instruments – 0.0% | ||||||||
Keyence Corp. | 300 | 120,604 | ||||||
|
| |||||||
Technology Distributors – 0.1% | ||||||||
Arrow Electronics, Inc.(b) | 2,293 | 161,657 | ||||||
Avnet, Inc. | 22,703 | 878,379 | ||||||
CDW Corp./DE | 8,978 | 530,510 | ||||||
|
| |||||||
1,570,546 | ||||||||
|
| |||||||
5,191,350 | ||||||||
|
| |||||||
Consumer Durables & Apparel – 0.3% | ||||||||
Apparel, Accessories & Luxury Goods – 0.3% | ||||||||
Christian Dior SE | 3,095 | 848,848 | ||||||
Cie Financiere Richemont SA (REG) | 6,768 | 565,524 | ||||||
LVMH Moet Hennessy Louis Vuitton SE | 1,067 | 263,409 | ||||||
Samsonite International SA | 230,100 | 886,423 | ||||||
VF Corp. | 15,482 | 845,782 | ||||||
|
| |||||||
3,409,986 | ||||||||
|
| |||||||
Consumer Electronics – 0.0% | ||||||||
Panasonic Corp. | 29,200 | 349,181 | ||||||
|
| |||||||
Footwear – 0.0% | ||||||||
NIKE, Inc. – Class B | 7,654 | 424,108 | ||||||
|
| |||||||
Home Furnishings – 0.0% | ||||||||
Mohawk Industries, Inc.(b) | 818 | 192,058 | ||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 29 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Homebuilding – 0.0% | ||||||||
Corp. GEO SAB de CV Series B(b) | 1,321 | $ | 183 | |||||
Cyrela Brazil Realty SA Empreendimentos e Participacoes | 39,000 | 162,190 | ||||||
Desarrolladora Homex SAB de CV(b) | 1,590 | 154 | ||||||
MRV Engenharia e Participacoes SA | 39,450 | 198,117 | ||||||
Urbi Desarrollos Urbanos SAB de CV(b) | 172 | 65 | ||||||
|
| |||||||
360,709 | ||||||||
|
| |||||||
4,736,042 | ||||||||
|
| |||||||
Food & Staples Retailing – 0.3% | ||||||||
Food Distributors – 0.1% | ||||||||
Sysco Corp. | 29,296 | 1,548,879 | ||||||
|
| |||||||
Food Retail – 0.0% | ||||||||
George Weston Ltd. | 3,202 | 287,560 | ||||||
|
| |||||||
Hypermarkets & Super Centers – 0.2% | ||||||||
Carrefour SA | 13,583 | 319,896 | ||||||
Costco Wholesale Corp. | 5,425 | 963,046 | ||||||
Wal-Mart Stores, Inc. | 19,113 | 1,436,916 | ||||||
|
| |||||||
2,719,858 | ||||||||
|
| |||||||
4,556,297 | ||||||||
|
| |||||||
Insurance – 0.2% | ||||||||
Life & Health Insurance – 0.2% | ||||||||
CNP Assurances | 55,935 | 1,168,413 | ||||||
Legal & General Group PLC | 57,166 | 182,192 | ||||||
Principal Financial Group, Inc. | 14,291 | 930,773 | ||||||
|
| |||||||
2,281,378 | ||||||||
|
| |||||||
Property & Casualty Insurance – 0.0% | ||||||||
Suncorp Group Ltd. | 21,571 | 222,368 | ||||||
|
| |||||||
2,503,746 | ||||||||
|
| |||||||
Media – 0.2% | ||||||||
Cable & Satellite – 0.0% | ||||||||
Eutelsat Communications SA | 21,092 | 499,026 | ||||||
|
| |||||||
Movies & Entertainment – 0.1% | ||||||||
Regal Entertainment Group – Class A | 59,360 | 1,310,075 | ||||||
|
| |||||||
Publishing – 0.1% | ||||||||
Pearson PLC | 61,219 | 504,976 | ||||||
|
| |||||||
2,314,077 | ||||||||
|
| |||||||
Health Care Equipment & Services – 0.2% | ||||||||
Health Care Distributors – 0.1% | ||||||||
Sinopharm Group Co., Ltd. – Class H | 105,200 | 471,532 | ||||||
|
|
30 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Health Care Equipment – 0.1% | ||||||||
CR Bard, Inc. | 844 | $ | 259,513 | |||||
DiaSorin SpA | 7,367 | 552,111 | ||||||
Stryker Corp. | 2,469 | 336,698 | ||||||
Varian Medical Systems, Inc.(b) | 1,911 | 173,404 | ||||||
|
| |||||||
1,321,726 | ||||||||
|
| |||||||
Health Care Facilities – 0.0% | ||||||||
VCA, Inc.(b) | 4,735 | 433,584 | ||||||
|
| |||||||
2,226,842 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment – 0.2% | ||||||||
Semiconductor Equipment – 0.0% | ||||||||
ASML Holding NV | 1,616 | 213,682 | ||||||
|
| |||||||
Semiconductors – 0.2% | ||||||||
Analog Devices, Inc. | 2,166 | 165,049 | ||||||
Maxim Integrated Products, Inc. | 5,262 | 232,317 | ||||||
Rohm Co., Ltd. | 9,400 | 660,143 | ||||||
STMicroelectronics NV | 53,042 | 851,798 | ||||||
|
| |||||||
1,909,307 | ||||||||
|
| |||||||
2,122,989 | ||||||||
|
| |||||||
Commercial & Professional Services – 0.1% | ||||||||
Diversified Support Services – 0.1% | ||||||||
Cintas Corp. | 1,954 | 239,307 | ||||||
Ritchie Bros Auctioneers, Inc. | 33,753 | 1,106,761 | ||||||
|
| |||||||
1,346,068 | ||||||||
|
| |||||||
Environmental & Facilities Services – 0.0% | ||||||||
Waste Connections, Inc. | 7,371 | 678,107 | ||||||
|
| |||||||
2,024,175 | ||||||||
|
| |||||||
Automobiles & Components – 0.1% | ||||||||
Auto Parts & Equipment – 0.0% | ||||||||
Aisin Seiki Co., Ltd. | 6,800 | 333,045 | ||||||
Autoliv, Inc. | 2,238 | 224,225 | ||||||
|
| |||||||
557,270 | ||||||||
|
| |||||||
Automobile Manufacturers – 0.1% | ||||||||
Suzuki Motor Corp. | 28,900 | 1,208,105 | ||||||
|
| |||||||
1,765,375 | ||||||||
|
| |||||||
Utilities – 0.0% | ||||||||
Electric Utilities – 0.0% | ||||||||
Xcel Energy, Inc. | 10,267 | 462,529 | ||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 31 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Multi-Utilities – 0.0% | ||||||||||||
Consolidated Edison, Inc. | 2,769 | $ | 219,526 | |||||||||
|
| |||||||||||
682,055 | ||||||||||||
|
| |||||||||||
Total Common Stocks | 737,119,447 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
INFLATION-LINKED SECURITIES – 28.9% | ||||||||||||
United States – 20.0% | ||||||||||||
U.S. Treasury Inflation Index | $ | 90,009 | 90,435,587 | |||||||||
1.125%, 1/15/21 (TIPS)(e) | 59,231 | 62,220,444 | ||||||||||
1.375%, 7/15/18 (TIPS) | 25,525 | 26,183,189 | ||||||||||
1.625%, 1/15/18 (TIPS) | 54,096 | 54,839,951 | ||||||||||
1.875%, 7/15/19 (TIPS) | 18,391 | 19,418,145 | ||||||||||
2.125%, 1/15/19 (TIPS) | 29,761 | 31,086,174 | ||||||||||
|
| |||||||||||
284,183,490 | ||||||||||||
|
| |||||||||||
Japan – 8.9% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 13,340,510 | 126,461,689 | |||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 410,645,179 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 13.5% | ||||||||||||
Funds and Investment Trusts – 13.5%(f) | ||||||||||||
BB Progressivo II FII | 14,901 | 638,001 | ||||||||||
Global X MLP ETF | 1,192,493 | 13,773,294 | ||||||||||
iShares Global Energy ETF | 216,280 | 7,026,937 | ||||||||||
iShares Global Financials ETF | 229,364 | 14,030,196 | ||||||||||
iShares MSCI Europe Financials ETF | 663,846 | 14,126,643 | ||||||||||
iShares MSCI Global Metals & Mining Producers ETF | 331,956 | 9,022,564 | ||||||||||
Kinea Renda Imobiliaria FII | 13,062 | 602,925 | ||||||||||
SPDR S&P Dividend ETF | 206,030 | 18,266,620 | ||||||||||
SPDR S&P Oil & Gas Exploration & Production ETF | 194,378 | 6,793,511 | ||||||||||
VanEck Vectors Oil Services ET | 766,279 | 21,356,196 | ||||||||||
Vanguard Dividend Appreciation ETF | 115,196 | 10,539,282 |
32 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||
| ||||||||
Vanguard Global ex-U.S. Real Estate ETF | 1,036,166 | $ | 56,429,600 | |||||
Vanguard REIT ETF | 219,992 | 18,213,138 | ||||||
|
| |||||||
Total Investment Companies | 190,818,907 | |||||||
|
| |||||||
WARRANTS – 0.0% | ||||||||
Real Estate – 0.0% | ||||||||
Diversified Real Estate Activities – 0.0% | ||||||||
Eastern & Oriental Bhd, expiring 7/21/19(b) | 12,100 | 641 | ||||||
|
| |||||||
SHORT-TERM INVESTMENTS – 2.8% | ||||||||
Investment Companies – 2.8% | ||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.57%(f)(g) | 39,861,671 | 39,861,671 | ||||||
|
| |||||||
Total Investments – 97.2% | 1,378,445,845 | |||||||
Other assets less liabilities – 2.8% | 40,183,337 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 1,418,629,182 | ||||||
|
|
FUTURES (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at April 30, 2017 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts |
| |||||||||||||||||||
Brent Crude Oil Futures | 87 | June 2017 | $ | 4,555,318 | $ | 4,556,190 | $ | 872 | ||||||||||||
Brent Crude Oil Futures | 271 | October 2018 | 14,722,069 | 14,273,570 | (448,499 | ) | ||||||||||||||
Brent Crude Oil Futures | 274 | October 2019 | 14,268,112 | 14,398,700 | 130,588 | |||||||||||||||
Cocoa Futures | 280 | July 2017 | 5,690,658 | 5,154,800 | (535,858 | ) | ||||||||||||||
Copper Futures | 363 | July 2017 | 23,280,462 | 23,663,063 | 382,601 | |||||||||||||||
Corn Futures | 372 | July 2017 | 6,948,201 | 6,816,900 | (131,301 | ) | ||||||||||||||
Gold 100 OZ Futures | 225 | June 2017 | 28,286,818 | 28,536,750 | 249,932 | |||||||||||||||
Lean Hogs Futures | 174 | June 2017 | 5,060,240 | 5,150,400 | 90,160 | |||||||||||||||
Live Cattle Futures | 258 | August 2017 | 12,075,969 | 12,389,160 | 313,191 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 33 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Type | Number of Contracts | Expiration Month | Original Value | Value at April 30, 2017 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
LME Lead Futures | 124 | June 2017 | $ | 7,286,879 | $ | 6,975,000 | $ | (311,879 | ) | |||||||||||
LME Nickel Futures | 84 | June 2017 | 4,758,142 | 4,751,460 | (6,682 | ) | ||||||||||||||
LME Primary Aluminum Futures | 149 | June 2017 | 7,317,412 | 7,104,506 | (212,906 | ) | ||||||||||||||
LME Zinc Futures | 178 | June 2017 | 12,039,254 | 11,660,113 | (379,141 | ) | ||||||||||||||
Low SU Gasoil Futures | 152 | July 2017 | 6,918,915 | 6,957,800 | 38,885 | |||||||||||||||
Natural Gas Futures | 761 | September 2017 | 24,920,614 | 25,714,190 | 793,576 | |||||||||||||||
Platinum Futures | 305 | July 2017 | 14,703,414 | 14,467,675 | (235,739 | ) | ||||||||||||||
Soybean Futures | 155 | July 2017 | 7,487,346 | 7,410,937 | (76,409 | ) | ||||||||||||||
Soybean Meal Futures | 119 | July 2017 | 3,731,002 | 3,758,020 | 27,018 | |||||||||||||||
TOPIX Index Futures | 213 | June 2017 | 29,516,603 | 29,234,357 | (282,246 | ) | ||||||||||||||
WTI Crude Futures | 289 | November 2018 | 14,645,670 | 14,554,040 | (91,630 | ) | ||||||||||||||
WTI Crude Futures | 424 | November 2019 | 21,298,964 | 21,344,160 | 45,196 | |||||||||||||||
Sold Contracts |
| |||||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 155 | June 2017 | 20,893,686 | 20,999,910 | (106,224 | ) | ||||||||||||||
Cattle Feeder Futures | 131 | August 2017 | 9,744,561 | 10,132,850 | (388,289 | ) | ||||||||||||||
Coffee Robusta Futures | 111 | July 2017 | 2,413,014 | 2,160,060 | 252,954 | |||||||||||||||
Cotton No.2 Futures | 373 | July 2017 | 14,531,268 | 14,709,255 | (177,987 | ) | ||||||||||||||
LME Nickel Futures | 84 | June 2017 | 4,889,552 | 4,751,460 | 138,092 | |||||||||||||||
LME Zinc Futures | 178 | June 2017 | 12,156,248 | 11,660,113 | 496,135 | |||||||||||||||
Natural Gas Futures | 23 | May 2017 | 739,232 | 753,480 | (14,248 | ) | ||||||||||||||
NY Harbor ULSD | 246 | May 2017 | 16,581,723 | 15,572,390 | 1,009,333 | |||||||||||||||
Silver Futures | 28 | July 2017 | 2,415,530 | 2,416,680 | (1,150 | ) | ||||||||||||||
U.S. T-Note | 144 | June 2017 | 34,358,308 | 34,574,625 | (216,317 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | 352,028 | |||||||||||||||||||
|
|
34 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 53,887 | AUD | 71,129 | 6/15/17 | $ | (666,590 | ) | ||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 34,550 | AUD | 46,328 | 6/15/17 | 113,478 | ||||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 10,109 | NZD | 14,349 | 6/15/17 | (268,132 | ) | |||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 731 | TWD | 22,320 | 6/15/17 | 9,394 | ||||||||||||||
Bank of America, NA | RUB | 430,639 | USD | 7,341 | 6/15/17 | (151,639 | ) | |||||||||||||
Bank of America, NA | USD | 5,113 | JPY | 564,507 | 6/15/17 | (40,791 | ) | |||||||||||||
Bank of America, NA | USD | 7,194 | RUB | 407,809 | 6/15/17 | (97,821 | ) | |||||||||||||
Barclays Bank PLC | MYR | 42,739 | USD | 9,826 | 5/26/17 | (28,496 | ) | |||||||||||||
Barclays Bank PLC | CHF | 13,651 | USD | 13,696 | 6/15/17 | (59,300 | ) | |||||||||||||
Barclays Bank PLC | CNY | 282,265 | USD | 40,731 | 6/15/17 | (15,358 | ) | |||||||||||||
Barclays Bank PLC | EUR | 14,091 | USD | 15,107 | 6/15/17 | (274,629 | ) | |||||||||||||
Barclays Bank PLC | GBP | 7,091 | USD | 8,648 | 6/15/17 | (547,529 | ) | |||||||||||||
Barclays Bank PLC | HUF | 3,389,811 | USD | 11,578 | 6/15/17 | (228,050 | ) | |||||||||||||
Barclays Bank PLC | INR | 24,153 | USD | 357 | 6/15/17 | (17,278 | ) | |||||||||||||
Barclays Bank PLC | JPY | 4,845,529 | USD | 42,161 | 6/15/17 | (1,380,833 | ) | |||||||||||||
Barclays Bank PLC | KRW | 15,528,776 | USD | 13,673 | 6/15/17 | 18,636 | ||||||||||||||
Barclays Bank PLC | MXN | 16,654 | USD | 831 | 6/15/17 | (47,549 | ) | |||||||||||||
Barclays Bank PLC | NOK | 8,065 | USD | 938 | 6/15/17 | (1,461 | ) | |||||||||||||
Barclays Bank PLC | TRY | 5,127 | USD | 1,336 | 6/15/17 | (89,148 | ) | |||||||||||||
Barclays Bank PLC | USD | 606 | CAD | 818 | 6/15/17 | (6,643 | ) | |||||||||||||
Barclays Bank PLC | USD | 19,888 | EUR | 18,668 | 6/15/17 | 490,022 | ||||||||||||||
Barclays Bank PLC | USD | 7,400 | INR | 477,141 | 6/15/17 | (11,417 | ) | |||||||||||||
Barclays Bank PLC | USD | 7,900 | INR | �� | 534,882 | 6/15/17 | 382,624 | |||||||||||||
Barclays Bank PLC | USD | 3,779 | JPY | 434,326 | 6/15/17 | 123,770 | ||||||||||||||
Barclays Bank PLC | USD | 7,391 | KRW | 8,246,279 | 6/15/17 | (140,255 | ) | |||||||||||||
Barclays Bank PLC | USD | 5,907 | MXN | 111,476 | 6/15/17 | (27,407 | ) | |||||||||||||
Barclays Bank PLC | USD | 7,816 | MXN | 156,681 | 6/15/17 | 447,338 | ||||||||||||||
Barclays Bank PLC | USD | 4,737 | NOK | 40,715 | 6/15/17 | 7,375 | ||||||||||||||
Barclays Bank PLC | USD | 8,120 | TRY | 31,156 | 6/15/17 | 541,743 | ||||||||||||||
Barclays Bank PLC | ZAR | 88,365 | USD | 6,603 | 6/15/17 | 39,147 | ||||||||||||||
Barclays Bank PLC | USD | 11,826 | PLN | 48,081 | 6/16/17 | 563,338 | ||||||||||||||
BNP Paribas SA | AUD | 92,156 | USD | 70,578 | 6/15/17 | 1,625,213 | ||||||||||||||
BNP Paribas SA | CAD | 24,114 | USD | 18,177 | 6/15/17 | 500,798 | ||||||||||||||
BNP Paribas SA | JPY | 1,461,695 | USD | 13,140 | 6/15/17 | 4,901 | ||||||||||||||
BNP Paribas SA | PEN | 12,727 | USD | 3,861 | 6/15/17 | (43,540 | ) | |||||||||||||
BNP Paribas SA | USD | 38,904 | AUD | 50,331 | 6/15/17 | (1,245,035 | ) | |||||||||||||
BNP Paribas SA | USD | 18,257 | CAD | 24,068 | 6/15/17 | (614,456 | ) | |||||||||||||
BNP Paribas SA | USD | 11,768 | CNY | 81,834 | 6/15/17 | 45,659 | ||||||||||||||
BNP Paribas SA | USD | 10,411 | GBP | 8,443 | 6/15/17 | 536,761 | ||||||||||||||
BNP Paribas SA | USD | 5,736 | MXN | 109,615 | 6/15/17 | 45,629 | ||||||||||||||
Citibank, NA | BRL | 12,698 | USD | 3,970 | 5/03/17 | (30,458 | ) | |||||||||||||
Citibank, NA | USD | 4,104 | BRL | 12,698 | 5/03/17 | (103,508 | ) | |||||||||||||
Citibank, NA | CHF | 17,011 | USD | 16,897 | 6/15/17 | (244,444 | ) | |||||||||||||
Citibank, NA | NOK | 37,767 | USD | 4,461 | 6/15/17 | 59,603 | ||||||||||||||
Citibank, NA | SEK | 12,553 | USD | 1,403 | 6/15/17 | (17,136 | ) |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 35 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Citibank, NA | USD | 10,553 | CHF | 10,600 | 6/15/17 | $ | 128,214 | |||||||||||||
Citibank, NA | USD | 10,250 | MXN | 207,969 | 6/15/17 | 718,143 | ||||||||||||||
Citibank, NA | USD | 27,725 | TWD | 836,608 | 6/15/17 | 16,253 | ||||||||||||||
Credit Suisse International | CAD | 18,450 | USD | 13,865 | 6/15/17 | 340,656 | ||||||||||||||
Credit Suisse International | CHF | 43,549 | USD | 43,966 | 6/15/17 | 82,901 | ||||||||||||||
Credit Suisse International | CLP | 12,036,469 | USD | 18,220 | 6/15/17 | 222,024 | ||||||||||||||
Credit Suisse International | COP | 59,098,198 | USD | 19,958 | 6/15/17 | (22 | ) | |||||||||||||
Credit Suisse International | CZK | 1,181,945 | USD | 47,873 | 6/15/17 | (211,906 | ) | |||||||||||||
Credit Suisse International | GBP | 29,721 | USD | 37,178 | 6/15/17 | (1,362,610 | ) | |||||||||||||
Credit Suisse International | HUF | 5,959,384 | USD | 20,574 | 6/15/17 | (182,298 | ) | |||||||||||||
Credit Suisse International | HUF | 11,079,960 | USD | 38,935 | 6/15/17 | 344,244 | ||||||||||||||
Credit Suisse International | JPY | 2,684,380 | USD | 24,039 | 6/15/17 | (82,552 | ) | |||||||||||||
Credit Suisse International | KRW | 15,997,079 | USD | 14,176 | 6/15/17 | 109,066 | ||||||||||||||
Credit Suisse International | NOK | 321,299 | USD | 37,401 | 6/15/17 | (38,846 | ) | |||||||||||||
Credit Suisse International | NOK | 370,296 | USD | 43,699 | 6/15/17 | 549,228 | ||||||||||||||
Credit Suisse International | NZD | 138,502 | USD | 96,621 | 6/15/17 | 1,631,363 | ||||||||||||||
Credit Suisse International | SEK | 75,062 | USD | 8,375 | 6/15/17 | (118,360 | ) | |||||||||||||
Credit Suisse International | TWD | 273,599 | USD | 9,075 | 6/15/17 | 2,203 | ||||||||||||||
Credit Suisse International | USD | 50,557 | CAD | 68,620 | 6/15/17 | (255,237 | ) | |||||||||||||
Credit Suisse International | USD | 18,724 | CHF | 18,573 | 6/15/17 | (8,667 | ) | |||||||||||||
Credit Suisse International | USD | 4,213 | COP | 12,421,172 | 6/15/17 | (18,735 | ) | |||||||||||||
Credit Suisse International | USD | 44,544 | EUR | 41,348 | 6/15/17 | 592,586 | ||||||||||||||
Credit Suisse International | USD | 37,903 | HUF | 10,827,323 | 6/15/17 | (192,681 | ) | |||||||||||||
Credit Suisse International | USD | 35,960 | IDR | 481,145,318 | 6/15/17 | (10,651 | ) | |||||||||||||
Credit Suisse International | USD | 21,721 | MXN | 418,983 | 6/15/17 | 376,936 | ||||||||||||||
Credit Suisse International | USD | 26,935 | NOK | 228,557 | 6/15/17 | (301,628 | ) | |||||||||||||
Credit Suisse International | USD | 18,277 | NZD | 26,360 | 6/15/17 | (198,753 | ) | |||||||||||||
Credit Suisse International | USD | 42,375 | PHP | 2,127,688 | 6/15/17 | (122,078 | ) | |||||||||||||
Credit Suisse International | USD | 42,804 | SEK | 377,159 | 6/15/17 | (127,892 | ) | |||||||||||||
Credit Suisse International | USD | 15,596 | SEK | 139,261 | 6/15/17 | 161,007 | ||||||||||||||
Credit Suisse International | USD | 11,466 | TRY | 42,691 | 6/15/17 | 403,001 | ||||||||||||||
Credit Suisse International | ZAR | 138,545 | USD | 10,459 | 6/15/17 | 168,305 | ||||||||||||||
Credit Suisse International | PLN | 88,315 | USD | 22,467 | 6/16/17 | (289,769 | ) | |||||||||||||
Credit Suisse International | USD | 8,778 | PLN | 33,988 | 6/16/17 | (19,923 | ) | |||||||||||||
Credit Suisse International | USD | 59,774 | PLN | 238,594 | 6/16/17 | 1,705,277 | ||||||||||||||
Credit Suisse International | USD | 3,853 | BRL | 12,338 | 7/05/17 | (22,533 | ) | |||||||||||||
Goldman Sachs Bank USA | BRL | 12,698 | USD | 4,043 | 5/03/17 | 42,096 | ||||||||||||||
Goldman Sachs Bank USA | USD | 3,970 | BRL | 12,698 | 5/03/17 | 30,458 | ||||||||||||||
Goldman Sachs Bank USA | CNY | 31,122 | USD | 4,480 | 6/15/17 | (12,726 | ) | |||||||||||||
Goldman Sachs Bank USA | EUR | 18,668 | USD | 19,903 | 6/15/17 | (475,032 | ) | |||||||||||||
Goldman Sachs Bank USA | TWD | 677,626 | USD | 22,243 | 6/15/17 | (226,931 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 44,559 | CNY | 308,596 | 6/15/17 | (11,202 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 3,660 | EUR | 3,419 | 6/15/17 | 72,321 | ||||||||||||||
Goldman Sachs Bank USA | USD | 26,990 | INR | 1,773,516 | 6/15/17 | 472,415 | ||||||||||||||
Goldman Sachs Bank USA | BRL | 3,953 | USD | 1,240 | 7/05/17 | 12,796 | ||||||||||||||
HSBC Bank USA | GBP | 15,803 | USD | 19,752 | 6/15/17 | (740,729 | ) | |||||||||||||
HSBC Bank USA | JPY | 460,992 | USD | 4,072 | 6/15/17 | (70,034 | ) | |||||||||||||
HSBC Bank USA | USD | 5,713 | CHF | 5,683 | 6/15/17 | 14,058 | ||||||||||||||
HSBC Bank USA | USD | 22,520 | GBP | 17,830 | 6/15/17 | 600,971 | ||||||||||||||
JPMorgan Chase Bank, NA | PHP | 6,017,871 | USD | 119,379 | 6/15/17 | (127,848 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 8,190 | AUD | 10,845 | 6/15/17 | (75,715 | ) |
36 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 10,847 | IDR | 145,189,715 | 6/15/17 | $ | 839 | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 5,128 | SGD | 7,168 | 6/15/17 | 4,542 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 24,884 | TRY | 91,841 | 6/15/17 | 649,750 | ||||||||||||||||||
JPMorgan Chase Bank, NA | ZAR | 270,600 | USD | 21,232 | 6/15/17 | 1,132,302 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | AUD | 29,304 | USD | 22,433 | 6/15/17 | 507,594 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | GBP | 2,122 | USD | 2,616 | 6/15/17 | (135,938 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | JPY | 2,390,038 | USD | 20,919 | 6/15/17 | (558,062 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | PEN | 15,027 | USD | 4,565 | 6/15/17 | (45,868 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | RUB | 229,399 | USD | 3,866 | 6/15/17 | (125,880 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 908 | COP | 2,686,929 | 6/15/17 | (204 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 24,938 | EUR | 22,810 | 6/15/17 | (37,674 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 21,083 | HUF | 6,053,238 | 6/15/17 | (361 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 5,416 | IDR | 73,003,327 | 6/15/17 | 38,860 | ||||||||||||||||||
Nomura Global Financial Products, Inc. | USD | 14,583 | INR | 982,592 | 6/15/17 | 632,353 | ||||||||||||||||||
Nomura Global Financial Products, Inc. | USD | 88,103 | JPY | 9,784,276 | 6/15/17 | (182,439 | ) | |||||||||||||||||
Nomura Global Financial Products, Inc. | USD | 30,064 | PHP | 1,523,801 | 6/15/17 | 196,381 | ||||||||||||||||||
Royal Bank of Scotland PLC | CLP | 23,334,746 | USD | 35,485 | 6/15/17 | 594,163 | ||||||||||||||||||
Royal Bank of Scotland PLC | CNY | 51,823 | USD | 7,467 | 6/15/17 | (14,193 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | COP | 36,068,093 | USD | 12,397 | 6/15/17 | 216,298 | ||||||||||||||||||
Royal Bank of Scotland PLC | EUR | 11,186 | USD | 12,140 | 6/15/17 | (70,837 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | JPY | 8,326,694 | USD | 75,285 | 6/15/17 | 462,220 | ||||||||||||||||||
Royal Bank of Scotland PLC | KRW | 30,394,459 | USD | 27,199 | 6/15/17 | 472,344 | ||||||||||||||||||
Royal Bank of Scotland PLC | MXN | 68,736 | USD | 3,559 | 6/15/17 | (66,495 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | PEN | 101,841 | USD | 31,143 | 6/15/17 | (104,101 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | TWD | 1,285,790 | USD | 42,500 | 6/15/17 | (136,246 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 4,590 | AUD | 6,113 | 6/15/17 | (16,515 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 32,503 | CLP | 21,583,567 | 6/15/17 | (230,155 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 6,106 | COP | 17,883,285 | 6/15/17 | (66,324 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 17,868 | EUR | 16,433 | 6/15/17 | 71,034 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 1,487 | HKD | 11,530 | 6/15/17 | (3,100 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 29,406 | PEN | 96,041 | 6/15/17 | 60,901 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 42,345 | PHP | 2,131,220 | 6/15/17 | (21,924 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 4,024 | IDR | 54,486,447 | 6/15/17 | 47,211 | ||||||||||||||||||
State Street Bank & Trust Co. | CAD | 39,219 | USD | 29,181 | 6/15/17 | 432,191 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 9,174 | USD | 9,785 | 6/15/17 | (229,663 | ) | |||||||||||||||||
State Street Bank & Trust Co. | NZD | 58 | USD | 40 | 6/15/17 | 346 | ||||||||||||||||||
State Street Bank & Trust Co. | THB | 654,767 | USD | 18,796 | 6/15/17 | (127,990 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 4,124 | EUR | 3,850 | 6/15/17 | 78,464 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 2,848 | GBP | 2,207 | 6/15/17 | 14,078 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 2,326 | SGD | 3,287 | 6/15/17 | 27,763 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 7,780 | THB | 267,685 | 6/15/17 | (43,341 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 12,602 | THB | 436,757 | 6/15/17 | 21,149 | ||||||||||||||||||
State Street Bank & Trust Co. | ZAR | 2,134 | USD | 161 | 6/15/17 | 2,932 | ||||||||||||||||||
UBS AG | KRW | 9,205,910 | USD | 8,082 | 6/15/17 | (13,005 | ) | |||||||||||||||||
UBS AG | TWD | 392,239 | USD | 12,806 | 6/15/17 | (200,714 | ) | |||||||||||||||||
UBS AG | USD | 12,630 | GBP | 10,109 | 6/15/17 | 479,456 | ||||||||||||||||||
UBS AG | USD | 126 | KRW | 143,866 | 6/15/17 | 203 | ||||||||||||||||||
UBS AG | USD | 4,625 | PHP | 235,162 | 6/15/17 | 45,362 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | 6,405,397 | |||||||||||||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 37 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Citibank, NA | $ | 57,600 | 10/16/20 | 1.780% | CPI# | $ | 652,335 | |||||||||||||
Citibank, NA | 8,000 | 3/08/21 | 2.200% | CPI# | (6,906 | ) | ||||||||||||||
Deutsche Bank AG | 79,870 | 3/20/21 | 2.221% | CPI# | (104,452 | ) | ||||||||||||||
Deutsche Bank AG | 13,512 | 3/25/25 | 2.205% | CPI# | 26,892 | |||||||||||||||
Deutsche Bank AG | 12,679 | 3/25/25 | 2.205% | CPI# | 25,234 | |||||||||||||||
Deutsche Bank AG | 31,194 | 3/26/25 | 2.170% | CPI# | 113,652 | |||||||||||||||
Deutsche Bank AG | 18,987 | 3/26/25 | 2.195% | CPI# | 46,842 | |||||||||||||||
Deutsche Bank AG | 54,500 | 7/30/25 | 2.278% | CPI# | (37,042 | ) | ||||||||||||||
Deutsche Bank AG | 16,640 | 2/28/27 | 2.376% | CPI# | 16,063 | |||||||||||||||
JPMorgan Chase Bank, NA | 76,719 | 3/30/25 | 2.170% | CPI# | 287,487 | |||||||||||||||
JPMorgan Chase Bank, NA | 76,719 | 4/01/25 | 2.170% | CPI# | 282,218 | |||||||||||||||
JPMorgan Chase Bank, NA | 366,340 | 3/21/27 | 2.403% | CPI# | (2,172,275 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | (869,952 | ) | ||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
TOTAL RETURN SWAPS (see Note D)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||
JPMorgan Chase Bank, NA | ||||||||||||||||||||
Bloomberg Industrial Metals Subindex 3 Month Forward | 223,294 | 0.12 | % | USD 38,477 | 6/15/17 | $ | 827,384 | |||||||||||||
Bloomberg Industrial Metals Subindex 3 Month Forward | 176,579 | 0.12 | % | 31,968 | 6/15/17 | (900,380 | ) | |||||||||||||
Bloomberg Petroleum Subindex 3 Month Forward | 8,114,485 | 0.11 | % | 8,115 | 6/15/17 | �� | (48,037 | ) | ||||||||||||
Bloomberg Petroleum Subindex 3 Month Forward | 62,604 | 0.11 | % | 23,081 | 6/15/17 | (1,596,012) | ||||||||||||||
Bloomberg Precious Metals Subindex 3 Month Forward | 130,475 | 0.11 | % | 22,657 | 6/15/17 | 975,744 | ||||||||||||||
Bloomberg Precious Metals Subindex 3 Month Forward | 183,600 | 0.11 | % | 34,302 | 6/15/17 | (1,032,458 | ) | |||||||||||||
Bloomberg Softs Subindex 3 Month Forward | 241,216 | 0.17 | % | 22,773 | 6/15/17 | (1,034,014 | ) | |||||||||||||
JPMorgan F3R Congestion Index | 313,206 | 0.15 | % | 64,600 | 12/15/17 | 259,469 |
38 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
JPMorgan F3R Congestion Index | 177,098 | 0.15 | % | USD 36,505 | 12/15/17 | $ | 168,681 | |||||||||||||
JPMorgan F3R Congestion Index | 46,752 | 0.15 | % | 9,637 | 12/15/17 | 44,670 | ||||||||||||||
JPMorgan F3R Congestion Index | 12,139 | 0.15 | % | 2,502 | 12/15/17 | 11,562 | ||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||
Bloomberg Grains Subindex 3 Month Forward | 668,864 | 0.15 | % | 44,089 | 6/15/17 | (437,234 | ) | |||||||||||||
Bloomberg Grains Subindex 3 Month Forward | 492,390 | 0.15 | % | 33,044 | 6/15/17 | (928,059 | ) | |||||||||||||
Bloomberg Livestock Subindex 3 Month Forward | 78,910 | 0.16 | % | 11,220 | 6/15/17 | 600,822 | ||||||||||||||
|
| |||||||||||||||||||
$ | (3,087,862 | ) | ||||||||||||||||||
|
|
(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 April 30, 2017, the aggregate market value of these securities amounted to $9,004,396 or 0.6% of net assets. |
(b) | Non-income producing security. |
(c) | Fair valued by the Adviser. |
(d) | Illiquid security. |
(e) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(f) | To obtain a copy of the Underlying Portfolios’ shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
(g) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar BRL – Brazilian Real CAD – Canadian Dollar CHF – Swiss Franc CLP – Chilean Peso CNY – Chinese Yuan Renminbi COP – Colombian Peso CZK – Czech Koruna EUR – Euro GBP – Great British Pound HKD – Hong Kong Dollar HUF – Hungarian Forint IDR – Indonesian Rupiah INR – Indian Rupee JPY – Japanese Yen | KRW – South Korean Won MXN – Mexican Peso MYR – Malaysian Ringgit NOK – Norwegian Krone NZD – New Zealand Dollar PEN – Peruvian Sol PHP – Philippine Peso PLN – Polish Zloty RUB – Russian Ruble SEK – Swedish Krona SGD – Singapore Dollar THB – Thailand Baht TRY – Turkish Lira TWD – New Taiwan Dollar USD – United States Dollar ZAR – South African Rand |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 39 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Glossary:
ADR – American Depositary Receipt
CBT – Chicago Board of Trade
CPI – Consumer Price Index
ETF – Exchange Traded Fund
GDR – Global Depositary Receipt
LME – London Metal Exchange
MSCI – Morgan Stanley Capital International
PJSC – Public Joint Stock Company
REG – Registered Shares
REIT – Real Estate Investment Trust
SPDR – Standard & Poor’s Depository Receipt
TIPS – Treasury Inflation Protected Security
TOPIX – Tokyo Price Index
ULSD – Ultra-Low Sulfur Diesel
WTI – West Texas Intermediate
See notes to consolidated financial statements.
40 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $1,320,032,251) | $ | 1,338,584,174 | ||
Affiliated issuers (cost $39,861,671) | 39,861,671 | |||
Cash | 4,227 | |||
Cash collateral due from broker | 13,446,439 | |||
Foreign currencies, at value (cost $2,324,728) | 2,339,388 | |||
Receivable for investment securities sold and foreign currency transactions | 54,829,459 | |||
Unrealized appreciation on forward currency exchange contracts | 20,540,687 | |||
Unrealized appreciation on total return swaps | 2,888,332 | |||
Unaffiliated dividends and interest receivable | 2,473,329 | |||
Receivable for capital stock sold | 2,161,164 | |||
Unrealized appreciation on inflation swaps | 1,450,723 | |||
Receivable for terminated total return swaps | 870,138 | |||
Receivable for variation margin on exchange-traded derivatives | 530,137 | |||
Affiliated dividends receivable | 43,929 | |||
|
| |||
Total assets | 1,480,023,797 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased and foreign currency transactions | 33,750,845 | |||
Unrealized depreciation on forward currency exchange contracts | 14,135,290 | |||
Unrealized depreciation on total return swaps | 5,976,194 | |||
Unrealized depreciation on inflation swaps | 2,320,675 | |||
Payable for terminated total return swaps | 2,086,371 | |||
Cash collateral due to broker | 1,230,000 | |||
Management fee payable | 834,157 | |||
Payable for capital stock redeemed | 485,341 | |||
Payable for variation margin on exchange-traded derivatives | 200,083 | |||
Distribution fee payable | 119,957 | |||
Transfer Agent fee payable | 19,785 | |||
Administrative fee payable | 14,846 | |||
Accrued expenses and other liabilities | 221,071 | |||
|
| |||
Total liabilities | 61,394,615 | |||
|
| |||
Net Assets | $ | 1,418,629,182 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 170,052 | ||
Additional paid-in capital | 1,481,171,777 | |||
Distributions in excess of net investment income | (1,020,832 | ) | ||
Accumulated net realized loss on investment | (82,849,897 | ) | ||
Net unrealized appreciation on investments | 21,158,082 | |||
|
| |||
$ | 1,418,629,182 | |||
|
|
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 41 |
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES (continued)
April 30, 2017 (unaudited)
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 11,854,667 | 1,402,840 | $ | 8.45 | * | ||||||
| ||||||||||||
C | $ | 2,338,889 | 277,897 | $ | 8.42 | |||||||
| ||||||||||||
Advisor | $ | 29,521,482 | 3,504,654 | $ | 8.42 | |||||||
| ||||||||||||
R | $ | 209,381 | 25,071 | $ | 8.35 | |||||||
| ||||||||||||
K | $ | 2,116,599 | 253,385 | $ | 8.35 | |||||||
| ||||||||||||
I | $ | 17,065,068 | 2,040,199 | $ | 8.36 | |||||||
| ||||||||||||
1 | $ | 599,651,304 | 72,180,410 | $ | 8.31 | |||||||
| ||||||||||||
2 | $ | 8,485 | 1,000 | $ | 8.49 | |||||||
| ||||||||||||
Z | $ | 755,863,307 | 90,366,582 | $ | 8.36 | |||||||
|
* | The maximum offering price per share for Class A shares was $8.83 which reflects a sales charge of 4.25%. |
See notes to consolidated financial statements.
42 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Dividends | ||||||||
Unaffiliated issuers (net of foreign taxes withheld of $493,329) | $ | 8,515,449 | ||||||
Affiliated issuers | 90,909 | |||||||
Interest | 1,328,595 | |||||||
Other income | 22 | $ | 9,934,975 | |||||
|
| |||||||
Expenses | ||||||||
Management fee (see Note B) | 2,993,498 | |||||||
Distribution fee—Class A | 16,369 | |||||||
Distribution fee—Class C | 12,906 | |||||||
Distribution fee—Class R | 512 | |||||||
Distribution fee—Class K | 2,588 | |||||||
Distribution fee—Class 1 | 682,300 | |||||||
Transfer agency—Class A | 10,453 | |||||||
Transfer agency—Class C | 2,110 | |||||||
Transfer agency—Advisor Class | 21,084 | |||||||
Transfer agency—Class R | 268 | |||||||
Transfer agency—Class K | 2,086 | |||||||
Transfer agency—Class I | 1,754 | |||||||
Transfer agency—Class 1 | 39,318 | |||||||
Transfer agency—Class Z | 20,553 | |||||||
Custodian | 146,469 | |||||||
Registration fees | 69,095 | |||||||
Audit and tax | 54,176 | |||||||
Legal | 33,754 | |||||||
Printing | 31,821 | |||||||
Administrative | 25,767 | |||||||
Directors’ fees | 11,981 | |||||||
Miscellaneous | 39,372 | |||||||
|
| |||||||
Total expenses | 4,218,234 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (41,452 | ) | ||||||
|
| |||||||
Net expenses | 4,176,782 | |||||||
|
| |||||||
Net investment income | 5,758,193 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (1,501,455 | )(a) | ||||||
Futures | (2,210,087 | ) | ||||||
Options written | 832,953 | |||||||
Swaps | (2,437,415 | ) | ||||||
Foreign currency transactions | 8,502,827 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 9,067,537 | (b) | ||||||
Futures | 637,901 | |||||||
Options written | 38,443 | |||||||
Swaps | 1,335,352 | |||||||
Foreign currency denominated assets and liabilities | 4,259,425 | |||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 18,525,481 | |||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 425 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 24,284,099 | ||||||
|
|
(a) | Net of foreign capital gains taxes of $3,781. |
(b) | Net of increase in accrued foreign capital gains taxes of $44,244. |
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 43 |
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 5,758,193 | $ | 7,482,380 | ||||
Net realized gain (loss) on investment and foreign currency transactions | 3,186,823 | (51,636,906 | ) | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 15,338,658 | 63,149,061 | ||||||
Contributions from Affiliates (see Note B) | 425 | 4,556 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 24,284,099 | 18,999,091 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (309,690 | ) | (174,718 | ) | ||||
Class C | (38,521 | ) | (11,593 | ) | ||||
Advisor Class | (632,286 | ) | (479,187 | ) | ||||
Class R | (4,502 | ) | (1,815 | ) | ||||
Class K | (47,782 | ) | (27,392 | ) | ||||
Class I | (435,380 | ) | (300,575 | ) | ||||
Class 1 | (12,411,895 | ) | (8,849,158 | ) | ||||
Class 2 | (227 | ) | (172 | ) | ||||
Class Z | (224,457 | ) | (162,962 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 835,127,024 | 18,834,778 | ||||||
|
|
|
| |||||
Total increase | 845,306,383 | 27,826,297 | ||||||
Net Assets | ||||||||
Beginning of period | 573,322,799 | 545,496,502 | ||||||
|
|
|
| |||||
End of period (including distributions in excess of net investment income of ($1,020,832) and undistributed net investment income of $7,325,715, respectively) | $ | 1,418,629,182 | $ | 573,322,799 | ||||
|
|
|
|
See notes to consolidated financial statements.
44 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB All Market Real Return Portfolio (the “Portfolio”), a non-diversified portfolio. As part of the Portfolio’s investment strategy, the Portfolio seeks to gain exposure to commodities and commodities-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Portfolio organized under the laws of the Cayman Islands (the “Subsidiary”). The Portfolio and the Subsidiary commenced operations on March 8, 2010. The Subsidiary was incorporated on February 1, 2010. The Portfolio is the sole shareholder of the Subsidiary and it is intended that the Portfolio will remain the sole shareholder and will continue to control the Subsidiary. Under the Articles of Association of the Subsidiary, shares issued by the Subsidiary confer upon a shareholder the right to receive notice of, to attend and to vote at general meetings of the Subsidiary and shall confer upon the shareholder rights in a winding-up or repayment of capital and the right to participate in the profits or assets of the Subsidiary. As of April 30, 2017, net assets of the Portfolio were $1,418,629,182, of which $167,889,191, or 12%, represented the Portfolio’s ownership of all issued shares and voting rights of the Subsidiary. This report presents the consolidated financial statements of AB All Market Real Return Portfolio and the Subsidiary. All intercompany transactions and balances have been eliminated in consolidation. The Portfolio has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class 1, Class 2 and Class Z shares. Class B shares have not been issued. Class 1 shares are sold only to the private clients of Sanford C. Bernstein & Co. LLC by its registered representatives. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. As of April 30, 2017, AllianceBernstein L.P. (the “Adviser”), was the sole shareholder of Class 2 shares. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R, Class K, Class 1, and Class Z shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 45 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
deferred sales charge and are not subject to ongoing distribution expenses. All ten classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The consolidated 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 consolidated financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio 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 Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (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 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
46 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement 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
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 47 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The 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 rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is 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. In addition, non-agency rated investments 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.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples
48 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
to equity). Where an investment is valued using an observable input, by pricing vendors, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Real Estate | $ | 177,232,872 | $ | 119,132,020 | $ | – 0 | – | $ | 296,364,892 | |||||||
Energy | 117,306,194 | 110,342,273 | – 0 | – | 227,648,467 | |||||||||||
Materials | 35,991,534 | 51,252,120 | – 0 | –(a) | 87,243,654 | |||||||||||
Pharmaceuticals & Biotechnology | 9,073,801 | 5,937,166 | – 0 | – | 15,010,967 | |||||||||||
Food Beverage & Tobacco | 13,966,914 | 819,007 | – 0 | – | 14,785,921 | |||||||||||
Capital Goods | 6,741,571 | 6,376,165 | – 0 | – | 13,117,736 | |||||||||||
Banks | 3,725,751 | 6,267,027 | – 0 | – | 9,992,778 | |||||||||||
Transportation | 2,555,558 | 7,185,318 | – 0 | – | 9,740,876 | |||||||||||
Diversified Financials | 6,966,304 | 2,213,561 | – 0 | – | 9,179,865 | |||||||||||
Software & Services | 4,372,277 | 3,531,893 | – 0 | – | 7,904,170 | |||||||||||
Retailing | 5,968,605 | 615,364 | – 0 | – | 6,583,969 | |||||||||||
Consumer Services | 3,197,837 | 2,681,146 | – 0 | – | 5,878,983 | |||||||||||
Household & Personal Products | 5,176,654 | 367,567 | – 0 | – | 5,544,221 | |||||||||||
Technology Hardware & Equipment | 5,070,746 | 120,604 | – 0 | – | 5,191,350 | |||||||||||
Consumer Durables & Apparel | 1,822,657 | 2,913,385 | – 0 | – | 4,736,042 | |||||||||||
Food & Staples Retailing | 4,236,401 | 319,896 | – 0 | – | 4,556,297 | |||||||||||
Insurance | 930,773 | 1,572,973 | – 0 | – | 2,503,746 | |||||||||||
Media | 1,310,075 | 1,004,002 | – 0 | – | 2,314,077 | |||||||||||
Health Care Equipment & Services | 1,755,310 | 471,532 | – 0 | – | 2,226,842 | |||||||||||
Semiconductors & Semiconductor Equipment | 397,366 | 1,725,623 | – 0 | – | 2,122,989 | |||||||||||
Commercial & Professional Services | 2,024,175 | – 0 | – | – 0 | – | 2,024,175 | ||||||||||
Automobiles & Components | 224,225 | 1,541,150 | – 0 | – | 1,765,375 | |||||||||||
Utilities | 682,055 | – 0 | – | – 0 | – | 682,055 | ||||||||||
Inflation-Linked Securities | – 0 | – | 410,645,179 | – 0 | – | 410,645,179 | ||||||||||
Investment Companies | 190,818,907 | – 0 | – | – 0 | – | 190,818,907 | ||||||||||
Warrants | 641 | – 0 | – | – 0 | – | 641 | ||||||||||
Short-Term Investments | 39,861,671 | – 0 | – | – 0 | – | 39,861,671 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 641,410,874 | 737,034,971 | – 0 | – | 1,378,445,845 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | $ | 3,968,533 | $ | – 0 | – | $ | – 0 | – | $ | 3,968,533 | (c) | |||||
Forward Currency Exchange Contracts | – 0 | – | 20,540,687 | – 0 | – | 20,540,687 | ||||||||||
Inflation (CPI) Swaps | – 0 | – | 1,450,723 | – 0 | – | 1,450,723 | ||||||||||
Total Return Swaps | – 0 | – | 2,888,332 | – 0 | – | 2,888,332 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (3,334,259 | ) | (282,246 | ) | – 0 | – | (3,616,505 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (14,135,290 | ) | – 0 | – | (14,135,290 | ) | ||||||||
Inflation (CPI) Swaps | – 0 | – | (2,320,675 | ) | – 0 | – | (2,320,675 | ) | ||||||||
Total Return Swaps | – 0 | – | (5,976,194 | ) | – 0 | – | (5,976,194 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(d) | $ | 642,045,148 | $ | 739,200,308 | $ | – 0 | – | $ | 1,381,245,456 | |||||||
|
|
|
|
|
|
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. |
(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) of exchange-traded derivatives as reported in the consolidated portfolio of investments. |
(d) | There were de minimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Common Stocks - Materials(a) | Common Stocks - Real Estate | |||||||
Balance as of 10/31/16 | $ | – 0 | – | $ | 146,353 | |||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | ||||
Realized gain (loss) | – 0 | – | – 0 | – | ||||
Change in unrealized appreciation/depreciation | (1,565 | ) | – 0 | – | ||||
Purchases | 1,565 | – 0 | – | |||||
Sales | – 0 | – | – 0 | – | ||||
Transfers in to Level 3 | – 0 | – | – 0 | – | ||||
Transfers out of Level 3 | – 0 | – | (146,353 | ) | ||||
|
|
|
| |||||
Balance as of 4/30/17 | $ | – 0 | – | $ | – 0 | – | ||
|
|
|
| |||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | – 0 | – | $ | – 0 | – | ||
|
|
|
|
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total | ||||||||
Balance as of 10/31/16 | $ | 146,353 | ||||||
Accrued discounts/(premiums) | – 0 | – | ||||||
Realized gain (loss) | – 0 | – | ||||||
Change in unrealized appreciation/depreciation | (1,565 | ) | ||||||
Purchases | 1,565 | |||||||
Sales | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | ||||||
Transfers out of Level 3 | (146,353 | ) | ||||||
|
| |||||||
Balance as of 4/30/17 | $ | – 0 | –(c) | |||||
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | – 0 | – | |||||
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(b) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying consolidated statement of operations. |
(c) | There were de minimis transfers under 1% of net assets during the reporting period. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
If, during a taxable year, the Subsidiary’s taxable losses (and other deductible items) exceed its income and gains, the net loss will not pass through to the Portfolio as a deductible amount for Federal income tax purposes. Note that the loss from the Subsidiary’s contemplated activities also cannot be carried forward to reduce future Subsidiary’s income in subsequent
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
years. However, if the Subsidiary’s taxable gains exceed its losses and other deductible items during a taxable year, the net gain will pass through to the Portfolio as income for Federal income tax purposes.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s consolidated financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Management Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser a management fee at an annual rate of .75% of the Portfolio’s average daily net assets. The Adviser agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
on an annual basis (the “Expense Caps”) to 1.30%, 2.05%, 1.05%, 1.55%, 1.30%, 1.05%, 1.30%, 1.05% and 1.05% of daily average net assets for Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1, Class 2 and Class Z shares, respectively. Effective January 29, 2016 the Expense Caps were increased from 2.00% to 2.05%, 1.00% to 1.05%, 1.50% to 1.55%, 1.25% to 1.30%, 1.00% to 1.05%, 1.25% to 1.30%, 1.00% to 1.05% and 1.00% to 1.05% of the daily average net assets for the Class C, Advisor Class, Class R, Class K, Class I, Class 1, Class 2 and Class Z shares, respectively. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2018. For the six months ended April 30, 2017, such reimbursement amounted to $285.
The Subsidiary has entered into a separate agreement with the Adviser for the management of the Subsidiary’s portfolio. The Adviser receives no compensation from the Subsidiary for its services under the agreement.
During the six months ended April 30, 2017 and the year October 31, 2016 the Adviser reimbursed the Portfolio $425 and $4,556, respectively, for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended April 30, 2017, the reimbursement for such services amounted to $25,767.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $68,088 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $103 from the sale of Class A shares and received $0 and $50 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the six months ended April 30, 2017.
The Portfolio 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. In connection with the investment by the Portfolio
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver amounted to $41,167. A summary of the Portfolio’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||||
$ | 26,406 | $ | 466,575 | $ | 453,119 | $ | 39,862 | $ | 91 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2017 amounted to $557,590, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”) at an annual rate of up to ..30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to Class C shares. .50% of the Portfolio’s average daily net assets attributable to Class R shares, .25% of the Portfolio’s average daily net assets attributable to Class K shares and .25% of the Portfolio’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class, Class I, Class 2 and Class Z shares. Effective January 29, 2016, payments under the Plan were limited to .25% of Class A shares’ average daily net assets. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $155,371, $15,181, $18,700 and $1,650,761 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 1,086,058,674 | $ | 453,604,254 | ||||
U.S. government securities | 197,496,487 | 26,373,383 |
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 (excluding futures, foreign currency, written options and swap transactions) are as follows:
Gross unrealized appreciation | $ | 38,571,125 | ||
Gross unrealized depreciation | (20,019,202 | ) | ||
|
| |||
Net unrealized appreciation | $ | 18,551,923 | ||
|
|
1. Derivative Financial Instruments
The Portfolio 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 Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio 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 Portfolio 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 Portfolio 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, as described below under “Currency Transactions”.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At the time the Portfolio enters into futures, the Portfolio 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 consolidated statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the consolidated statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio 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 April 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended April 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
During the six months ended April 30, 2017, the Portfolio held purchased options for hedging and non-hedging purposes.
During the six months ended April 30, 2017, the Portfolio held written options for hedging and non-hedging purposes.
For the six months ended April 30, 2017, the Portfolio had the following transactions in written options:
Number of Contracts | Premiums Received | |||||||
Options written outstanding as of 10/31/16 | 5,749 | $ | 367,014 | |||||
Options written | 10,829 | 465,939 | ||||||
Options expired | (16,578 | ) | (832,953 | ) | ||||
Options bought back | – 0 | – | – 0 | – | ||||
Options exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Options written outstanding as of 4/30/17 | – 0 | – | $ | – 0 | – | |||
|
|
|
|
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets and currencies. The Portfolio 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” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. 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 Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio 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 Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the consolidated 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 consolidated statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received are recognized as cost or proceeds on the consolidated 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 consolidated 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 consolidated statement of operations.
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 Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
During the six months ended April 30, 2017, the Portfolio held inflation (CPI) swaps for hedging and non-hedging purposes.
Total Return Swaps:
The Portfolio may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio is subject to market price volatility of the underlying referenced
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
During the six months ended April 30, 2017, the Portfolio held total return swaps for hedging and non-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 61 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2017, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Consolidated | Fair Value | Consolidated | Fair Value | ||||||||
Interest rate contracts |
Receivable/Payable for variation margin on exchange-traded derivatives | $ | 322,541 | * | ||||||||
Equity contracts | Receivable/Payable for variation margin on exchange-traded derivatives | 282,246 | * | |||||||||
Commodity contracts |
Receivable/Payable for variation margin on exchange-traded derivatives | $ | 3,968,533 | * | Receivable/Payable for variation margin on exchange-traded derivatives |
| 3,011,718 | * | ||||
Foreign exchange contracts | Unrealized appreciation on forward currency exchange contracts |
| 20,540,687 |
| Unrealized depreciation on forward currency exchange contracts |
| 14,135,290 |
| ||||
Interest rate contracts | Unrealized appreciation on inflation swaps |
| 1,450,723 |
| Unrealized depreciation on inflation swaps |
| 2,320,675 |
| ||||
Equity contracts | Unrealized appreciation on total return swaps |
| 2,888,332 |
| Unrealized depreciation on total return swaps |
| 5,976,194 |
| ||||
|
|
|
| |||||||||
Total | $ | 28,848,275 | $ | 26,048,664 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the consolidated statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the consolidated portfolio of investments. |
62 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED 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 futures; Net change in unrealized appreciation/depreciation of futures | $ | 447,118 | $ | (380,952 | ) | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,354,105 | ) | (329,743 | ) | |||||
Commodity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,303,100 | ) | 1,348,596 | ||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | 8,581,914 | 4,212,668 | |||||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (298,875 | ) | 250,320 | ||||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 832,953 | 38,443 | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 285,173 | 1,725,421 | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (2,722,588 | ) | (390,069 | ) | |||||
|
|
|
| |||||||
Total | $ | 4,468,490 | $ | 6,474,684 | ||||||
|
|
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 63 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended April 30, 2017:
Futures: | ||||
Average original value of buy contracts | $ | 115,662,748 | ||
Average original value of sale contracts | $ | 78,529,550 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 481,771,340 | ||
Average principal amount of sale contracts | $ | 573,936,029 | ||
Purchased Options: | ||||
Average monthly cost | $ | 367,829 | (a) | |
Inflation Swaps: | ||||
Average notional amount | $ | 490,394,286 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 250,723,242 |
(a) | Positions were open for three months during the period. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the consolidated statement of assets and liabilities.
All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/ pledged by the Portfolio as of April 30, 2017:
All Market Real Return Portfolio
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
OTC Derivatives: | ||||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 122,872 | $ | (122,872 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 2,613,993 | (2,613,993 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 2,758,961 | (1,903,031 | ) | – 0 | – | – 0 | – | 855,930 | ||||||||||||
Citibank, NA | 1,574,548 | (402,452 | ) | (570,000 | ) | – 0 | – | 602,096 | ||||||||||||
Credit Suisse International | 6,688,797 | (3,565,141 | ) | (410,000 | ) | – 0 | – | 2,713,656 | ||||||||||||
Deutsche Bank AG | 228,683 | (141,494 | ) | – 0 | – | – 0 | – | 87,189 | ||||||||||||
Goldman Sachs Bank USA | 630,086 | (630,086 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 615,029 | (615,029 | ) | – 0 | – | – 0 | – | – 0 | – |
64 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
JPMorgan Chase Bank, NA | $ | 2,357,138 | $ | (2,357,138 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Morgan Stanley & Co., Inc. | 546,454 | (546,454 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Nomura Global Financial Products, Inc. | 828,734 | (182,439 | ) | – 0 | – | – 0 | – | 646,295 | ||||||||||||
Royal Bank of Scotland PLC | 1,876,960 | (729,890 | ) | – 0 | – | – 0 | – | 1,147,070 | ||||||||||||
Standard Chartered Bank | 47,211 | – 0 | – | – 0 | – | – 0 | – | 47,211 | ||||||||||||
State Street Bank & Trust Co. | 498,459 | (329,260 | ) | – 0 | – | – 0 | – | 169,199 | ||||||||||||
UBS AG | 525,021 | (213,719 | ) | – 0 | – | – 0 | – | 311,302 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 21,912,946 | $ | (14,352,998 | ) | $ | (980,000 | ) | $ | – 0 | – | $ | 6,579,948 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co., Inc.** | $ | 200,083 | $ | – 0 | – | $ | (200,083 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 200,083 | $ | – 0 | – | $ | (200,083 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 934,722 | $ | (122,872 | ) | $ | – 0 | – | $ | – 0 | – | $ | 811,850 | |||||||
Bank of America, NA | 290,251 | – 0 | – | – 0 | – | (238,251 | ) | 52,000 | ||||||||||||
Barclays Bank PLC | 2,875,353 | (2,613,993 | ) | – 0 | – | – 0 | – | 261,360 | ||||||||||||
BNP Paribas SA | 1,903,031 | (1,903,031 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 402,452 | (402,452 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 3,565,141 | (3,565,141 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 141,494 | (141,494 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs Bank USA | 725,891 | (630,086 | ) | – 0 | – | – 0 | – | 95,805 | ||||||||||||
HSBC Bank USA | 810,763 | (615,029 | ) | – 0 | – | – 0 | – | 195,734 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 65 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
JPMorgan Chase Bank, NA | $ | 2,375,838 | $ | (2,357,138 | ) | $ | – 0 | – | $ | (18,700 | ) | $ | – 0 | – | ||||||
Morgan Stanley & Co., Inc. | 903,987 | (546,454 | ) | – 0 | – | – 0 | – | 357,533 | ||||||||||||
Nomura Global Financial Products, Inc. | 182,439 | (182,439 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Royal Bank of Scotland PLC | 729,890 | (729,890 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 329,260 | (329,260 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
UBS AG | 213,719 | (213,719 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 16,384,231 | $ | (14,352,998 | ) | $ | – 0 | – | $ | (256,951 | ) | $ | 1,774,282 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged is more than the amount reported due to over-collateralization. |
** | Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
^ | 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. |
AllianceBernstein Cayman Inflation Strategy, Ltd.
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co., Inc.** | $ | 530,137 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 530,137 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 530,137 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 530,137 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
JPMorgan Chase Bank, NA | $ | 2,287,510 | $ | (2,287,510 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Morgan Stanley Capital Services LLC/ Morgan Stanley & Co., Inc. | 600,822 | (600,822 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 78,464 | (71,734 | ) | – 0 | – | – 0 | – | 6,730 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 2,966,796 | $ | (2,960,066 | ) | $ | – 0 | – | $ | – 0 | – | $ | 6,730 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
66 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
OTC Derivatives: | ||||||||||||||||||||
JPMorgan Chase Bank, NA | $ | 4,610,901 | $ | (2,287,510 | ) | $ | – 0 | – | $ | (2,323,391 | ) | $ | – 0 | – | ||||||
Morgan Stanley Capital Services LLC/ Morgan Stanley & Co., Inc. | 1,365,293 | (600,822 | ) | – 0 | – | (764,471 | ) | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 71,734 | (71,734 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 6,047,928 | $ | (2,960,066 | ) | $ | – 0 | – | $ | (3,087,862 | ) | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged is more than the amount reported due to over-collateralization. |
** | Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
^ | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 67 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 105,605 | 245,481 | $ | 883,883 | $ | 1,819,266 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 31,976 | 20,294 | 271,464 | 151,390 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (395,655 | ) | (648,018 | ) | (3,310,579 | ) | (5,137,204 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (258,074 | ) | (382,243 | ) | $ | (2,155,232 | ) | $ | (3,166,548 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 7,630 | 15,344 | $ | 63,619 | $ | 113,580 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 4,094 | 1,376 | 34,707 | 10,241 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (78,407 | ) | (195,134 | ) | (658,286 | ) | (1,449,254 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (66,683 | ) | (178,414 | ) | $ | (559,960 | ) | $ | (1,325,433 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 764,876 | 577,788 | $ | 6,401,340 | $ | 4,275,690 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 56,670 | 51,230 | 478,860 | 380,640 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (395,158 | ) | (1,306,062 | ) | (3,304,665 | ) | (10,069,125 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 426,388 | (677,044 | ) | $ | 3,575,535 | $ | (5,412,795 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 3,019 | 9,576 | $ | 25,079 | $ | 75,433 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 536 | 246 | 4,502 | 1,815 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,152 | ) | (5,298 | ) | (26,477 | ) | (42,319 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 403 | 4,524 | $ | 3,104 | $ | 34,929 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 45,162 | 67,241 | $ | 376,565 | $ | 523,121 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,695 | 3,711 | 47,782 | 27,392 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (29,195 | ) | (45,730 | ) | (245,257 | ) | (346,047 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 21,662 | 25,222 | $ | 179,090 | $ | 204,466 | ||||||||||||||||||
|
68 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 130,541 | 155,919 | $ | 1,091,274 | $ | 1,213,236 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 51,893 | 40,784 | 435,380 | 300,575 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (56,861 | ) | (72,018 | ) | (473,788 | ) | (561,598 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 125,573 | 124,685 | $ | 1,052,866 | $ | 952,213 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 18,728,502 | 15,020,515 | $ | 155,433,182 | $ | 111,631,381 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,153,504 | 1,068,928 | 9,620,222 | 7,835,240 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (9,997,234 | ) | (12,789,170 | ) | (82,232,072 | ) | (97,126,550 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 9,884,772 | 3,300,273 | $ | 82,821,332 | $ | 22,340,071 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 95,357,673 | 790,016 | $ | 800,995,786 | $ | 6,161,358 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 26,751 | 22,111 | 224,457 | 162,962 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (6,074,439 | ) | (145,833 | ) | (51,009,954 | ) | (1,116,445 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 89,309,985 | 666,294 | $ | 750,210,289 | $ | 5,207,875 | ||||||||||||||||||
|
There were no transactions in capital shares for Class 2 for the six months ended April 30, 2017 and the year ended October 31, 2016.
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Commodity Risk—Investing in commodities and commodity-linked derivative instruments, either directly or through the Subsidiary, may subject
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 69 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the Portfolio to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the consolidated statement of assets and liabilities.
Leverage Risk—When the Portfolio 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 Portfolio’s investments. The Portfolio 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 Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments are difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
70 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subsidiary Risk—By investing in the Subsidiary, the Portfolio is indirectly exposed to the risks associated with the Subsidiary’s investments. The derivatives and other investments held by the Subsidiary are generally similar to those that are permitted to be held by the Portfolio and are subject to the same risks that apply to similar investments if held directly by the Portfolio. The Subsidiary is not registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and, unless otherwise noted in the Portfolio’s Prospectus, is not subject to all of the investor protections of the 1940 Act. However, the Portfolio wholly owns and controls the Subsidiary, and the Portfolio and the Subsidiary are managed by the Adviser, making it unlikely the Subsidiary will take actions contrary to the interests of the Portfolio or its shareholders.
Real Estate Risk—The Portfolio’s investments in the real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts, or “REITs”, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Non-Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s NAV.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 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 consolidated statement of operations. The Portfolio did not utilize the Facility during the six months ended April 30, 2017.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 71 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2016 and October 31, 2015 were as follows:
2016 | 2015 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 10,007,572 | $ | 14,402,445 | ||||
|
|
|
| |||||
Total distributions paid | $ | 10,007,572 | $ | 14,402,445 | ||||
|
|
|
|
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 11,854,542 | ||
Accumulated capital and other losses | (72,085,602 | )(a) | ||
Unrealized appreciation/(depreciation) | (139,166,069 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (199,397,129 | ) | |
|
|
(a) | On October 31, 2016, the Portfolio had a net capital loss carryforward of $72,085,602. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of passive foreign investment companies (PFICs), the tax treatment of Treasury inflation-protected securities, the realization for tax purposes of gains/losses on certain derivative instruments, the tax treatment of a corporate restructuring, and the tax treatment of earnings from the Subsidiary. |
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 incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-December 22, 2010 capital losses must be utilized prior to the earlier capital losses, which are subject to expiration. Post-December 22, 2010 capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation.
As of October 31, 2016, the Portfolio had a net capital loss carryforward of $72,085,602 which will expire as follows:
Short-Term Amount | Long-Term Amount | Expiration | ||
$6,012,702 | n/a | 2019 | ||
24,234,270 | $41,838,630 | no expiration |
72 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the consolidated financial statements and related disclosures.
NOTE J
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the consolidated financial statements.
NOTE K
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the consolidated financial statements through the date the consolidated financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s consolidated financial statements through this date.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 73 |
CONSOLIDATED FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.24 | $ 8.13 | $ 10.52 | $ 11.04 | $ 11.33 | $ 11.05 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .05 | .10 | .06 | (c) | .12 | .10 | .11 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .35 | .11 | (2.26 | ) | (.50 | ) | (.13 | ) | .25 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .40 | .21 | (2.20 | ) | (.38 | ) | (.03 | ) | .36 | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.19 | ) | (.10 | ) | (.19 | ) | (.14 | ) | (.26 | ) | (.08 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.45 | $ 8.24 | $ 8.13 | $ 10.52 | $ 11.04 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 4.87 | % | 2.75 | % | (21.16 | )% | (3.45 | )% | (.27 | )% | 3.36 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $11,856 | $13,682 | $16,611 | $28,434 | $64,800 | $67,989 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.27 | %^ | 1.30 | % | 1.30 | % | 1.23 | % | 1.05 | % | 1.05 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.28 | %^ | 1.36 | % | 1.47 | % | 1.30 | % | 1.34 | % | 1.28 | % | ||||||||||||
Net investment income(b) | 1.28 | %^ | 1.23 | % | .62 | % | 1.03 | % | .86 | % | 1.02 | % | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See footnote summary on page 82.
74 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.17 | $ 8.03 | $ 10.40 | $ 10.90 | $ 11.18 | $ 10.93 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss)(a)(b) | .02 | .04 | (.01 | ) | .04 | .02 | .03 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .35 | .12 | (2.23 | ) | (.49 | ) | (.12 | ) | .25 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .37 | .16 | (2.24 | ) | (.45 | ) | (.10 | ) | .28 | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.12 | ) | (.02 | ) | (.13 | ) | (.05 | ) | (.18 | ) | (.03 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.42 | $ 8.17 | $ 8.03 | $ 10.40 | $ 10.90 | $ 11.18 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d)† | 4.64 | % | 2.07 | % | (21.75 | )% | (4.13 | )% | (.92 | )% | 2.58 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,339 | $2,814 | $4,202 | $8,531 | $13,063 | $15,974 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 2.02 | %^ | 2.03 | % | 2.00 | % | 1.93 | % | 1.75 | % | 1.75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 2.03 | %^ | 2.11 | % | 2.16 | % | 2.02 | % | 2.04 | % | 1.99 | % | ||||||||||||
Net investment income (loss)(b) | .52 | %^ | .51 | % | (.07 | )% | .34 | % | .16 | % | .32 | % | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See footnote summary on page 82.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 75 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.22 | $ 8.13 | $ 10.56 | $ 11.09 | $ 11.37 | $ 11.08 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .06 | .12 | .09 | .15 | .13 | .15 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .35 | .11 | (2.27 | ) | (.50 | ) | (.12 | ) | .25 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .41 | .23 | (2.18 | ) | (.35 | ) | .01 | .40 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.21 | ) | (.14 | ) | (.25 | ) | (.18 | ) | (.29 | ) | (.11 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.42 | $ 8.22 | $ 8.13 | $ 10.56 | $ 11.09 | $ 11.37 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.01 | % | 3.00 | % | (20.95 | )% | (3.20 | )% | .12 | % | 3.69 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $29,521 | $25,307 | $30,541 | $58,399 | $64,911 | $72,529 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.01 | %^ | 1.04 | % | 1.00 | % | .94 | % | .75 | % | .75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.02 | %^ | 1.10 | % | 1.17 | % | 1.02 | % | 1.04 | % | .99 | % | ||||||||||||
Net investment income(b) | 1.55 | %^ | 1.51 | % | .95 | % | 1.33 | % | 1.18 | % | 1.33 | % | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See footnote summary on page 82.
76 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.14 | $ 8.06 | $ 10.51 | $ 11.04 | $ 11.32 | $ 11.02 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .04 | .07 | .04 | .15 | .08 | .09 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .35 | .11 | (2.24 | ) | (.55 | ) | (.13 | ) | .26 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .39 | .18 | (2.20 | ) | (.40 | ) | (.05 | ) | .35 | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.18 | ) | (.10 | ) | (.25 | ) | (.13 | ) | (.23 | ) | (.05 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.35 | $ 8.14 | $ 8.06 | $ 10.51 | $ 11.04 | $ 11.32 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d)† | 4.77 | % | 2.41 | % | (21.37 | )% | (3.66 | )% | (.47 | )% | 3.20 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $209 | $201 | $162 | $182 | $38 | $17 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.54 | %^ | 1.54 | % | 1.50 | % | 1.44 | % | 1.25 | % | 1.25 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.63 | %^ | 1.66 | % | 1.64 | % | 1.55 | % | 1.65 | % | 1.64 | % | ||||||||||||
Net investment income(b) | 1.02 | %^ | .91 | % | .42 | % | 1.36 | % | .76 | % | .82 | % | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See footnote summary on page 82.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 77 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.15 | $ 8.07 | $ 10.50 | $ 11.03 | $ 11.32 | $ 11.05 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .05 | .10 | .06 | .12 | .10 | .10 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .34 | .11 | (2.25 | ) | (.49 | ) | (.12 | ) | .27 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | |||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .39 | .21 | (2.19 | ) | (.37 | ) | (.02 | ) | .37 | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.19 | ) | (.13 | ) | (.24 | ) | (.16 | ) | (.27 | ) | (.10 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.35 | $ 8.15 | $ 8.07 | $ 10.50 | $ 11.03 | $ 11.32 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 4.83 | % | 2.81 | % | (21.19 | )% | (3.39 | )% | (.19 | )% | 3.43 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,117 | $1,888 | $1,668 | $2,174 | $1,684 | $1,286 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.29 | %^ | 1.29 | % | 1.25 | % | 1.19 | % | 1.00 | % | 1.00 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.32 | %^ | 1.35 | % | 1.34 | % | 1.24 | % | 1.33 | % | 1.35 | % | ||||||||||||
Net investment income(b) | 1.24 | %^ | 1.23 | % | .67 | % | 1.10 | % | .95 | % | .89 | % | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See | footnote summary on page 82. |
78 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.17 | $ 8.11 | $ 10.54 | $ 11.07 | $ 11.36 | $ 11.07 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .07 | .12 | (b) | .09 | .15 | .13 | (b) | .14 | (b) | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .35 | .11 | (2.25 | ) | (.49 | ) | (.13 | ) | .26 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .42 | .23 | (2.16 | ) | (.34 | ) | – 0 | – | .40 | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.17 | ) | (.27 | ) | (.19 | ) | (.29 | ) | (.11 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.36 | $ 8.17 | $ 8.11 | $ 10.54 | $ 11.07 | $ 11.36 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d)† | 5.07 | % | 3.03 | % | (20.97 | )% | (3.09 | )% | .04 | % | 3.69 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $17,065 | $15,646 | $14,508 | $21,341 | $19,303 | $18,790 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .88 | %^ | .91 | % | .96 | % | .91 | % | .75 | % | .75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | .89 | %^ | .92 | % | .96 | % | .91 | % | .97 | % | .98 | % | ||||||||||||
Net investment income | 1.66 | %(b)^ | 1.61 | %(b) | .99 | % | 1.37 | % | 1.17 | %(b) | 1.32 | %(b) | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See | footnote summary on page 82. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 79 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.11 | $ 8.05 | $ 10.46 | $ 11.00 | $ 11.29 | $ 11.01 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .06† | (b) | .11 | (b) | .07 | .13 | .10 | (b) | .12 | (b) | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .35 | .10 | (2.24 | ) | (.50 | ) | (.12 | ) | .25 | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .41 | .21 | (2.17 | ) | (.37 | ) | (.02 | ) | .37 | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.21 | ) | (.15 | ) | (.24 | ) | (.17 | ) | (.27 | ) | (.09 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.31 | $ 8.11 | $ 8.05 | $ 10.46 | $ 11.00 | $ 11.29 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d)† | 5.00 | % | 2.82 | % | (21.12 | )% | (3.35 | )% | (.19 | )% | 3.47 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $599,651 | $505,143 | $474,631 | $513,633 | $420,593 | $221,971 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.12 | %^ | 1.15 | % | 1.16 | % | 1.14 | % | 1.00 | % | 1.00 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.13 | %^ | 1.16 | % | 1.16 | % | 1.14 | % | 1.16 | % | 1.21 | % | ||||||||||||
Net investment income | 1.40 | %(b)^ | 1.38 | %(b) | .79 | % | 1.16 | % | .95 | %(b) | 1.07 | %(b) | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See | footnote summary on page 82. |
80 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.29 | $ 8.22 | $ 10.68 | $ 11.19 | $ 11.48 | $ 11.07 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .07 | (b) | .13 | (b) | .09 | .15 | .13 | (b) | .15 | (b) | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .36 | .11 | (2.28 | ) | (.50 | ) | (.12 | ) | .26 | |||||||||||||||
Contributions from Affiliates | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .43 | .24 | (2.19 | ) | (.35 | ) | .01 | .41 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.17 | ) | (.27 | ) | (.16 | ) | (.30 | ) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.49 | $ 8.29 | $ 8.22 | $ 10.68 | $ 11.19 | $ 11.48 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.14 | % | 3.17 | % | (20.85 | )% | (3.12 | )% | .05 | % | 3.70 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $8 | $8 | $8 | $11 | $11 | $11 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .83 | %^ | .90 | % | .92 | % | .89 | % | .75 | % | .75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | .83 | %^ | .90 | % | .92 | % | .89 | % | 1.93 | % | .96 | % | ||||||||||||
Net investment income | 1.67 | %(b)^ | 1.60 | % | .92 | % | 1.36 | % | 1.16 | %(b) | 1.32 | %(b) | ||||||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % | 54 | % | 118 | % |
See | footnote summary on page XX. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 81 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | January 31, 2014(f) to October 31, 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 8.17 | $ 8.11 | $ 10.55 | $ 10.53 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(a) | .06 | (b) | .12 | (b) | .07 | .13 | ||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .36 | .11 | (2.24 | ) | (.11 | ) | ||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | .42 | .23 | (2.17 | ) | .02 | |||||||||||
|
| |||||||||||||||
Less: Dividends | ||||||||||||||||
Dividends from net investment income | (.23 | ) | (.17 | ) | (.27 | ) | – 0 | – | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 8.36 | $ 8.17 | $ 8.11 | $ 10.55 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | 5.07 | % | 3.09 | % | (20.94 | )% | .19 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $755,863 | $8,634 | $3,166 | $10 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .82 | %^ | .92 | % | .96 | % | .88 | %^ | ||||||||
Expenses, before waivers/reimbursements(e) | .83 | %^ | .92 | % | .96 | % | .88 | %^ | ||||||||
Net investment income | 1.57 | %(b)^ | 1.56 | %(b) | .92 | % | 1.59 | %^ | ||||||||
Portfolio turnover rate | 63 | % | 119 | % | 53 | % | 73 | % |
(a) | Based on average shares outstanding. |
(b) | Net of fees and expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. 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) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the six months ended April 30, 2017, such waiver amounted to 0.01% annualized for the Portfolio. |
(f) | Commencement of distributions. |
† | The net asset value and total return include adjustments in accordance with accounting principles generally accepted in the United States of America for financial reporting purposes. As such, the net asset value and total return for shareholder transactions may differ from financial statements. |
^ | Annualized. |
See notes to consolidated financial statements.
82 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1) , Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Vinod Chathlani(2), Vice President Daniel J. Loewy(2) , Vice President Vadim Zlotnikov(2) , Vice President | Emilie D. Wrapp, Secretary 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 State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 All Market Real Return Portfolio Team. Messrs. Loewy, Chathlani and Zlotnikov are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 83 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB All Market Real Return Portfolio (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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
84 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to 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.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 85 |
respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. 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 and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. 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.
86 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
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 light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to 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 noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. 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 for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund is for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs in which the Fund may invest.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 87 |
across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
88 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 89 |
NOTES
90 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 91 |
NOTES
92 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
AB ALL MARKET REAL RETURN PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
AMRR-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB BOND INFLATION STRATEGY
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 Bond Inflation Strategy (the “Strategy”). Please review the discussion of Strategy performance, the market conditions during the reporting period and the Strategy’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 BOND INFLATION STRATEGY | 1 |
SEMI-ANNUAL REPORT
June 14, 2017
This report provides management’s discussion of fund performance for AB Bond Inflation Strategy for the semi-annual reporting period ended April 30, 2017.
The Strategy’s investment objective is to maximize real return without assuming what the Adviser considers to be undue risk.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB BOND INFLATION STRATEGY | ||||||||
Class 1 Shares1 | 0.72% | 3.45% | ||||||
Class 2 Shares1 | 0.77% | 3.50% | ||||||
Class A Shares | 0.62% | 3.29% | ||||||
Class C Shares | 0.33% | 2.49% | ||||||
Advisor Class Shares2 | 0.81% | 3.58% | ||||||
Class R Shares2 | 0.59% | 3.05% | ||||||
Class K Shares2 | 0.67% | 3.26% | ||||||
Class I Shares2 | 0.72% | 3.54% | ||||||
Class Z Shares2 | 0.76% | 3.49% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | 0.13% | 1.64% | ||||||
Lipper Inflation Protected Bond Funds Average | 0.01% | 1.89% |
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to large Bernstein Global Wealth Management private client accounts and the Adviser’s institutional clients or through other limited arrangements. |
2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
INVESTMENT RESULTS
The table above shows the Strategy’s performance compared to its benchmark, the Bloomberg Barclays 1-10 Year Treasury Inflation-Protected Securities (“TIPS”) Index, and to the Lipper Inflation Protected Bond Funds Average (the “Lipper Average”), for the six- and 12-month periods ended April 30, 2017. Funds in the Lipper Average have generally similar investment objectives to the Strategy, although some of the funds may have different investment policies and sales and management fees and fund expenses.
2 | AB BOND INFLATION STRATEGY | abfunds.com |
During both periods, all share classes of the Strategy outperformed the benchmark and Lipper Average, before sales charges. During the six-month period, sector allocation contributed relative to the benchmark, primarily because of exposures to investment-grade corporates and agency risk-sharing transactions. The protection that the Strategy holds on corporates—both high-yield and investment-grade—detracted as the sectors performed well in the period. Currency positioning was positive, mainly due to overweight positions in the Colombian peso and Mexican peso and an underweight in the Singapore dollar. An overweight in the Canadian dollar took back some of these gains. The Strategy’s longer-than-benchmark duration also detracted as yields rose over the period.
During the 12-month period, sector selection contributed to performance relative to the benchmark, helped most by the Strategy’s exposure to investment-grade and high-yield corporates, agency risk-sharing transactions and non-agency mortgages. Currency allocation contributed to returns, as gains from underweights in the Singapore dollar, British pound and Canadian dollar more than offset losses from an underweight in the Taiwan dollar. During the period, holdings in TIPS generally fell and underperformed relative to Treasuries, which also weighed on performance. The Strategy’s longer-than-benchmark duration detracted in the rising rate environment. As in the six-month period, a long position in Treasuries, which underperformed TIPS, detracted.
During both periods, the Strategy utilized derivatives including currency forwards and options to hedge currency risk and actively manage currency positions. Credit default swaps were utilized for hedging and investment purposes, which had an immaterial impact on performance during both periods. Treasury futures, interest rate and Consumer Price Index (“CPI”) swaps as well as interest rate swaptions were utilized to manage duration, inflation protection, country exposure and yield-curve positioning. Equity options were utilized to manage market exposure.
MARKET REVIEW AND INVESTMENT STRATEGY
Bond markets rallied over the 12-month period, but were volatile in the latter half of the period. Political events had a significant impact on bond markets during both periods. In the US, Donald Trump’s presidential election victory and the promise of fiscal stimulus, a retreat from globalization and relaxed regulation were treated as positive developments by financial markets, though uncertainty regarding the specific details remained high. UK Prime Minister Theresa May surprised investors when she called for a snap parliamentary election three years ahead of schedule, in an effort to firm up the country’s mandate going into Brexit negotiations. The benign first-round outcome of the French presidential elections quelled some geopolitical uncertainty and renewed appetite for risk assets. Markets, especially in Europe, rallied on the news. The 10-year US Treasury yield
abfunds.com | AB BOND INFLATION STRATEGY | 3 |
rose almost half a percent to end higher at 2.28%. The 10-year German bund yield also rose through both periods, though only modestly in the latter, ending at 0.32%.
European central banks generally maintained an easing bias through the 12-month period, while the US Federal Reserve raised interest rates for the second and third time since the financial crisis in 2008. Accelerating trade and waning inflationary pressures contributed to a rally in emerging-market debt. Yields in developed markets had varying performance in both periods, generally rising in the US, Japan and Canada, and moving in different directions elsewhere, though longer maturities broadly rose. Developed-market treasuries, investment-grade credit securities and emerging-market local-currency government bonds rebounded over the 12-month period, but experienced volatility in the latter half. Global high yield rallied in both periods, during which sector performance was almost uniformly positive; energy and basics were the best performers in each period, benefiting from oil price increases. Consumer-related sectors generally lagged the rising markets, with pharmaceuticals one of the few sectors to fall in both periods.
INVESTMENT POLICIES
The Strategy seeks real return. Real return is the rate of return after adjusting for inflation. The Strategy pursues its objective by investing principally in inflation-indexed securities (such as TIPS or inflation-indexed securities from issuers other than the US Treasury) or by gaining inflation protection through derivatives transactions, such as inflation (CPI) swaps or total return swaps linked to TIPS. In deciding whether to purchase inflation-indexed securities or use inflation-linked derivatives transactions, the Adviser will consider the relative costs and efficiency of each method. In addition, in seeking to maximize real return, the Strategy may also invest in other fixed-income investments, such as US and non-US government securities, corporate fixed-income securities and mortgage-related securities, as well as derivatives linked to such securities.
Under normal circumstances, the Strategy invests at least 80% of its net assets in fixed-income securities. While the Strategy expects to invest principally in investment-grade securities, it may invest up to 15% of its total assets in fixed-income securities rated BB or B or the equivalent by at least one national rating agency (or deemed by the Adviser to be of comparable credit quality), which are not investment-grade (“junk bonds”).
(continued on next page)
4 | AB BOND INFLATION STRATEGY | abfunds.com |
Inflation-indexed securities are fixed-income securities structured to provide protection against inflation. Their principal value and/or the interest paid on them are adjusted to reflect official inflation measures. The inflation measure for TIPS is the CPI for Urban Consumers. The Strategy may also invest in other inflation-indexed securities, issued by both US and non-US issuers, and in derivative instruments linked to these securities.
The Strategy may invest in derivatives, such as options, futures, forwards or swaps. The Strategy intends to use leverage for investment purposes. To do this, the Strategy expects to enter into (i) reverse repurchase agreement transactions and use the cash made available from these transactions to make additional investments in fixed-income securities in accordance with the Strategy’s investment policies and (ii) total return swaps. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the costs of such transactions. The Adviser will consider the impact of reverse repurchase agreements, swaps and other derivatives in making its assessments of the Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
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 Strategy. 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 Strategy’s other holdings.
The Strategy may also invest in loan participations, structured securities, asset-backed securities, variable, floating, and inverse floating-rate instruments, and preferred stock, and may use other investment techniques. The Strategy may invest in fixed-income securities of any maturity and duration. If the rating of a fixed-income security falls below investment-grade, the Strategy will not be obligated to sell the security and may continue to hold it if, in the Adviser’s opinion, the investment is appropriate under the circumstances.
abfunds.com | AB BOND INFLATION STRATEGY | 5 |
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 mutual fund portfolio. The Bloomberg Barclays 1-10 Year TIPS Index represents the performance of inflation-protected securities issued by the US Treasury. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
Market Risk: The value of the Strategy’s assets will fluctuate as the bond market fluctuates. The value of the Strategy’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events 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. 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. The Strategy may be subject to heightened interest rate risk due to rising rates as the current period of historically low rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of
6 | AB BOND INFLATION STRATEGY | abfunds.com |
DISCLOSURES AND RISKS (continued)
money. As inflation increases, the value of the Strategy’s assets can decline as can the value of the Strategy’s distributions. This risk is significantly greater for fixed-income securities with longer maturities. Although the Strategy invests principally in inflation-indexed securities, the value of its securities may be vulnerable to changes in expectations of inflation or interest rates.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and may be subject to counterparty risk to a greater degree than more traditional investments.
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 less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Strategy’s investments or reduce its returns.
Leverage Risk: To the extent the Strategy 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 Strategy’s investments.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Strategy. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Strategy shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
Management Risk: The Strategy 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.
These risks are fully discussed in the Strategy’s prospectus. As with all investments, you may lose money by investing in the Strategy.
abfunds.com | AB BOND INFLATION STRATEGY | 7 |
DISCLOSURES AND RISKS (continued)
An Important Note About Historical Performance
The investment return and principal value of an investment in the Strategy will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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 visiting www.abfunds.com. For Class 1 shares, go to www.bernstein.com and click on “Investments”, then “Mutual Fund Information—Mutual Fund Performance at a Glance”.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; a 1% 1-year contingent deferred sales charge for Class C shares. Class 1 and Class 2 shares do not carry sales charges. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
8 | AB BOND INFLATION STRATEGY | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS 1 SHARES2 | 0.40% | |||||||||||
1 Year | 3.45% | 3.45% | ||||||||||
5 Years | 1.16% | 1.16% | ||||||||||
Since Inception3 | 2.93% | 2.93% | ||||||||||
CLASS 2 SHARES2 | 0.50% | |||||||||||
1 Year | 3.50% | 3.50% | ||||||||||
5 Years | 1.25% | 1.25% | ||||||||||
Since Inception3 | 3.01% | 3.01% | ||||||||||
CLASS A SHARES | 0.15% | |||||||||||
1 Year | 3.29% | -1.11% | ||||||||||
5 Years | 0.96% | 0.09% | ||||||||||
Since Inception3 | 2.71% | 2.10% | ||||||||||
CLASS C SHARES | -0.58% | |||||||||||
1 Year | 2.49% | 1.49% | ||||||||||
5 Years | 0.25% | 0.25% | ||||||||||
Since Inception3 | 1.99% | 1.99% | ||||||||||
ADVISOR CLASS SHARES4 | 0.40% | |||||||||||
1 Year | 3.58% | 3.58% | ||||||||||
5 Years | 1.24% | 1.24% | ||||||||||
Since Inception3 | 3.01% | 3.01% | ||||||||||
CLASS R SHARES4 | -0.24% | |||||||||||
1 Year | 3.05% | 3.05% | ||||||||||
5 Years | 0.76% | 0.76% | ||||||||||
Since Inception3 | 2.52% | 2.52% | ||||||||||
CLASS K SHARES4 | 0.07% | |||||||||||
1 Year | 3.26% | 3.26% | ||||||||||
5 Years | 1.01% | 1.01% | ||||||||||
Since Inception3 | 2.76% | 2.76% | ||||||||||
CLASS I SHARES4 | 0.48% | |||||||||||
1 Year | 3.54% | 3.54% | ||||||||||
5 Years | 1.27% | 1.27% | ||||||||||
Since Inception3 | 3.02% | 3.02% | ||||||||||
CLASS Z SHARES4 | 0.49% | |||||||||||
1 Year | 3.49% | 3.49% | ||||||||||
Since Inception5 | 2.79% | 2.79% |
(footnotes continued on next page)
abfunds.com | AB BOND INFLATION STRATEGY | 9 |
HISTORICAL PERFORMANCE (continued)
The Strategy’s prospectus fee table shows the Strategy’s total annual operating expense ratios as 1.03%, 0.93%, 1.41%, 2.16%, 1.16%, 1.71%, 1.36%, 1.03% and 0.95% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expenses (exclusive of interest expense) to 0.60%, 0.50%, 0.75%, 1.50%, 0.50%, 1.00%, 0.75%, 0.50% and 0.50% for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. These waivers/reimbursements may not be terminated before January 31, 2018 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended April 30, 2017. |
2 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to large Bernstein Global Wealth Management private client accounts and the Adviser’s institutional clients or through other limited arrangements. These share classes do not carry front-end sales charges; therefore their respective NAV and SEC returns are the same. |
3 | Inception date: 1/26/2010. |
4 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
5 | Inception date: 12/11/2014. |
10 | AB BOND INFLATION STRATEGY | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 3.57% | |||
5 Years | 1.25% | |||
Since Inception2 | 2.86% | |||
CLASS 2 SHARES1 | ||||
1 Year | 3.71% | |||
5 Years | 1.35% | |||
Since Inception2 | 2.95% | |||
CLASS A SHARES | ||||
1 Year | -0.84% | |||
5 Years | 0.18% | |||
Since Inception2 | 2.04% | |||
CLASS C SHARES | ||||
1 Year | 1.69% | |||
5 Years | 0.34% | |||
Since Inception2 | 1.92% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 3.70% | |||
5 Years | 1.33% | |||
Since Inception2 | 2.94% | |||
CLASS R SHARES3 | ||||
1 Year | 3.30% | |||
5 Years | 0.88% | |||
Since Inception2 | 2.46% | |||
CLASS K SHARES3 | ||||
1 Year | 3.50% | |||
5 Years | 1.11% | |||
Since Inception2 | 2.70% | |||
CLASS I SHARES3 | ||||
1 Year | 3.76% | |||
5 Years | 1.37% | |||
Since Inception2 | 2.97% | |||
CLASS Z SHARES3 | ||||
1 Year | 3.79% | |||
Since Inception4 | 2.60% |
(footnotes continued on next page)
abfunds.com | AB BOND INFLATION STRATEGY | 11 |
HISTORICAL PERFORMANCE (continued)
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to large Bernstein Global Wealth Management private client accounts and the Adviser’s institutional clients or through other limited arrangements. |
2 | Inception date: 1/26/2010. |
3 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
4 | Inception date: 12/11/2014. |
12 | AB BOND INFLATION STRATEGY | abfunds.com |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
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 November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,006.20 | $ | 4.92 | 0.99 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.89 | $ | 4.96 | 0.99 | % |
abfunds.com | AB BOND INFLATION STRATEGY | 13 |
EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,003.30 | $ | 8.64 | 1.74 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,016.17 | $ | 8.70 | 1.74 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,008.10 | $ | 3.68 | 0.74 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.12 | $ | 3.71 | 0.74 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,005.90 | $ | 6.17 | 1.24 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.65 | $ | 6.21 | 1.24 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,006.70 | $ | 4.93 | 0.99 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.89 | $ | 4.96 | 0.99 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,007.20 | $ | 3.68 | 0.74 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.12 | $ | 3.71 | 0.74 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,007.20 | $ | 4.18 | 0.84 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.63 | $ | 4.21 | 0.84 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,007.70 | $ | 3.68 | 0.74 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.12 | $ | 3.71 | 0.74 | % | ||||||||
Class Z | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,007.60 | $ | 3.68 | 0.74 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.12 | $ | 3.71 | 0.74 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
14 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $464.1
Total Investments ($mil): $598.3
INFLATION PROTECTION BREAKDOWN1
U.S. Inflation-Protected Exposure | 98.0% | |||
Non-U.S. | 1.0% | |||
Non-Inflation Exposure | 1.0% | |||
100.0% |
SECTOR BREAKDOWN OF NET PORTFOLIO ASSETS, EXCLUDING TREASURY SECURITIES, TIPS, INTEREST RATE DERIVATIVES AND NET CASH EQUIVALENTS1
Corporates–Investment Grade | 13.6% | |||
Commercial Mortgage-Backed Securities | 8.3% | |||
Asset-Backed Securities | 5.8% | |||
Collateralized Mortgage Obligations | 4.4% | |||
Corporates–Non-Investment Grade | 2.9% | |||
Emerging Markets–Corporate Bonds | 0.5% | |||
Quasi-Sovereigns | 0.2% | |||
Governments–Sovereign Bonds | 0.1% | |||
Common Stocks | 0.1% | |||
Emerging Markets–Sovereigns | 0.1% |
SECURITY TYPE BREAKDOWN2
Inflation-Linked Securities | 71.2% | |||
Corporates–Investment Grade | 9.9% | |||
Commercial Mortgage-Backed Securities | 4.9% | |||
Asset-Backed Securities | 4.5% | |||
Collateralized Mortgage Obligations | 3.4% | |||
Corporates–Non-Investment Grade | 1.7% | |||
Emerging Markets–Treasuries | 0.5% | |||
Emerging Markets–Corporate Bonds | 0.4% | |||
Quasi-Sovereigns | 0.2% | |||
Governments–Sovereign Bonds | 0.1% | |||
Common Stocks | 0.1% | |||
Emerging Markets–Sovereigns | 0.1% | |||
Short-Term | 3.0% |
1 | All data are as of April 30, 2017. The Strategy’s sector and inflation-protection exposure breakdown is expressed as an approximate percentage of the Strategy’s total net assets (and may vary over time) inclusive of derivative exposure except as noted, based on the Adviser’s internal classification. |
2 | The Strategy’s sector breakdown is expressed, based on the Adviser’s internal classification, as a percentage of total investments and may vary over time. The Strategy also enters into derivative transactions (not reflected in the table), which may be used for hedging or investment purposes or to adjust the risk profile or exposures of the Strategy (see “Portfolio of Investments” section of the report for additional details). Derivative transactions may result in a form of leverage for the Strategy. The Strategy uses leverage for investment purposes by entering into reverse repurchase agreements. As a result, the Strategy’s total investments will generally exceed its net assets. |
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PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
INFLATION-LINKED SECURITIES – 91.9% | ||||||||||||
Japan – 1.0% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 478,042 | $ | 4,549,365 | ||||||||
|
| |||||||||||
United States – 90.9% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 103,145 | 104,017,968 | |||||||||
0.125%, 1/15/22-7/15/24 (TIPS) | 40,157 | 40,241,922 | ||||||||||
0.25%, 1/15/25 (TIPS)(a) | 33,833 | 33,727,274 | ||||||||||
0.375%, 7/15/23 (TIPS)(a)(b) | 19,075 | 19,433,042 | ||||||||||
0.375%, 7/15/25 (TIPS)(a) | 29,805 | 30,066,054 | ||||||||||
0.625%, 7/15/21 (TIPS)(a) | 54,028 | 55,994,960 | ||||||||||
0.625%, 1/15/24 (TIPS) | 46,933 | 48,252,533 | ||||||||||
1.375%, 1/15/20 (TIPS) | 20,044 | 21,008,733 | ||||||||||
2.00%, 1/15/26 (TIPS) | 10,967 | 12,509,675 | ||||||||||
2.375% TII, 1/15/25 (TIPS) | 7,835 | 9,074,051 | ||||||||||
2.375%, 1/15/27 (TIPS)(a) | 39,946 | 47,472,949 | ||||||||||
|
| |||||||||||
421,799,161 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 426,348,526 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 12.8% | ||||||||||||
Industrial – 7.7% | ||||||||||||
Basic – 0.5% | ||||||||||||
Barrick Gold Corp. | 47 | 51,000 | ||||||||||
Dow Chemical Co. (The) | 67 | 75,618 | ||||||||||
Eastman Chemical Co. | 227 | 233,898 | ||||||||||
Minsur SA | 314 | 336,765 | ||||||||||
Sociedad Quimica y Minera de Chile SA | 393 | 384,649 | ||||||||||
Vale Overseas Ltd. | 515 | 557,230 | ||||||||||
Yamana Gold, Inc. | 403 | 407,030 | ||||||||||
|
| |||||||||||
2,046,190 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.2% | ||||||||||||
Embraer Netherlands Finance BV | 590 | 611,342 |
16 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
General Electric Co. | U.S.$ | 191 | $ | 201,992 | ||||||||
|
| |||||||||||
813,334 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.4% | ||||||||||||
CBS Corp. | 300 | 302,193 | ||||||||||
5.75%, 4/15/20 | 325 | 357,276 | ||||||||||
Cox Communications, Inc. | 163 | 157,223 | ||||||||||
RELX Capital, Inc. | 460 | 508,677 | ||||||||||
Time Warner Cable LLC | 235 | 216,679 | ||||||||||
5.00%, 2/01/20 | 35 | 37,328 | ||||||||||
8.75%, 2/14/19 | 25 | 27,814 | ||||||||||
Viacom, Inc. | 336 | 298,150 | ||||||||||
|
| |||||||||||
1,905,340 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 1.1% | ||||||||||||
AT&T, Inc. | 1,255 | 1,260,785 | ||||||||||
3.40%, 5/15/25 | 120 | 116,788 | ||||||||||
3.80%, 3/15/22 | 274 | 284,349 | ||||||||||
4.125%, 2/17/26 | 431 | 439,008 | ||||||||||
Rogers Communications, Inc. | CAD | 55 | 44,085 | |||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 344 | 347,027 | |||||||||
Telefonica Emisiones SAU | 707 | 731,236 | ||||||||||
Verizon Communications, Inc. | 614 | 563,026 | ||||||||||
3.50%, 11/01/24 | 565 | 565,175 | ||||||||||
5.50%, 3/16/47 | 535 | 566,447 | ||||||||||
|
| |||||||||||
4,917,926 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.3% | ||||||||||||
Ford Motor Credit Co. LLC | 400 | 402,140 | ||||||||||
5.875%, 8/02/21 | 640 | 712,851 | ||||||||||
General Motors Co. | 425 | 433,504 | ||||||||||
|
| |||||||||||
1,548,495 | ||||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Retailers – 0.1% | ||||||||||||
Walgreens Boots Alliance, Inc. | U.S.$ | 623 | $ | 639,977 | ||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.2% | ||||||||||||
AbbVie, Inc. | 455 | 459,577 | ||||||||||
Baxalta, Inc. | 700 | 720,727 | ||||||||||
Bunge Ltd. Finance Corp. | 81 | 91,472 | ||||||||||
Celgene Corp. | 520 | 538,439 | ||||||||||
Grupo Bimbo SAB de CV | 648 | 654,052 | ||||||||||
Laboratory Corp. of America Holdings | 275 | 274,973 | ||||||||||
Mylan NV | 197 | 194,926 | ||||||||||
Sigma Alimentos SA de CV | 645 | 636,292 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 599 | 578,472 | ||||||||||
3.15%, 10/01/26 | 400 | 371,384 | ||||||||||
Tyson Foods, Inc. | 199 | 200,877 | ||||||||||
3.95%, 8/15/24 | 650 | 667,491 | ||||||||||
|
| |||||||||||
5,388,682 | ||||||||||||
|
| |||||||||||
Energy – 2.5% | ||||||||||||
Cenovus Energy, Inc. | 33 | 32,452 | ||||||||||
5.70%, 10/15/19 | 159 | 170,640 | ||||||||||
Ecopetrol SA | 292 | 267,414 | ||||||||||
Energy Transfer Partners LP/old | 510 | 551,473 | ||||||||||
EnLink Midstream Partners LP | 352 | 332,098 | ||||||||||
Enterprise Products Operating LLC | 771 | 781,694 | ||||||||||
5.20%, 9/01/20 | 335 | 365,482 | ||||||||||
Hess Corp. | 563 | 560,579 | ||||||||||
Kinder Morgan Energy Partners LP | 104 | 108,300 | ||||||||||
5.00%, 10/01/21 | 1,200 | 1,293,348 |
18 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Marathon Petroleum Corp. | U.S.$ | 280 | $ | 303,730 | ||||||||
MPLX LP | 316 | 319,997 | ||||||||||
4.50%, 7/15/23 | 575 | 606,729 | ||||||||||
Nabors Industries, Inc. | 671 | 678,884 | ||||||||||
Noble Energy, Inc. | 491 | 501,743 | ||||||||||
4.15%, 12/15/21 | 127 | 134,374 | ||||||||||
8.25%, 3/01/19 | 387 | 429,230 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 621 | 611,542 | ||||||||||
Regency Energy Partners LP/Regency Energy Finance Corp. | 115 | 119,647 | ||||||||||
Sabine Pass Liquefaction LLC | 418 | 441,454 | ||||||||||
Schlumberger Holdings Corp. | 845 | 866,201 | ||||||||||
Spectra Energy Capital LLC | 8 | 8,985 | ||||||||||
Valero Energy Corp. | 476 | 525,061 | ||||||||||
Williams Partners LP | 1,250 | 1,267,475 | ||||||||||
4.125%, 11/15/20 | 300 | 314,055 | ||||||||||
|
| |||||||||||
�� | 11,592,587 | |||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
Alfa SAB de CV | 600 | 636,750 | ||||||||||
|
| |||||||||||
Services – 0.2% | ||||||||||||
S&P Global, Inc. | 611 | 653,850 | ||||||||||
Total System Services, Inc. | 259 | 259,927 | ||||||||||
|
| |||||||||||
913,777 | ||||||||||||
|
| |||||||||||
Technology – 0.9% | ||||||||||||
Agilent Technologies, Inc. | 7 | 7,553 | ||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 190 | 192,776 | ||||||||||
3.875%, 1/15/27(c) | 407 | 412,820 |
abfunds.com | AB BOND INFLATION STRATEGY | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Dell International LLC/EMC Corp. | U.S.$ | 805 | $ | 845,483 | ||||||||
6.02%, 6/15/26(c) | 138 | 151,785 | ||||||||||
Fidelity National Information Services, Inc. | 112 | 114,828 | ||||||||||
5.00%, 10/15/25 | 2 | 2,206 | ||||||||||
KLA-Tencor Corp. | 639 | 686,280 | ||||||||||
Lam Research Corp. | 250 | 252,337 | ||||||||||
Micron Technology, Inc. | 209 | 233,802 | ||||||||||
Motorola Solutions, Inc. | 483 | 575,731 | ||||||||||
Seagate HDD Cayman | 398 | 388,289 | ||||||||||
Western Digital Corp. | 447 | 488,799 | ||||||||||
|
| |||||||||||
4,352,689 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.2% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 565 | 573,475 | ||||||||||
AerCap Aviation Solutions BV | 200 | 200,714 | ||||||||||
|
| |||||||||||
774,189 | ||||||||||||
|
| |||||||||||
35,529,936 | ||||||||||||
|
| |||||||||||
Financial Institutions – 4.7% | ||||||||||||
Banking – 4.1% | ||||||||||||
ABN AMRO Bank NV | 200 | 209,486 | ||||||||||
Banco Santander SA | 600 | 605,730 | ||||||||||
Bank of America Corp. | 1,155 | 1,151,985 | ||||||||||
3.824%, 1/20/28 | 965 | 972,701 | ||||||||||
Barclays Bank PLC | EUR | 101 | 137,595 | |||||||||
Barclays PLC | U.S.$ | 294 | 289,596 | |||||||||
3.684%, 1/10/23 | 700 | 711,263 | ||||||||||
BNP Paribas SA | 332 | 335,941 | ||||||||||
Series E | EUR | 300 | 328,443 |
20 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BPCE SA | U.S.$ | 213 | $ | 230,809 | ||||||||
Citigroup, Inc. | 655 | 655,845 | ||||||||||
Cooperatieve Rabobank UA | 396 | 411,935 | ||||||||||
Credit Agricole SA/London | 367 | 371,756 | ||||||||||
Credit Suisse Group Funding Guernsey Ltd. | 1,285 | 1,313,398 | ||||||||||
Goldman Sachs Group, Inc. (The) | 382 | 376,537 | ||||||||||
2.654% (LIBOR 3 Month + 1.60%), 11/29/23(e) | 406 | 419,548 | ||||||||||
3.85%, 7/08/24 | 1,000 | 1,032,310 | ||||||||||
HSBC Holdings PLC | 1,000 | 1,053,310 | ||||||||||
ING Groep NV | 538 | 550,912 | ||||||||||
JPMorgan Chase & Co. | 322 | 319,694 | ||||||||||
3.782%, 2/01/28 | 518 | 526,221 | ||||||||||
4.25%, 10/15/20 | 55 | 58,472 | ||||||||||
Lloyds Banking Group PLC | 318 | 330,456 | ||||||||||
Morgan Stanley | 456 | 507,610 | ||||||||||
Nationwide Building Society | 820 | 811,784 | ||||||||||
PNC Bank NA | 940 | 986,737 | ||||||||||
Santander Issuances SAU | EUR | 400 | 464,687 | |||||||||
Santander UK PLC | U.S.$ | 505 | 531,972 | |||||||||
Sumitomo Mitsui Banking Corp. | 281 | 280,899 | ||||||||||
UBS AG/Stamford CT | 465 | 544,213 | ||||||||||
UBS Group Funding Jersey Ltd. | 1,153 | 1,186,518 | ||||||||||
US Bancorp | 427 | 442,577 |
abfunds.com | AB BOND INFLATION STRATEGY | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Wells Fargo & Co. | U.S.$ | 759 | $ | 767,584 | ||||||||
|
| |||||||||||
18,918,524 | ||||||||||||
|
| |||||||||||
Finance – 0.1% | ||||||||||||
International Lease Finance Corp. | 294 | 313,075 | ||||||||||
|
| |||||||||||
Insurance – 0.2% | ||||||||||||
Coventry Health Care, Inc. | 415 | 459,882 | ||||||||||
Hartford Financial Services Group, Inc. (The) | 5 | 5,435 | ||||||||||
Lincoln National Corp. | 54 | 61,331 | ||||||||||
MetLife, Inc. | 90 | 109,351 | ||||||||||
Nationwide Financial Services, Inc. | 360 | 393,343 | ||||||||||
Nationwide Mutual Insurance Co. | 125 | 203,857 | ||||||||||
|
| |||||||||||
1,233,199 | ||||||||||||
|
| |||||||||||
REITS – 0.3% | ||||||||||||
Trust F/1401 | 640 | 649,595 | ||||||||||
Welltower, Inc. | 708 | 726,252 | ||||||||||
|
| |||||||||||
1,375,847 | ||||||||||||
|
| |||||||||||
21,840,645 | ||||||||||||
|
| |||||||||||
Utility – 0.4% | ||||||||||||
Electric – 0.4% | ||||||||||||
Berkshire Hathaway Energy Co. | 340 | 426,292 | ||||||||||
CMS Energy Corp. | 144 | 157,921 | ||||||||||
Entergy Corp. | 607 | 641,514 | ||||||||||
Exelon Corp. | 91 | 98,196 | ||||||||||
Israel Electric Corp., Ltd. | 620 | 669,600 | ||||||||||
|
| |||||||||||
1,993,523 | ||||||||||||
|
|
22 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Natural Gas – 0.0% | ||||||||||||
NiSource Finance Corp. | U.S.$ | 75 | $ | 80,793 | ||||||||
|
| |||||||||||
2,074,316 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 59,444,897 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 6.3% | ||||||||||||
Non-Agency Fixed Rate CMBS – 5.1% | ||||||||||||
Banc of America Commercial Mortgage Trust | 258 | 262,504 | ||||||||||
Bear Stearns Commercial Mortgage Securities Trust | 45 | 45,335 | ||||||||||
BHMS Mortgage Trust | 1,070 | 1,083,960 | ||||||||||
CGRBS Commercial Mortgage Trust | 885 | 914,620 | ||||||||||
Citigroup Commercial Mortgage Trust | 486 | 461,426 | ||||||||||
Series 2013-GC11, Class D | 191 | 176,440 | ||||||||||
Series 2015-GC27, Class A5 | 1,382 | 1,388,916 | ||||||||||
Series 2016-C1, Class A4 | 775 | 781,338 | ||||||||||
COBALT CMBS Commercial Mortgage Trust | 26 | 26,355 | ||||||||||
Commercial Mortgage Trust | 296 | 290,636 | ||||||||||
Series 2015-CR25, Class A4 | 1,155 | 1,207,953 | ||||||||||
Series 2015-PC1, Class A5 | 745 | 783,265 |
abfunds.com | AB BOND INFLATION STRATEGY | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Credit Suisse Commercial Mortgage Trust | U.S.$ | 144 | $ | 143,601 | ||||||||
CSAIL Commercial Mortgage Trust | 395 | 411,634 | ||||||||||
Series 2015-C4, Class A4 | 1,148 | 1,197,802 | ||||||||||
GS Mortgage Securities Corp. II | 735 | 745,186 | ||||||||||
GS Mortgage Securities Trust | 40 | 40,257 | ||||||||||
Series 2013-G1, Class A1 | 521 | 508,576 | ||||||||||
Series 2014-GC18, Class D | 581 | 496,315 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 249 | 248,749 | ||||||||||
Series 2006-LDP9, Class AM | 227 | 227,179 | ||||||||||
Series 2007-CB19, Class AM | 295 | 294,805 | ||||||||||
Series 2007-LD12, Class AM | 245 | 247,990 | ||||||||||
Series 2011-C5, Class D | 129 | 130,227 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 430 | 451,057 | ||||||||||
Series 2015-C32, Class C | 545 | 523,514 | ||||||||||
Series 2015-C33, Class A4 | 1,150 | 1,204,200 | ||||||||||
LB-UBS Commercial Mortgage Trust | 222 | 191,151 | ||||||||||
LSTAR Commercial Mortgage Trust | 375 | 375,290 | ||||||||||
Series 2015-3, Class A2 | 651 | 654,955 |
24 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
ML-CFC Commercial Mortgage Trust | U.S.$ | 93 | $ | 93,458 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 11,205 | 794,524 | ||||||||||
Morgan Stanley Capital I Trust | 320 | 320,207 | ||||||||||
UBS-Barclays Commercial Mortgage Trust | 2,309 | 2,329,318 | ||||||||||
Wachovia Bank Commercial Mortgage Trust | 25 | 25,247 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 1,160 | 1,191,562 | ||||||||||
Series 2015-SG1, Class C | 537 | 534,621 | ||||||||||
Series 2016-LC25, Class C | 330 | 326,012 | ||||||||||
Series 2016-NXS6, Class A4 | 900 | 880,624 | ||||||||||
Series 2016-NXS6, Class C | 525 | 522,633 | ||||||||||
WF-RBS Commercial Mortgage Trust | 494 | 508,658 | ||||||||||
Series 2014-C20, Class A2 | 648 | 661,634 | ||||||||||
|
| |||||||||||
23,703,734 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 1.2% | ||||||||||||
CGBAM Commercial Mortgage Trust | 328 | 328,002 | ||||||||||
Series 2016-IMC, Class C | 184 | 184,356 | ||||||||||
CSMC Mortgage-Backed Trust | 185 | 185,695 |
abfunds.com | AB BOND INFLATION STRATEGY | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Great Wolf Trust | U.S.$ | 800 | $ | 804,000 | ||||||||
H/2 Asset Funding NRE | 505 | 501,671 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 1,068 | 1,068,672 | ||||||||||
Series 2015-SGP, Class A | 853 | 857,265 | ||||||||||
Morgan Stanley Capital I Trust | 214 | 212,843 | ||||||||||
Series 2015-XLF2, Class SNMA | 241 | 236,452 | ||||||||||
Resource Capital Corp., Ltd. | 65 | 64,912 | ||||||||||
Starwood Retail Property Trust | 1,084 | 1,073,779 | ||||||||||
|
| |||||||||||
5,517,647 | ||||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 29,221,381 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 5.8% | ||||||||||||
Autos - Fixed Rate – 3.7% | ||||||||||||
Ally Auto Receivables Trust | 300 | 299,566 | ||||||||||
Ally Master Owner Trust | 707 | 707,091 | ||||||||||
Americredit Automobile Receivables Trust | 644 | 643,503 |
26 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Avis Budget Rental Car Funding AESOP LLC | U.S.$ | 420 | $ | 421,046 | ||||||||
Series 2013-2A, Class A | 289 | 293,472 | ||||||||||
Bank of The West Auto Trust | 541 | 540,666 | ||||||||||
California Republic Auto Receivables Trust | 570 | 570,132 | ||||||||||
Series 2015-2, Class A3 | 268 | 268,176 | ||||||||||
Capital Auto Receivables Asset Trust | 200 | 200,342 | ||||||||||
Chrysler Capital Auto Receivables Trust | 857 | 858,945 | ||||||||||
CPS Auto Receivables Trust | 156 | 155,595 | ||||||||||
Series 2014-B, Class A | 10 | 9,862 | ||||||||||
Drive Auto Receivables Trust | 765 | 764,170 | ||||||||||
Series 2017-BA, Class A1 | 1,123 | 1,123,205 | ||||||||||
Series 2017-BA, Class A3 | 880 | 880,293 | ||||||||||
Enterprise Fleet Financing LLC | 255 | 254,633 | ||||||||||
Exeter Automobile Receivables Trust | 250 | 267,537 | ||||||||||
Series 2016-3A, Class A | 244 | 243,441 | ||||||||||
Series 2017-2A, Class A | 790 | 788,931 | ||||||||||
Flagship Credit Auto Trust | 325 | 352,621 | ||||||||||
Series 2016-4, Class D | 330 | 325,279 |
abfunds.com | AB BOND INFLATION STRATEGY | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Ford Credit Auto Owner Trust | U.S.$ | 728 | $ | 734,955 | ||||||||
GM Financial Automobile Leasing Trust | 798 | 799,072 | ||||||||||
GMF Floorplan Owner Revolving Trust | 599 | 599,101 | ||||||||||
Harley-Davidson Motorcycle Trust | 155 | 154,642 | ||||||||||
Hertz Vehicle Financing II LP | 625 | 623,304 | ||||||||||
Series 2015-1A, Class B | 489 | 488,893 | ||||||||||
Series 2015-2A, Class A | 508 | 505,503 | ||||||||||
Hertz Vehicle Financing LLC | 368 | 367,617 | ||||||||||
Series 2016-1A, Class A | 737 | 734,383 | ||||||||||
Hyundai Auto Lease Securitization Trust | 476 | 476,028 | ||||||||||
Mercedes Benz Auto Lease Trust | 318 | 317,982 | ||||||||||
Nissan Auto Lease Trust | 264 | 264,086 | ||||||||||
Santander Drive Auto Receivables Trust | 750 | 753,947 | ||||||||||
Series 2016-3, Class A2 | 322 | 321,893 | ||||||||||
Westlake Automobile Receivables Trust | 41 | 40,974 | ||||||||||
|
| |||||||||||
17,150,886 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 0.9% | ||||||||||||
Citi Held For Asset Issuance | 163 | 165,138 |
28 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CNH Equipment Trust | U.S.$ | 493 | $ | 494,175 | ||||||||
Dell Equipment Finance Trust | 91 | 91,259 | ||||||||||
Series 2015-2, Class A2A | 33 | 32,712 | ||||||||||
Marlette Funding Trust | 167 | 166,313 | ||||||||||
Series 2017-1A, Class A | 570 | 570,862 | ||||||||||
SBA Tower Trust | 851 | 855,340 | ||||||||||
SoFi Consumer Loan Program LLC | 278 | 278,427 | ||||||||||
Series 2016-3, Class A | 384 | 384,422 | ||||||||||
Series 2017-2, Class A | 667 | 670,443 | ||||||||||
Taco Bell Funding LLC | 479 | 487,162 | ||||||||||
|
| |||||||||||
4,196,253 | ||||||||||||
|
| |||||||||||
Autos - Floating Rate – 0.7% | ||||||||||||
BMW Floorplan Master Owner Trust | 1,037 | 1,039,052 | ||||||||||
Ford Credit Floorplan Master Owner Trust | 692 | 696,862 | ||||||||||
NCF Dealer Floorplan Master Trust | 159 | 159,000 | ||||||||||
Volkswagen Credit Auto Master Trust | 330 | 330,051 |
abfunds.com | AB BOND INFLATION STRATEGY | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Wells Fargo Dealer Floorplan Master Note Trust | U.S.$ | 534 | $ | 534,204 | ||||||||
Series 2015-1, Class A | 620 | 621,062 | ||||||||||
|
| |||||||||||
3,380,231 | ||||||||||||
|
| |||||||||||
Credit Cards - Fixed Rate – 0.4% | ||||||||||||
Synchrony Credit Card Master Note Trust | 1,084 | 1,093,881 | ||||||||||
Series 2016-1, Class A | 209 | 209,945 | ||||||||||
World Financial Network Credit Card Master Trust | 373 | 373,321 | ||||||||||
Series 2016-B, Class A | 313 | 312,186 | ||||||||||
|
| |||||||||||
1,989,333 | ||||||||||||
|
| |||||||||||
Credit Cards - Floating Rate – 0.1% | ||||||||||||
World Financial Network Credit Card Master Trust | 403 | 404,139 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 27,120,842 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 4.4% | ||||||||||||
Risk Share Floating Rate – 4.1% | ||||||||||||
Bellemeade Re II Ltd. | 272 | 278,790 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 1,030 | 1,135,666 |
30 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2014-DN3, Class M3 | U.S.$ | 1,055 | $ | 1,142,592 | ||||||||
Series 2014-HQ3, Class M3 | 323 | 360,035 | ||||||||||
Series 2015-DNA1, Class M3 | 260 | 282,130 | ||||||||||
Series 2015-DNA2, Class M2 | 811 | 830,513 | ||||||||||
Series 2015-DNA3, Class M3 | 281 | 320,405 | ||||||||||
Series 2015-HQ1, Class M2 | 277 | 280,283 | ||||||||||
Series 2015-HQA1, Class M2 | 611 | 627,052 | ||||||||||
Series 2015-HQA2, Class M2 | 271 | 279,577 | ||||||||||
Series 2015-HQA2, Class M3 | 276 | 315,477 | ||||||||||
Series 2016-DNA1, Class M3 | 324 | 373,339 | ||||||||||
Series 2016-DNA3, Class M3 | 1,250 | 1,410,931 | ||||||||||
Series 2016-HQA1, Class M3 | 600 | 721,308 | ||||||||||
Series 2017-DNA2, Class M2 | 434 | 442,958 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 70 | 69,891 | ||||||||||
Series 2014-C04, Class 1M2 | 528 | 602,401 |
abfunds.com | AB BOND INFLATION STRATEGY | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2014-C04, Class 2M2 | U.S.$ | 181 | $ | 202,667 | ||||||||
Series 2015-C01, Class 1M2 | 401 | 436,836 | ||||||||||
Series 2015-C01, Class 2M2 | 399 | 432,649 | ||||||||||
Series 2015-C02, Class 1M2 | 526 | 570,355 | ||||||||||
Series 2015-C02, Class 2M2 | 435 | 464,659 | ||||||||||
Series 2015-C03, Class 1M2 | 687 | 761,875 | ||||||||||
Series 2015-C03, Class 2M2 | 679 | 756,323 | ||||||||||
Series 2015-C04, Class 1M2 | 1,204 | 1,373,988 | ||||||||||
Series 2015-C04, Class 2M2 | 620 | 692,516 | ||||||||||
Series 2016-C01, Class 1M2 | 587 | 704,168 | ||||||||||
Series 2016-C01, Class 2M2 | 446 | 534,929 | ||||||||||
Series 2016-C02, Class 1M2 | 505 | 589,074 | ||||||||||
Series 2016-C03, Class 1M2 | 86 | 98,371 | ||||||||||
Series 2016-C03, Class 2M2 | 1,214 | 1,407,856 | ||||||||||
Series 2017-C02, Class 2M2 | 268 | 276,431 |
32 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | U.S.$ | 90 | $ | 90,714 | ||||||||
Series 2015-WF1, Class 2M1 | 171 | 173,657 | ||||||||||
|
| |||||||||||
19,040,416 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 0.2% | ||||||||||||
Federal National Mortgage Association REMICs | 1,589 | 353,243 | ||||||||||
Series 2015-66, Class AS | 2,034 | 359,061 | ||||||||||
Series 2016-22, Class ST | 1,991 | 334,109 | ||||||||||
|
| |||||||||||
1,046,413 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.1% | ||||||||||||
Federal National Mortgage Association REMICs | 2,023 | 410,310 | ||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 20,497,139 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 2.2% | ||||||||||||
Industrial – 1.6% | ||||||||||||
Basic – 0.2% | ||||||||||||
Anglo American Capital PLC | 200 | 201,070 | ||||||||||
NOVA Chemicals Corp. | 391 | 398,104 | ||||||||||
SPCM SA | 500 | 506,075 | ||||||||||
|
| |||||||||||
1,105,249 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.2% | ||||||||||||
CSC Holdings LLC | 145 | 159,451 |
abfunds.com | AB BOND INFLATION STRATEGY | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
SFR Group SA | EUR | 231 | $ | 262,161 | ||||||||
Ziggo Secured Finance BV | U.S.$ | 485 | 496,824 | |||||||||
|
| |||||||||||
918,436 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.4% | ||||||||||||
CenturyLink, Inc. | 233 | 251,652 | ||||||||||
Series Y | 213 | 231,446 | ||||||||||
Sprint Capital Corp. | 1,000 | 1,073,380 | ||||||||||
Wind Acquisition Finance SA | 340 | 345,443 | ||||||||||
|
| |||||||||||
1,901,921 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Adient Global Holdings Ltd. | 321 | 321,507 | ||||||||||
Allison Transmission, Inc. | 197 | 200,745 | ||||||||||
|
| |||||||||||
522,252 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.3% | ||||||||||||
International Game Technology PLC | 360 | 393,170 | ||||||||||
6.50%, 2/15/25(c) | 460 | 503,972 | ||||||||||
KB Home | 345 | 356,185 | ||||||||||
|
| |||||||||||
1,253,327 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.1% | ||||||||||||
Hanesbrands, Inc. | 200 | 199,770 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.1% | ||||||||||||
HCA, Inc. | 49 | 49,513 | ||||||||||
5.25%, 6/15/26 | 86 | 92,046 | ||||||||||
Lamb Weston Holdings, Inc. | 83 | 85,643 | ||||||||||
4.875%, 11/01/26(c) | 83 | 85,525 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 385 | 284,676 | ||||||||||
|
| |||||||||||
597,403 | ||||||||||||
|
|
34 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Energy – 0.1% | ||||||||||||
Diamond Offshore Drilling, Inc. | U.S.$ | 575 | $ | 417,674 | ||||||||
SM Energy Co. | 41 | 41,578 | ||||||||||
|
| |||||||||||
459,252 | ||||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
Dell International LLC/EMC Corp. | 172 | 189,809 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 270 | 254,713 | ||||||||||
|
| |||||||||||
7,402,132 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.6% | ||||||||||||
Banking – 0.5% | ||||||||||||
Bank of America Corp. | 233 | 258,730 | ||||||||||
Barclays Bank PLC | 137 | 156,238 | ||||||||||
Intesa Sanpaolo SpA | 689 | 658,670 | ||||||||||
Royal Bank of Scotland Group PLC | 480 | 518,419 | ||||||||||
Series U | 100 | 93,531 | ||||||||||
Standard Chartered PLC | 400 | 336,008 | ||||||||||
7.50%, 4/02/22(c)(d) | 380 | 405,365 | ||||||||||
|
| |||||||||||
2,426,961 | ||||||||||||
|
| |||||||||||
Finance – 0.1% | ||||||||||||
Navient Corp. | 415 | 439,630 | ||||||||||
7.25%, 1/25/22 | 54 | 57,652 | ||||||||||
|
| |||||||||||
497,282 | ||||||||||||
|
| |||||||||||
2,924,243 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 10,326,375 | |||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – TREASURIES – 0.6% | ||||||||||||
Brazil – 0.6% |
| |||||||||||
Brazil Notas do Tesouro Nacional | BRL | 8,965 | $ | 2,803,752 | ||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 2,803,752 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.5% | ||||||||||||
Industrial – 0.5% | ||||||||||||
Capital Goods – 0.1% | ||||||||||||
Odebrecht Finance Ltd. | U.S.$ | 426 | 186,109 | |||||||||
7.125%, 6/26/42(c) | 368 | 165,600 | ||||||||||
|
| |||||||||||
351,709 | ||||||||||||
|
| |||||||||||
Communications - | ||||||||||||
MTN Mauritius Investment Ltd. | 328 | 334,150 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.2% | ||||||||||||
MARB BondCo PLC | 200 | 201,500 | ||||||||||
Marfrig Holdings Europe BV | 335 | 353,841 | ||||||||||
Minerva Luxembourg SA | 218 | 215,545 | ||||||||||
Virgolino de Oliveira Finance SA | 655 | 51,581 | ||||||||||
|
| |||||||||||
822,467 | ||||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Petrobras Global Finance BV | 430 | 449,651 | ||||||||||
Ultrapar International SA | 330 | 331,237 | ||||||||||
|
| |||||||||||
780,888 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 2,289,214 | |||||||||||
|
|
36 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
QUASI-SOVEREIGNS – 0.2% | ||||||||||||
Quasi-Sovereign Bonds – 0.2% | ||||||||||||
Chile – 0.1% | ||||||||||||
Empresa de Transporte de Pasajeros Metro SA | U.S.$ | 358 | $ | 387,535 | ||||||||
|
| |||||||||||
Mexico – 0.1% | ||||||||||||
Petroleos Mexicanos | 657 | 660,811 | ||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 1,048,346 | |||||||||||
|
| |||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.1% | ||||||||||||
Qatar – 0.1% | ||||||||||||
Qatar Government International Bond | 537 | 533,644 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.1% | ||||||||||||
Financials – 0.1% | ||||||||||||
Insurance – 0.1% | ||||||||||||
Mt Logan Re Ltd. | 260 | 266,550 | ||||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.1% | ||||||||||||
Egypt – 0.1% | ||||||||||||
Egypt Government International Bond | 255 | 265,519 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
SHORT-TERM INVESTMENTS – 3.9% | ||||||||||||
Governments – Treasuries – 2.9% | ||||||||||||
Japan – 2.9% | ||||||||||||
Japan Treasury Discount Bill | JPY | 339,150 | 3,043,262 | |||||||||
Series 673 | 1,160,000 | 10,408,996 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 13,452,258 | |||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Company |
| U.S. $ Value | ||||||||||
| ||||||||||||
Investment Companies – 1.0% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.57%(n)(o) | 4,699,449 | $ | 4,699,449 | |||||||||
|
| |||||||||||
Total Short-Term Investments | 18,151,707 | |||||||||||
|
| |||||||||||
Total Investments – 128.9% | 598,317,892 | |||||||||||
Other assets less liabilities – (28.9)% | (134,177,128 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 464,140,764 | ||||||||||
|
|
FUTURES (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at April 30, 2017 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Sold Contracts |
| |||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 4 | June 2017 | $ | 5,421,463 | $ | 5,418,973 | $ | 2,490 | ||||||||||||
Euro-BOBL Futures | 83 | June 2017 | 11,891,765 | 11,921,710 | (29,945 | ) | ||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 139 | June 2017 | 30,043,348 | 30,108,703 | (65,355 | ) | ||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 59 | June 2017 | 6,935,194 | 6,985,969 | (50,775 | ) | ||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 85 | June 2017 | 10,541,766 | 10,686,094 | (144,328 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | (287,913 | ) | ||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Australia and New Zealand Banking Group Ltd. | AUD | 5,424 | USD | 4,096 | 7/10/17 | $ | 39,090 | |||||||||||||
Bank of America, NA | SEK | 19,584 | USD | 2,178 | 5/11/17 | (34,048 | ) | |||||||||||||
Bank of America, NA | JPY | 942,260 | USD | 8,491 | 6/08/17 | 26,274 | ||||||||||||||
Barclays Bank PLC | KRW | 1,334,843 | USD | 1,179 | 5/18/17 | 5,696 | ||||||||||||||
BNP Paribas SA | USD | 1,585 | JPY | 175,196 | 5/11/17 | (12,888 | ) | |||||||||||||
Citibank, NA | GBP | 3,382 | USD | 4,131 | 5/18/17 | (251,492 | ) | |||||||||||||
Citibank, NA | JPY | 165,000 | USD | 1,504 | 5/24/17 | 22,277 | ||||||||||||||
Citibank, NA | TWD | 36,331 | USD | 1,189 | 6/13/17 | (15,947 | ) | |||||||||||||
Citibank, NA | USD | 2,637 | INR | 172,816 | 6/15/17 | 38,943 |
38 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Deutsche Bank AG | BRL | 8,748 | USD | 2,772 | 5/03/17 | $ | 16,202 | |||||||||||||
Deutsche Bank AG | USD | 2,735 | BRL | 8,748 | 5/03/17 | 20,983 | ||||||||||||||
Goldman Sachs Bank USA | USD | 1,137 | IDR | 15,273,377 | 5/19/17 | 6,937 | ||||||||||||||
Goldman Sachs Bank USA | NZD | 2,104 | USD | 1,464 | 7/10/17 | 21,819 | ||||||||||||||
HSBC Bank USA | JPY | 979,792 | USD | 8,854 | 5/11/17 | 61,943 | ||||||||||||||
HSBC Bank USA | USD | 1,054 | TRY | 4,002 | 6/08/17 | 60,682 | ||||||||||||||
JPMorgan Chase Bank, NA | BRL | 8,748 | USD | 2,735 | 5/03/17 | (20,983 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 2,744 | BRL | 8,748 | 5/03/17 | 11,630 | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 4,004 | GBP | 3,255 | 5/18/17 | 214,302 | ||||||||||||||
JPMorgan Chase Bank, NA | IDR | 15,144,016 | USD | 1,123 | 5/19/17 | (11,286 | ) | |||||||||||||
JPMorgan Chase Bank, NA | BRL | 8,748 | USD | 2,723 | 6/02/17 | (12,944 | ) | |||||||||||||
Morgan Stanley Capital Services, Inc. | JPY | 189,456 | USD | 1,709 | 5/11/17 | 8,957 | ||||||||||||||
Royal Bank of Scotland PLC | GBP | 909 | USD | 1,135 | 5/18/17 | (42,886 | ) | |||||||||||||
Royal Bank of Scotland PLC | EUR | 1,201 | USD | 1,279 | 7/13/17 | (34,777 | ) | |||||||||||||
Standard Chartered Bank | CAD | 2,416 | USD | 1,802 | 6/22/17 | 31,049 | ||||||||||||||
State Street Bank & Trust Co. | JPY | 521 | USD | 5 | 5/11/17 | 78 | ||||||||||||||
|
| |||||||||||||||||||
$ | 149,611 | |||||||||||||||||||
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Clearing Broker/(Exchange) | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Sale Contracts | ||||||||||||||||||||
Morgan Stanley & Co., LLC/(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 28, 5 Year Index, 6/20/22* | 5.00 | % | 3.28 | % | $ | 2,250 | $ | 184,210 | $ | 24,757 |
* | Termination date |
abfunds.com | AB BOND INFLATION STRATEGY | 39 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
Citigroup Global Markets, Inc./(LCH Group) | NOK | 11,080 | 8/04/18 | 1.008% | 6 Month NIBOR | $ | (3,628 | ) | ||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 23,060 | 5/18/17 | 0.811% | 3 Month LIBOR | (35,056 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | NOK | 190,780 | 5/12/18 | 0.954% | 6 Month NIBOR | (45,984 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | GBP | 26,220 | 2/23/19 | 0.606% | 6 Month LIBOR | (34,666 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 24,190 | 2/27/19 | 3 Month LIBOR | 1.544% | 16,562 | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 6,420 | 8/11/20 | 3 Month LIBOR | 1.712% | (497 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,585 | 4/27/21 | 3 Month LIBOR | 1.341% | (50,241 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | EUR | 10,220 | 3/20/22 | 0.272% | 6 Month EURIBOR | (60,206 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | JPY | 2,203,320 | 3/31/22 | 0.099% | 6 Month LIBOR | (37,417 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | SEK | 38,290 | 3/31/22 | 3 Month STIBOR | 0.341% | 11,920 | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | NZD | 15,420 | 3/31/22 | 3 Month BKBM | 2.936% | 36,873 | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 2,610 | 1/14/24 | 2.980% | 3 Month LIBOR | (169,679 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,300 | 2/14/24 | 2.889% | 3 Month LIBOR | (127,005 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 3,280 | 4/28/24 | 2.817% | 3 Month LIBOR | (154,797 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 4,670 | 5/06/24 | 2.736% | 3 Month LIBOR | (245,487 | ) |
40 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 1,890 | 5/29/24 | 3 Month LIBOR | 2.628% | $ | 83,034 | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | 3,330 | 7/02/24 | 2.632% | 3 Month LIBOR | (141,567 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,370 | 7/10/24 | 2.674% | 3 Month LIBOR | (107,118 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 1,160 | 6/09/25 | 2.488% | 3 Month LIBOR | (36,547 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,106 | 8/04/25 | 2.293% | 3 Month LIBOR | (23,413 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 5,400 | 10/04/26 | 1.487% | 3 Month LIBOR | 356,685 | |||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 7,030 | 4/04/27 | 2.436% | 3 Month LIBOR | (107,906 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 5,230 | 4/26/27 | 2.287% | 3 Month LIBOR | (4,037 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 1,490 | 11/10/35 | 2.631% | 3 Month LIBOR | (44,069 | ) | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | NOK | 42,730 | 8/01/18 | 0.960% | 6 Month NIBOR | (7,894 | ) | |||||||||
Morgan Stanley & Co., LLC/(LCH Group) | 47,470 | 8/11/18 | 1.076% | 6 Month NIBOR | (23,280 | ) | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | NZD | 9,680 | 12/21/21 | 3 Month BKBM | 3.059% | 125,643 | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | $ | 1,080 | 11/08/26 | 1.657% | 3 Month LIBOR | 47,993 | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | 1,080 | 11/09/26 | 1.672% | 3 Month LIBOR | 46,568 | |||||||||||
|
| |||||||||||||||
$ | (735,216 | ) | ||||||||||||||
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||
Sprint Communications, Inc., 8.375%, 8/15/17, 6/20/19* | (5.00 | )% | 1.07 | % | $ | 466 | $ | (41,227 | ) | $ | (12,239 | ) | $ | (28,988 | ) | |||||||||
Sprint Communications, Inc., 8.375%, 8/15/17, 6/20/19* | (5.00 | ) | 1.07 | 534 | (47,242 | ) | (14,542 | ) | (32,700 | ) | ||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Bank of America, NA | ||||||||||||||||||||||||
CDX-NAIG Series 19, | 1.00 | 0.05 | 3,200 | 23,453 | 390 | 23,063 |
abfunds.com | AB BOND INFLATION STRATEGY | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | 5.54 | % | $ | 248 | $ | (27,578 | ) | $ | (34,898 | ) | $ | 7,320 | ||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 210 | (23,352 | ) | (30,252 | ) | 6,900 | ||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 471 | (52,376 | ) | (32,329 | ) | (20,047 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 138 | (15,345 | ) | (10,123 | ) | (5,222 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 130 | (14,456 | ) | (11,185 | ) | (3,271 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 169 | (18,793 | ) | (14,850 | ) | (3,943 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 326 | (36,251 | ) | (33,001 | ) | (3,250 | ) | |||||||||||||||
CDX-CMBX.NA.A | 2.00 | 2.82 | 1,145 | (46,334 | ) | (27,018 | ) | (19,316 | ) | |||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||
Anadarko Petroleum Corp., 6.95, 6/15/19, 9/20/17* | 1.00 | 0.11 | 440 | 2,055 | (1,204 | ) | 3,259 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 217 | (24,131 | ) | (26,336 | ) | 2,205 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 218 | (24,242 | ) | (26,447 | ) | 2,205 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 662 | (73,614 | ) | (49,227 | ) | (24,387 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 714 | (79,397 | ) | (43,484 | ) | (35,913 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 436 | (48,483 | ) | (33,188 | ) | (15,295 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 464 | (51,597 | ) | (40,494 | ) | (11,103 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 30 | (3,336 | ) | (3,731 | ) | 395 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 130 | (14,478 | ) | (17,381 | ) | 2,903 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 150 | (16,705 | ) | (20,055 | ) | 3,350 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 247 | (27,466 | ) | (28,233 | ) | 767 | ||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 1,300 | (144,560 | ) | (162,922 | ) | 18,362 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 322 | (35,807 | ) | (46,497 | ) | 10,690 |
42 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | % | 5.54 | % | $ | 710 | $ | (78,952 | ) | $ | (86,740 | ) | $ | 7,788 | ||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 178 | (19,794 | ) | (16,320 | ) | (3,474 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 15 | (1,668 | ) | (1,426 | ) | (242 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 30 | (3,336 | ) | (2,905 | ) | (431 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 30 | (3,336 | ) | (3,144 | ) | (192 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 59 | (6,561 | ) | (6,758 | ) | 197 | ||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 166 | (18,459 | ) | (18,765 | ) | 306 | ||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | 5.54 | 191 | (21,239 | ) | (14,290 | ) | (6,949 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (994,607 | ) | $ | (869,594 | ) | $ | (125,013 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||
Swap | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Barclays Bank PLC | $ | 20,750 | 7/15/20 | 1.527 | % | CPI | # | $ | 385,025 | |||||||||||
Barclays Bank PLC | 6,950 | 1/15/21 | 1.490 | % | CPI | # | 137,504 | |||||||||||||
Deutsche Bank AG | 5,190 | 7/15/21 | 2.152 | % | CPI | # | 10,024 | |||||||||||||
|
| |||||||||||||||||||
$ | 532,553 | |||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||
Swap | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||
Morgan Stanley Capital Services LLC | $ | 595 | 3/06/42 | 2.804 | % | 3 Month LIBOR | $ | (35,462 | ) |
abfunds.com | AB BOND INFLATION STRATEGY | 43 |
PORTFOLIO OF INVESTMENTS (continued)
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Interest Rate | Maturity | U.S. $ Value at April 30, 2017 | |||||||||
HSBC Bank USA+ | 0.93 | % | — | $ | 24,211,774 | |||||||
HSBC Bank USA | 0.93 | % | 1/04/18 | 4,667,732 | ||||||||
HSBC Bank USA | 0.93 | % | 2/07/18 | 3,565,616 | ||||||||
HSBC Bank USA | 1.05 | % | 7/11/17 | 17,691,908 | ||||||||
HSBC Bank USA | 1.05 | % | 7/13/17 | 10,532,715 | ||||||||
JPMorgan Chase Bank | 0.95 | % | 7/10/17 | 46,440,868 | ||||||||
JPMorgan Chase Bank | 0.95 | % | 11/29/17 | 11,650,281 | ||||||||
JPMorgan Chase Bank | 0.95 | % | 1/20/18 | 4,712,622 | ||||||||
|
| |||||||||||
$ | 123,473,516 | |||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on April 30, 2017 |
The type of underlying collateral and the remaining maturity of open reverse repurchase agreements is as follows:
Overnight and Continuous | Up to 30 Days | 31-90 Days | Greater than 90 Days | Total | ||||||||||||||||
Inflation-Linked Securities | $ | 24,211,774 | $ | – 0 | – | $ | 74,665,491 | $ | 24,596,251 | $ | 123,473,516 |
(a) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. |
(b) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(c) | 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 April 30, 2017, the aggregate market value of these securities amounted to $52,617,641 or 11.3% of net assets. |
(d) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(e) | Floating Rate Security. Stated interest/floor rate was in effect at April 30, 2017. |
(f) | IO – Interest Only. |
(g) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.22% of net assets as of April 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Bellemeade Re II Ltd. | 4/29/16 | $ | 271,519 | $ | 278,790 | 0.06 | % | |||||||||
H/2 Asset Funding NRE | 6/19/15 | 505,208 | 501,671 | 0.11 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | 363,153 | 51,581 | 0.01 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 171,366 | 173,657 | 0.04 | % |
44 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(h) | Inverse interest only security. |
(i) | Defaulted. |
(j) | Non-income producing security. |
(k) | Effective prepayment date of April 2017. |
(l) | The security is subject to a 12 month lock-up period, after which semi-annual redemptions are permitted. |
(m) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Mt Logan Re Ltd. (Preference Shares) | 12/30/15 | $ | 260,000 | $ | 266,550 | 0.06 | % |
(n) | 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. |
(o) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
IDR – Indonesian Rupiah
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
NOK – Norwegian Krone
NZD – New Zealand Dollar
SEK – Swedish Krona
TRY – Turkish Lira
TWD – New Taiwan Dollar
USD ��� United States Dollar
Glossary:
ABS – Asset-Backed Securities
BKBM – Bank Bill Benchmark (New Zealand)
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAHY – North American High Yield Credit Default Swap Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
CME – Chicago Mercantile Exchange
CPI – Consumer Price Index
EURIBOR – Euro Interbank Offered Rate
INTRCONX – Inter-Continental Exchange
LCH – London Clearing House
LIBOR – London Interbank Offered Rates
MTN – Medium Term Note
NIBOR – Norwegian Interbank Offered Rate
OSE – Osaka Securities Exchange
REIT – Real Estate Investment Trust
REMICs – Real Estate Mortgage Investment Conduits
STIBOR – Stockholm Interbank Offered Rate
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 45 |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $587,663,215) | $ | 593,618,443 | ||
Affiliated issuers (cost $4,699,449) | 4,699,449 | |||
Cash collateral due from broker | 1,821,095 | |||
Foreign currencies, at value (cost $728,786) | 733,821 | |||
Receivable for investment securities sold | 7,073,419 | |||
Interest receivable | 1,888,463 | |||
Receivable for capital stock sold | 1,325,529 | |||
Unrealized appreciation on forward currency exchange contracts | 586,862 | |||
Unrealized appreciation on inflation swaps | 532,553 | |||
Unrealized appreciation on credit default swaps | 89,710 | |||
Receivable for variation margin on exchange-traded derivatives | 6,442 | |||
Affiliated dividends receivable | 1,114 | |||
|
| |||
Total assets | 612,376,900 | |||
|
| |||
Liabilities | ||||
Due to custodian | 568 | |||
Payable for reverse repurchase agreements | 123,473,516 | |||
Payable for investment securities purchased | 21,550,885 | |||
Upfront premiums received on credit default swaps | 869,594 | |||
Payable for capital stock redeemed | 721,855 | |||
Cash collateral due to broker | 620,000 | |||
Unrealized depreciation on forward currency exchange contracts | 437,251 | |||
Unrealized depreciation on credit default swaps | 214,723 | |||
Advisory fee payable | 108,980 | |||
Payable for variation margin on exchange-traded derivatives | 64,974 | |||
Unrealized depreciation on interest rate swaps | 35,462 | |||
Distribution fee payable | 28,163 | |||
Administrative fee payable | 16,345 | |||
Payable for terminated interest rate swaps | 11,096 | |||
Transfer Agent fee payable | 830 | |||
Accrued expenses | 81,894 | |||
|
| |||
Total liabilities | 148,236,136 | |||
|
| |||
Net Assets | $ | 464,140,764 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 42,879 | ||
Additional paid-in capital | 468,395,608 | |||
Undistributed net investment income | 2,446,311 | |||
Accumulated net realized loss on investment | (12,242,283 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 5,498,249 | |||
|
| |||
$ | 464,140,764 | |||
|
|
See notes to financial statements.
46 | AB BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—27 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 25,349,051 | 2,322,916 | $ | 10.91 | * | ||||||
| ||||||||||||
C | $ | 4,498,293 | 420,931 | $ | 10.69 | |||||||
| ||||||||||||
Advisor | $ | 103,691,765 | 9,488,445 | $ | 10.93 | |||||||
| ||||||||||||
R | $ | 505,585 | 46,433 | $ | 10.89 | |||||||
| ||||||||||||
K | $ | 2,578,084 | 236,730 | $ | 10.89 | |||||||
| ||||||||||||
I | $ | 622,155 | 57,439 | $ | 10.83 | |||||||
| ||||||||||||
1 | $ | 252,688,925 | 23,427,198 | $ | 10.79 | |||||||
| ||||||||||||
2 | $ | 59,644,235 | 5,531,995 | $ | 10.78 | |||||||
| ||||||||||||
Z | $ | 14,562,671 | 1,346,896 | $ | 10.81 | |||||||
|
* | The maximum offering price per share for Class A shares was $11.39 which reflects a sales charge of 4.25%. |
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 47 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest | $ | 6,537,949 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 19,413 | |||||||
Affiliated issuers | 13,354 | |||||||
Other income | 22 | $ | 6,570,738 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 971,945 | |||||||
Distribution fee—Class A | 27,303 | |||||||
Distribution fee—Class C | 20,194 | |||||||
Distribution fee—Class R | 1,076 | |||||||
Distribution fee—Class K | 2,994 | |||||||
Distribution fee—Class 1 | 115,252 | |||||||
Transfer agency—Class A | 12,962 | |||||||
Transfer agency—Class C | 2,523 | |||||||
Transfer agency—Advisor Class | 37,956 | |||||||
Transfer agency—Class R | 470 | |||||||
Transfer agency—Class K | 2,395 | |||||||
Transfer agency—Class I | 210 | |||||||
Transfer agency—Class 1 | 16,830 | |||||||
Transfer agency—Class 2 | 3,662 | |||||||
Transfer agency—Class Z | 1,286 | |||||||
Custodian | 106,304 | |||||||
Registration fees | 64,402 | |||||||
Audit and tax | 50,889 | |||||||
Printing | 28,205 | |||||||
Administrative | 27,177 | |||||||
Legal | 20,410 | |||||||
Directors’ fees | 12,965 | |||||||
Miscellaneous | 10,262 | |||||||
|
| |||||||
Total expenses before interest expense | 1,537,672 | |||||||
Interest expense | 469,436 | |||||||
|
| |||||||
Total expenses | 2,007,108 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (405,310 | ) | ||||||
|
| |||||||
Net expenses | 1,601,798 | |||||||
|
| |||||||
Net investment income | 4,968,940 | |||||||
|
|
See notes to financial statements.
48 | AB BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | $ | 569,619 | ||||||
Futures | (167,232 | ) | ||||||
Swaptions written | 48,025 | |||||||
Swaps | (256,410 | ) | ||||||
Foreign currency transactions | (335,329 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (1,790,151 | ) | ||||||
Futures | (266,103 | ) | ||||||
Swaptions written | (3,987 | ) | ||||||
Swaps | 1,618,768 | |||||||
Foreign currency denominated assets and liabilities | 58,923 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (523,877 | ) | ||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 957 | |||||||
|
|
|
| |||||
Net Increase in Net Assets from Operations | $ | 4,446,020 | ||||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 49 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 4,968,940 | $ | 6,136,129 | ||||
Net realized loss on investment and foreign currency transactions | (141,327 | ) | (1,639,351 | ) | ||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (382,550 | ) | 16,608,452 | |||||
Contributions from Affiliates (see Note B) | 957 | – 0 | – | |||||
|
|
|
| |||||
Net increase in net assets from operations | 4,446,020 | 21,105,230 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (153,677 | ) | (246,245 | ) | ||||
Class C | (20,587 | ) | (36,966 | ) | ||||
Advisor Class | (531,012 | ) | (470,470 | ) | ||||
Class R | (2,549 | ) | (2,681 | ) | ||||
Class K | (16,644 | ) | (38,246 | ) | ||||
Class I | (3,723 | ) | (7,136 | ) | ||||
Class 1 | (1,860,158 | ) | (5,652,787 | ) | ||||
Class 2 | (401,950 | ) | (1,101,775 | ) | ||||
Class Z | (107,293 | ) | (255,907 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | 136,036,829 | (21,240,298 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | 137,385,256 | (7,947,281 | ) | |||||
Net Assets | ||||||||
Beginning of period | 326,755,508 | 334,702,789 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $2,446,311 and $574,964, respectively) | $ | 464,140,764 | $ | 326,755,508 | ||||
|
|
|
|
See notes to financial statements.
50 | AB BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 2017 (unaudited)
Cash flows from operating activities | ||||||||
Net increase in net assets from operations | $ | 4,446,020 | ||||||
Reconciliation of net increase in net assets from operations to net decrease in cash from operating activities: | ||||||||
Purchases of long-term investments | $ | (230,527,932 | ) | |||||
Purchases of short-term investments | (196,199,081 | ) | ||||||
Proceeds from disposition of long-term investments | 109,983,612 | |||||||
Proceeds from disposition of short-term investments | 177,926,019 | |||||||
Net realized loss on investment transactions and foreign currency transactions | 141,327 | |||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 382,550 | |||||||
Net accretion of bond discount and amortization of bond premium | 1,453,451 | |||||||
Inflation index adjustment | (4,007,076 | ) | ||||||
Decrease in receivable for investments sold | 5,121,640 | |||||||
Increase in interest receivable | (392,219 | ) | ||||||
Increase in affiliated dividends receivable | (98 | ) | ||||||
Increase in cash collateral due from broker | (295,881 | ) | ||||||
Increase in payable for investments purchased | 20,575,315 | |||||||
Increase in cash collateral due to broker | 620,000 | |||||||
Increase in advisory fee payable | 28,440 | |||||||
Decrease in administrative fee payable | (495 | ) | ||||||
Decrease in Transfer Agent fee payable | (6,719 | ) | ||||||
Increase in distribution fee payable | 4,771 | |||||||
Decrease in accrued expenses | (113,026 | ) | ||||||
Proceeds from swaptions written, net | 34,155 | |||||||
Proceeds on swaps, net | 725,571 | |||||||
Proceeds for exchange-traded derivatives settlements | 331,882 | |||||||
Total adjustments | (114,213,794 | ) | ||||||
|
| |||||||
Net decrease in cash from operating activities | $ | (109,767,774 | ) | |||||
|
|
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 51 |
STATEMENT OF CASH FLOWS (continued)
Cash flows from financing activities | ||||||||
Subscriptions of capital stock, net | $ | 132,899,930 | ||||||
Increase in due to custodian | 568 | |||||||
Cash dividends paid (net of dividend reinvestments)* | (565,239 | ) | ||||||
Repayment of reverse repurchase agreements | (24,852,942 | ) | ||||||
|
| |||||||
Net increase in cash from financing activities | $ | 107,482,317 | ||||||
Effect of exchange rate on cash | (323,482 | ) | ||||||
|
| |||||||
Net decrease in cash | (2,608,939 | ) | ||||||
Net change in cash | ||||||||
Cash at beginning of period | 3,342,760 | |||||||
|
| |||||||
Cash at end of period | $ | 733,821 | ||||||
|
| |||||||
* Reinvestment of dividends | $ | 2,532,354 | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Interest expense paid during the period | $ | 359,128 |
In accordance with U.S. GAAP, the Strategy has included a Statement of Cash Flows as a result of its significant investments in reverse repurchase agreements throughout the period.
See notes to financial statements.
52 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Bond Inflation Strategy Portfolio (the “Strategy”), a diversified portfolio. The Strategy has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class 1, Class 2 and Class Z shares. Class B shares have not been issued. Class 1 shares are sold only to the private clients of Sanford C. Bernstein & Co. LLC by its registered representatives. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R, Class K, and Class 1 shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, Class 2 and Class Z shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All ten classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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 Strategy 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 Strategy.
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 Company’s Board of Directors (the “Board”).
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NOTES TO FINANCIAL STATEMENTS (continued)
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 between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 Strategy may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Strategy 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 Strategy may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Strategy 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 Strategy. Unobservable inputs reflect the Strategy’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 Strategy’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,
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NOTES TO FINANCIAL STATEMENTS (continued)
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. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
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 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
The following table summarizes the valuation of the Strategy’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Inflation-Linked Securities | $ | – 0 | – | $ | 426,348,526 | $ | ��� 0 | – | $ | 426,348,526 | ||||||
Corporates – Investment Grade | – 0 | – | 59,444,897 | – 0 | – | 59,444,897 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 23,405,442 | 5,815,939 | 29,221,381 | |||||||||||
Asset-Backed Securities | – 0 | – | 23,542,735 | 3,578,107 | 27,120,842 | |||||||||||
Collateralized Mortgage Obligations | – 0 | – | 20,497,139 | – 0 | – | 20,497,139 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 10,326,375 | – 0 | – | 10,326,375 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 2,803,752 | – 0 | – | 2,803,752 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 2,289,214 | – 0 | – | 2,289,214 | ||||||||||
Quasi-Sovereigns | – 0 | – | 1,048,346 | – 0 | – | 1,048,346 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 533,644 | – 0 | – | 533,644 | ||||||||||
Common Stocks | – 0 | – | – 0 | – | 266,550 | 266,550 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 265,519 | – 0 | – | 265,519 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Governments – Treasuries | – 0 | – | 13,452,258 | – 0 | – | 13,452,258 | ||||||||||
Investment Companies | 4,699,449 | – 0 | – | – 0 | – | 4,699,449 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 4,699,449 | 583,957,847 | 9,660,596 | 598,317,892 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 2,490 | – 0 | – | – 0 | – | 2,490 | (b) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 586,862 | – 0 | – | 586,862 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 24,757 | – 0 | – | 24,757 | (b) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 725,278 | – 0 | – | 725,278 | (b) | |||||||||
Credit Default Swaps | – 0 | – | 89,710 | – 0 | – | 89,710 | ||||||||||
Inflation (CPI) Swaps | – 0 | – | 532,553 | – 0 | – | 532,553 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (290,403 | ) | – 0 | – | – 0 | – | (290,403 | )(b) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (437,251 | ) | – 0 | – | (437,251 | ) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (1,460,494 | ) | – 0 | – | (1,460,494 | )(b) | ||||||||
Credit Default Swaps | – 0 | – | (214,723 | ) | – 0 | – | (214,723 | ) | ||||||||
Interest Rate Swaps | – 0 | – | (35,462 | ) | – 0 | – | (35,462 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 4,411,536 | $ | 583,769,077 | $ | 9,660,596 | $ | 597,841,209 | ||||||||
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|
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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. |
(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) of exchange-traded derivatives as reported in the portfolio of investments. |
(c) | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Strategy recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Commercial Mortgage- Backed Securities | Asset-Backed Securities | Collateralized Mortgage Obligations | ||||||||||
Balance as of 10/31/16 | $ | 9,448,399 | $ | 2,749,542 | $ | 758,543 | ||||||
Accrued discounts/(premiums) | (541 | ) | 45 | – 0 | – | |||||||
Realized gain (loss) | (193,423 | ) | 216 | 11,891 | ||||||||
Change in unrealized appreciation/depreciation | 166,987 | (11,894 | ) | (393 | ) | |||||||
Purchases/Payups | 493,531 | 1,278,811 | – 0 | – | ||||||||
Sales/Paydowns | (3,771,014 | ) | (438,613 | ) | (495,298 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | (328,000 | ) | – 0 | – | (274,743 | ) | ||||||
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| |||||||
Balance as of 4/30/17 | $ | 5,815,939 | $ | 3,578,107 | $ | – 0 | – | |||||
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| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(a) | $ | 94,172 | $ | (11,894 | ) | $ | – 0 | – | ||||
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| |||||||
Common Stocks | Total | |||||||||||
Balance as of 10/31/16 | $ | 429,612 | $ | 13,386,096 | ||||||||
Accrued discounts/(premiums) | – 0 | – | (496 | ) | ||||||||
Realized gain (loss) | – 0 | – | (181,316 | ) | ||||||||
Change in unrealized appreciation/depreciation | (8,062 | ) | 146,638 | |||||||||
Purchases/Payups | – 0 | – | 1,772,342 | |||||||||
Sales/Paydowns | (155,000 | ) | (4,859,925 | ) | ||||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | ||||||||
Transfers out of Level 3 | – 0 | – | (602,743 | ) | ||||||||
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|
|
| |||||||||
Balance as of 4/30/17 | $ | 266,550 | $ | 9,660,596 | (b) | |||||||
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| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(a) | $ | (8,062 | ) | $ | 74,216 | |||||||
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|
|
(a) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
(b) | There were de minimis transfers under 1% of net assets during the reporting period. |
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NOTES TO FINANCIAL STATEMENTS (continued)
As of April 30, 2017, all Level 3 securities were priced i) at net asset value or ii) by third party vendors.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Strategy. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
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NOTES TO FINANCIAL STATEMENTS (continued)
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Strategy’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Strategy’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Strategy may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Strategy’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 Strategy’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Strategy 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 Strategy amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Strategy are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Strategy represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to
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NOTES TO FINANCIAL STATEMENTS (continued)
each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Strategy pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Strategy’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (“Expense Caps”) to .75%, 1.50%, .50%, 1.00%, .75%, .50%, .60%, .50% and .50% of the daily average net assets for the Class A, Class C, Advisor Class, Class R, Class K, Class I, Class 1, Class 2, and Class Z shares, respectively. Effective January 29, 2016, the Expense Cap for the Class A shares was reduced from .80% to .75% of the daily average net assets. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2018 and then may be extended for additional one-year terms. For the six months ended April 30, 2017, such reimbursement amounted to $398,909.
Pursuant to the investment advisory agreement, the Strategy may reimburse the Adviser for certain legal and accounting services provided to the Strategy by the Adviser. For the six months ended April 30, 2017, the reimbursement for such services amounted to $27,177.
During the six months ended April 30, 2017, the Adviser reimbursed the Strategy $957 for trading losses incurred due to a trade entry error.
The Strategy compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Strategy. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $60,558 for the six months ended April 30, 2017.
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NOTES TO FINANCIAL STATEMENTS (continued)
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Strategy’s shares. The Distributor has advised the Strategy that it has retained front-end sales charges of $2,576 from the sale of Class A shares and received $1 and $603 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the six months ended April 30, 2017.
The Strategy 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. In connection with the investment by the Strategy in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Strategy in an amount equal to the Strategy’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Strategy as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver amounted to $6,401. A summary of the Strategy’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||||
$ | 0 | $ | 152,049 | $ | 147,350 | $ | 4,699 | $ | 13 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2017 amounted to $3,433, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Strategy has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Strategy pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Strategy’s average daily net assets attributable to Class A shares, 1% of the Strategy’s average daily net assets attributable to Class C shares. .50% of the Strategy’s average daily net assets attributable to Class R shares .25% of the Strategy’s average daily net assets attributable to Class K shares and .10% of the Strategy’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class, Class I, Class 2 and Class Z shares. Effective January 29, 2016, payments under the Agreement in respect of Class A shares are limited to an annual
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NOTES TO FINANCIAL STATEMENTS (continued)
rate of .25% of Class A shares’ average daily net assets. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Strategy’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Strategy in the amounts of $255,886, $16,993, $17,221 and $1,480,793 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Strategy in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Strategy’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 49,186,420 | $ | 54,338,468 | ||||
U.S. government securities | 181,341,512 | 46,025,940 |
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 (excluding futures, foreign currency and swap transactions) are as follows:
Gross unrealized appreciation | $ | 7,779,128 | ||
Gross unrealized depreciation | (1,823,900 | ) | ||
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Net unrealized appreciation | $ | 5,955,228 | ||
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1. Derivative Financial Instruments
The Strategy 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
The principal types of derivatives utilized by the Strategy, as well as the methods in which they may be used are:
• | Futures |
The Strategy 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 Strategy 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 Strategy 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, as described below under “Currency Transactions”.
At the time the Strategy enters into futures, the Strategy 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 Strategy 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 Strategy 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 Strategy 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 Strategy 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 Strategy 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 April 30, 2017, the Strategy held futures for hedging and non-hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
• | Forward Currency Exchange Contracts |
The Strategy may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Strategy. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended April 30, 2017, the Strategy held forward currency exchange contracts for hedging and non-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Strategy may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Strategy may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Strategy pays a premium whether or not the option is exercised. Additionally, the Strategy bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Strategy were permitted to expire without being sold or exercised, its premium would represent a loss to the Strategy. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
abfunds.com | AB BOND INFLATION STRATEGY | 65 |
NOTES TO FINANCIAL STATEMENTS (continued)
When the Strategy writes an option, the premium received by the Strategy is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Strategy on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Strategy has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Strategy. In writing an option, the Strategy bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Strategy could result in the Strategy selling or buying a security or currency at a price different from the current market value.
The Strategy may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
During the six months ended April 30, 2017, the Strategy held purchased options for hedging purposes.
During the six months ended April 30, 2017, the Strategy held written swaptions for hedging purposes.
66 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
For the six months ended April 30, 2017, the Strategy had the following transactions in written options:
Notional Amount | Premiums Received | |||||||
Swaptions written outstanding as of 10/31/16 | $ | 7,300,000 | $ | 13,870 | ||||
Swaptions written | 49,450,000 | 98,259 | ||||||
Swaptions assigned | – 0 | – | – 0 | – | ||||
Swaptions expired | – 0 | – | – 0 | – | ||||
Swaptions bought back | (56,750,000 | ) | (112,129 | ) | ||||
Swaptions exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Swaptions written outstanding as of 4/30/17 | $ | – 0 | – | $ | – 0 | – | ||
|
|
|
|
• | Swaps |
The Strategy may enter into swaps to hedge its exposure to interest rates, credit risk or currency. The Strategy may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by 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 Strategy in accordance with the terms of the respective swaps to provide value and recourse to the Strategy 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 Strategy, and/or the termination value at the end of the contract. Therefore, the Strategy 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 Strategy and the counterparty and by the posting of collateral by the counterparty to the Strategy to cover the Strategy’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Strategy 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
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NOTES TO FINANCIAL STATEMENTS (continued)
premiums paid or received 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 Strategy enters into a centrally cleared swap, the Strategy 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 Strategy 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 Strategy as unrealized gains or losses. Risks may arise from the potential 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 Strategy 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 Strategy is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Strategy 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 Strategy may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Strategy may elect to pay a fixed rate and receive a
68 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Strategy 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 Strategy anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Strategy 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 Strategy receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2017, the Strategy held interest rate swaps for hedging and non-hedging purposes.
Inflation (CPI) Swaps:
Inflation swaps 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 Strategy against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
During the six months ended April 30, 2017, the Strategy held inflation (CPI) swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Strategy 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 Strategy, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Strategy 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 Strategy receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Strategy is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Strategy will either (i) receive from
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NOTES TO FINANCIAL STATEMENTS (continued)
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 Strategy for the same reference obligation with the same counterparty. As of April 30, 2017, the Strategy did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
Credit default swaps may involve greater risks than if a Strategy 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 Strategy is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Strategy is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Strategy 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 Strategy.
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 April 30, 2017, the Strategy held credit default swaps for hedging and non-hedging purposes.
70 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The Strategy typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Strategy typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Strategy and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Strategy’s net liability, held by the defaulting party, may be delayed or denied.
The Strategy’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Strategy decline below specific levels (“net asset contingent features”). If these levels are triggered, the Strategy’s counterparty has the right to terminate such transaction and require the Strategy to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.
During the six months ended April 30, 2017, the Strategy 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 exchange-traded derivatives | $ | 727,768 | * | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 1,750,897 | * |
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NOTES TO FINANCIAL STATEMENTS (continued)
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Credit contracts | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 24,757 | * | ||||||||
Foreign exchange contracts | Unrealized appreciation on forward currency exchange contracts |
| 586,862 |
| Unrealized depreciation on forward currency exchange contracts | $ | 437,251 |
| ||||
Interest rate contracts | Unrealized depreciation on interest rate swaps |
| 35,462 |
| ||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps |
| 532,553 |
| ||||||||
Credit contracts | Unrealized appreciation on credit default swaps | 89,710 | Unrealized depreciation on credit default swaps | 214,723 | ||||||||
|
|
|
| |||||||||
Total | $ | 1,961,650 | $ | 2,438,333 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation of exchange-traded derivatives 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 | $ | (167,232 | ) | $ | (266,103 | ) | |||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | | 18,503 | | 47,076 |
72 | AB BOND INFLATION STRATEGY | abfunds.com |
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 investment transactions; Net change in unrealized appreciation/depreciation of investments | $ | (59,439 | ) | $ | 16,462 | ||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 48,025 | (3,987 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 46,516 | 1,474,084 | |||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (302,926 | ) | 144,684 | ||||||
|
|
|
| |||||||
Total | $ | (416,553 | ) | $ | 1,412,216 | |||||
|
|
|
|
The following table represents the average monthly volume of the Strategy’s derivative transactions during the six months ended April 30, 2017:
Futures: | ||||
Average original value of buy contracts | $ | 16,046,440 | ||
Average original value of sale contracts | $ | 48,259,916 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 14,930,639 | ||
Average principal amount of sale contracts | $ | 51,175,910 | ||
Purchased Options: | ||||
Average monthly cost | $ | 34,736 | (a) | |
Interest Rate Swaps: | ||||
Average notional amount | $ | 1,548,571 | ||
Inflation Swaps: | ||||
Average notional amount | $ | 35,618,571 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 173,361,237 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 1,120,000 | ||
Average notional amount of sale contracts | $ | 5,599,429 |
abfunds.com | AB BOND INFLATION STRATEGY | 73 |
NOTES TO FINANCIAL STATEMENTS (continued)
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 21,629,200 | (b) | |
Average notional amount of sale contracts | $ | 3,521,429 |
(a) | Positions were open for three months during the period. |
(b) | Positions were open for two months during the period. |
For financial reporting purposes, the Strategy does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All derivatives held at period end were subject to netting arrangements. The following table presents the Strategy’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Strategy as of April 30, 2017:
Bond Inflation Strategy
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Exchange-Traded Derivatives: |
| |||||||||||||||||||
Goldman Sachs & Co.** | $ | 2,868 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 2,868 | |||||||
Citigroup Global Markets, Inc.** | 3,574 | – 0 | – | – 0 | – | – 0 | – | 3,574 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 6,442 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 6,442 | |||||||
|
|
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|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 39,090 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 39,090 | |||||||
Bank of America, NA | 49,727 | (34,048 | ) | – 0 | – | – 0 | – | 15,679 | ||||||||||||
Barclays Bank PLC | 528,225 | – 0 | – | (528,225 | ) | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 61,220 | (61,220 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 49,264 | (49,264 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 28,756 | (28,756 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 122,625 | – 0 | – | – 0 | – | – 0 | – | 122,625 | ||||||||||||
JPMorgan Chase Bank, NA | 225,932 | (45,213 | ) | – 0 | – | – 0 | – | 180,719 | ||||||||||||
Morgan Stanley Capital Services, Inc./ Morgan Stanley Capital Services LLC | 8,957 | (8,957 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank | 31,049 | – 0 | – | – 0 | – | – 0 | – | 31,049 | ||||||||||||
State Street Bank & Trust Co. | 78 | – 0 | – | – 0 | – | – 0 | – | 78 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,144,923 | $ | (227,458 | ) | $ | (528,225 | ) | $ | – 0 | – | $ | 389,240 | ^ | ||||||
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|
|
74 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Exchange-Traded Derivatives: |
| |||||||||||||||||||
Morgan Stanley & Co., LLC** | $ | 64,974 | $ | – 0 | – | $ | (64,974 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 64,974 | $ | – 0 | – | $ | (64,974 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
|
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|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Bank of America, NA | $ | 34,048 | $ | (34,048 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
BNP Paribas SA | 12,888 | – 0 | – | – 0 | – | – 0 | – | 12,888 | ||||||||||||
Citibank, NA | 355,908 | (61,220 | ) | – 0 | – | – 0 | – | 294,688 | ||||||||||||
Citigroup Global Markets, Inc. | 50,930 | – 0 | – | – 0 | – | – 0 | – | 50,930 | ||||||||||||
Credit Suisse International | 183,555 | – 0 | – | – 0 | – | – 0 | – | 183,555 | ||||||||||||
Deutsche Bank AG | 363,449 | (49,264 | ) | – 0 | – | (275,063 | ) | 39,122 | ||||||||||||
Goldman Sachs International | 312,473 | (28,756 | ) | – 0 | – | – 0 | – | 283,717 | ||||||||||||
JPMorgan Chase Bank, NA | 45,213 | (45,213 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services, Inc./ Morgan Stanley Capital Services LLC | 56,701 | (8,957 | ) | – 0 | – | (47,744 | ) | – 0 | – | |||||||||||
Royal Bank of Scotland PLC | 77,663 | – 0 | – | – 0 | – | – 0 | – | 77,663 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,492,828 | $ | (227,458 | ) | $ | – 0 | – | $ | (322,807 | ) | $ | 942,563 | ^ | ||||||
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|
|
* | The actual collateral received/pledged is more than the amount reported due to over-collateralization. |
** | Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
^ | 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. |
See Note D.4 for additional disclosure of netting arrangements regarding reverse repurchase agreements.
2. Currency Transactions
The Strategy may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Strategy 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 Strategy 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 Strategy 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
abfunds.com | AB BOND INFLATION STRATEGY | 75 |
NOTES TO FINANCIAL STATEMENTS (continued)
direct investment in a foreign currency-denominated security. The Strategy 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).
3. TBA and Dollar Rolls
The Strategy may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Strategy may enter into dollar rolls. Dollar rolls involve sales by the Strategy of securities for delivery in the current month and the Strategy’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Strategy forgoes principal and interest paid on the securities. The Strategy is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Strategy is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. During the six months ended April 30, 2017, the Strategy had no transactions in dollar rolls.
4. Reverse Repurchase Agreements
The Strategy may enter into reverse repurchase transactions (“RVP”) in accordance with the terms of a Master Repurchase Agreement (“MRA”), under which the Strategy sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Strategy enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value comparable to the repurchase price. Under the MRA and other Master Agreements, the Strategy is permitted to offset payables and/or receivables with collateral held and/or posted to the counterparty and create one single net payment due to or from the Strategy in the event of a default. In the event of a default by a MRA counterparty, the Strategy may be considered an unsecured creditor with respect to any excess collateral (collateral with a
76 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
market value in excess of the repurchase price) held by and/or posted to the counterparty, and as such the return of such excess collateral may be delayed or denied. For the six months ended April 30, 2017, the average amount of reverse repurchase agreements outstanding was $58,623,562 and the daily weighted average interest rate was 1.60%. At April 30, 2017, the Strategy had reverse repurchase agreements outstanding in the amount of $123,473,516 as reported on the statement of assets and liabilities.
The following table presents the Strategy’s RVP liabilities by counterparty net of the related collateral pledged by the Strategy as of April 30, 2017:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged†* | Net Amount of RVP Liabilities | |||||||||
HSBC Bank USA | $ | 60,669,745 | $ | (60,669,745 | ) | $ | – 0 | – | ||||
JPMorgan Chase Bank | 62,803,771 | (62,320,515 | ) | 483,256 | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 123,473,516 | $ | (122,990,260 | ) | $ | 483,256 | |||||
|
|
|
|
|
|
† | Including accrued interest. |
* | The actual collateral pledged may be more than the amount reported due to overcollateralization. |
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 1,524,102 | 616,312 | $ | 16,465,119 | $ | 6,657,179 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 12,614 | 20,509 | 135,889 | 218,687 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (744,353 | ) | (414,835 | ) | (8,025,642 | ) | (4,371,321 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 792,363 | 221,986 | $ | 8,575,366 | $ | 2,504,545 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 287,521 | 40,692 | $ | 3,032,685 | $ | 430,613 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,551 | 2,983 | 16,398 | 31,208 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (101,939 | ) | (70,612 | ) | (1,082,818 | ) | (739,753 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 187,133 | (26,937 | ) | $ | 1,966,265 | $ | (277,932 | ) | ||||||||||||||||
|
abfunds.com | AB BOND INFLATION STRATEGY | 77 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 7,935,734 | 1,412,206 | $ | 85,724,101 | $ | 15,223,605 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 41,081 | 40,289 | 443,873 | 431,827 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,158,204 | ) | (536,555 | ) | (12,525,283 | ) | (5,711,476 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 6,818,611 | 915,940 | $ | 73,642,691 | $ | 9,943,956 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 14,315 | 35,469 | $ | 154,617 | $ | 382,901 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 237 | 248 | 2,549 | 2,681 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (5,579 | ) | (194 | ) | (60,113 | ) | (2,101 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 8,973 | 35,523 | $ | 97,053 | $ | 383,481 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 60,768 | 100,455 | $ | 654,607 | $ | 1,078,846 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,550 | 3,579 | 16,644 | 38,246 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (46,701 | ) | (37,944 | ) | (501,054 | ) | (402,583 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 15,617 | 66,090 | $ | 170,197 | $ | 714,509 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 27,595 | 7,138 | $ | 297,163 | $ | 75,774 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 348 | 671 | 3,723 | 7,136 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,359 | ) | (1,489 | ) | (25,076 | ) | (15,768 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 25,584 | 6,320 | $ | 275,810 | $ | 67,142 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 4,908,659 | 3,022,337 | $ | 52,373,072 | $ | 31,867,232 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 138,514 | 428,634 | 1,473,898 | 4,530,676 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,590,811 | ) | (6,952,120 | ) | (27,591,322 | ) | (72,934,157 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 2,456,362 | (3,501,149 | ) | $ | 26,255,648 | $ | (36,536,249 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||
Shares sold | 2,414,510 | 1,627,909 | $ | 25,637,679 | $ | 16,977,155 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 31,185 | 87,936 | 332,087 | 928,629 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (361,893 | ) | (2,217,803 | ) | (3,858,552 | ) | (23,295,763 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 2,083,802 | (501,958 | ) | $ | 22,111,214 | $ | (5,389,979 | ) | ||||||||||||||||
|
78 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 407,954 | 1,015,987 | $ | 4,349,707 | $ | 10,731,967 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 10,055 | 24,013 | 107,293 | 255,907 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (140,977 | ) | (338,366 | ) | (1,514,415 | ) | (3,637,645 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 277,032 | 701,634 | $ | 2,942,585 | $ | 7,350,229 | ||||||||||||||||||
|
NOTE F
Risks Involved in Investing in the Strategy
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Strategy’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Strategy’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Strategy’s assets can decline as can the value of the Strategy’s distributions. The risk is significantly greater for fixed-income securities with longer maturities. Although the Strategy invests principally in inflation-indexed securities, the value of its securities may be vulnerable to changes in expectations of inflation or interest rates.
Derivatives Risk—The Strategy may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid,
abfunds.com | AB BOND INFLATION STRATEGY | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, 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.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Strategy’s investments or reduce its returns.
Leverage Risk—When the Strategy 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 Strategy’s investments. The Strategy 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 Strategy, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Strategy than if the Strategy were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Strategy. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of fund shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
Indemnification Risk—In the ordinary course of business, the Strategy enters into contracts that contain a variety of indemnifications. The Strategy’s maximum exposure under these arrangements is unknown. However, the Strategy has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Strategy has not accrued any liability in connection with these indemnification provisions.
80 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Strategy, participate in a $280 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 Strategy did not utilize the Facility during the six months ended April 30, 2017.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2016 and October 31, 2015 were as follows:
2016 | 2015 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 7,812,213 | $ | 4,629,168 | ||||
|
|
|
| |||||
Total taxable distributions | $ | 7,812,213 | $ | 4,629,168 | ||||
|
|
|
|
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 290,882 | ||
Accumulated capital and other losses | (11,554,039 | )(a) | ||
Unrealized appreciation/(depreciation) | 5,818,203 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (5,444,954 | )(c) | |
|
|
(a) | At October 31, 2016, the Strategy had a net capital loss carryforward of $11,554,039. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and passive foreign investment companies (PFICs), the realization for tax purposes of gains/losses on certain derivative instruments, and the tax treatment of Treasury inflation-protected securities. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the tax treatment of defaulted securities. |
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 October 31, 2016, the Strategy had a net short-term capital loss carryforward of $3,659,537 and a net long-term capital loss carryforward of $7,894,502, which may be carried forward for an indefinite period.
abfunds.com | AB BOND INFLATION STRATEGY | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE I
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
NOTE J
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE K
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Strategy’s financial statements through this date.
82 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.92 | $ 10.44 | $ 10.77 | $ 10.81 | $ 11.36 | $ 10.81 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .12 | .18 | .08 | .17 | .09 | .13 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.05 | ) | .51 | (.31 | ) | (.04 | ) | (.57 | ) | .56 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .07 | .69 | (.23 | ) | .13 | (.48 | ) | .69 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.08 | ) | (.21 | ) | (.10 | ) | (.17 | ) | (.07 | ) | (.14 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.08 | ) | (.21 | ) | (.10 | ) | (.17 | ) | (.07 | ) | (.14 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.91 | $ 10.92 | $ 10.44 | $ 10.77 | $ 10.81 | $ 11.36 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .62 | % | 6.63 | % | (2.18 | )% | 1.16 | % | (4.23 | )% | 6.41 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $25,349 | $16,712 | $13,660 | $15,860 | $23,358 | $17,627 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .99 | %^ | .98 | % | .88 | % | .81 | % | .80 | % | .81 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.28 | %^ | 1.42 | % | 1.36 | % | 1.15 | % | 1.18 | % | 1.25 | % | ||||||||||||
Net investment income(b) | 2.33 | %^ | 1.71 | % | .75 | % | 1.57 | % | .80 | % | 1.20 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See | footnote summary on pages 91-92. |
abfunds.com | AB BOND INFLATION STRATEGY | 83 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.71 | $ 10.27 | $ 10.64 | $ 10.71 | $ 11.28 | $ 10.78 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .08 | .10 | .00 | (c) | .07 | .00 | (c) | .04 | ||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.05 | ) | .50 | (.31 | ) | (.01 | ) | (.56 | ) | .56 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .03 | .60 | (.31 | ) | .06 | (.56 | ) | .60 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.16 | ) | (.06 | ) | (.13 | ) | (.01 | ) | (.10 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.05 | ) | (.16 | ) | (.06 | ) | (.13 | ) | (.01 | ) | (.10 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.69 | $ 10.71 | $ 10.27 | $ 10.64 | $ 10.71 | $ 11.28 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .33 | % | 5.86 | % | (2.93 | )% | .50 | % | (4.98 | )% | 5.61 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $4,498 | $2,505 | $2,679 | $3,596 | $5,845 | $7,991 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.74 | %^ | 1.72 | % | 1.58 | % | 1.51 | % | 1.51 | % | 1.51 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 2.03 | %^ | 2.16 | % | 2.07 | % | 1.86 | % | 1.86 | % | 1.96 | % | ||||||||||||
Net investment income(b) | 1.57 | %^ | .96 | % | .06 | % | .70 | % | .01 | % | .39 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See | footnote summary on pages 91-92. |
84 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.93 | $ 10.46 | $ 10.79 | $ 10.82 | $ 11.39 | $ 10.83 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .16 | .22 | .13 | .19 | .06 | .16 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.07 | ) | .49 | (.33 | ) | (.03 | ) | (.52 | ) | .56 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .09 | .71 | (.20 | ) | .16 | (.46 | ) | .72 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.24 | ) | (.13 | ) | (.19 | ) | (.11 | ) | (.16 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.09 | ) | (.24 | ) | (.13 | ) | (.19 | ) | (.11 | ) | (.16 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.93 | $ 10.93 | $ 10.46 | $ 10.79 | $ 10.82 | $ 11.39 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .81 | % | 6.87 | % | (1.90 | )% | 1.50 | % | (4.06 | )% | 6.69 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $103,692 | $29,186 | $18,343 | $16,144 | $7,969 | $5,499 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .74 | %^ | .73 | % | .58 | % | .52 | % | .51 | % | .51 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.02 | %^ | 1.16 | % | 1.06 | % | .86 | % | .87 | % | .95 | % | ||||||||||||
Net investment income(b) | 2.98 | %^ | 2.04 | % | 1.23 | % | 1.77 | % | .54 | % | 1.52 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See footnote summary on pages 91-92.
abfunds.com | AB BOND INFLATION STRATEGY | 85 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.89 | $ 10.44 | $ 10.78 | $ 10.81 | $ 11.34 | $ 10.79 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss)(a)(b) | .11 | .29 | (.08 | ) | .14 | .06 | .11 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.05 | ) | .37 | (.19 | ) | (.02 | ) | (.57 | ) | .55 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .06 | .66 | (.27 | ) | .12 | (.51 | ) | .66 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.06 | ) | (.21 | ) | (.07 | ) | (.15 | ) | (.02 | ) | (.11 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.06 | ) | (.21 | ) | (.07 | ) | (.15 | ) | (.02 | ) | (.11 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.89 | $ 10.89 | $ 10.44 | $ 10.78 | $ 10.81 | $ 11.34 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .59 | % | 6.41 | % | (2.49 | )% | 1.10 | % | (4.51 | )% | 6.18 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $506 | $408 | $20 | $230 | $209 | $539 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.24 | %^ | 1.24 | % | 1.06 | % | 1.01 | % | 1.01 | % | 1.01 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.63 | %^ | 1.71 | % | 1.50 | % | 1.40 | % | 1.44 | % | 1.60 | % | ||||||||||||
Net investment income (loss)(b) | 2.07 | %^ | 2.71 | % | (.68 | )% | 1.26 | % | .49 | % | .98 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See | footnote summary on pages 91-92. |
86 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.89 | $ 10.42 | $ 10.77 | $ 10.80 | $ 11.35 | $ 10.79 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .12 | .20 | .07 | .17 | .09 | .13 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.05 | ) | .49 | (.31 | ) | (.03 | ) | (.57 | ) | .57 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .07 | .69 | (.24 | ) | .14 | (.48 | ) | .70 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.07 | ) | (.22 | ) | (.11 | ) | (.17 | ) | (.07 | ) | (.14 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.07 | ) | (.22 | ) | (.11 | ) | (.17 | ) | (.07 | ) | (.14 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.89 | $ 10.89 | $ 10.42 | $ 10.77 | $ 10.80 | $ 11.35 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .67 | % | 6.66 | % | (2.24 | )% | 1.31 | % | (4.26 | )% | 6.51 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $2,578 | $2,409 | $1,616 | $2,219 | $1,981 | $2,007 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .99 | %^ | .98 | % | .83 | % | .76 | % | .76 | % | .77 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.36 | %^ | 1.36 | % | 1.17 | % | 1.07 | % | 1.12 | % | 1.27 | % | ||||||||||||
Net investment income(b) | 2.30 | %^ | 1.87 | % | .70 | % | 1.57 | % | .80 | % | 1.19 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See footnote summary on pages 91-92.
abfunds.com | AB BOND INFLATION STRATEGY | 87 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.84 | $ 10.38 | $ 10.73 | $ 10.77 | $ 11.33 | $ 10.78 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss)(a)(b) | .14 | .22 | (.06 | ) | .22 | .10 | .18 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.06 | ) | .50 | (.14 | ) | (.06 | ) | (.55 | ) | .53 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .08 | .72 | (.20 | ) | .16 | (.45 | ) | .71 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.26 | ) | (.15 | ) | (.20 | ) | (.11 | ) | (.16 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.09 | ) | (.26 | ) | (.15 | ) | (.20 | ) | (.11 | ) | (.16 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.83 | $ 10.84 | $ 10.38 | $ 10.73 | $ 10.77 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .72 | % | 6.98 | % | (1.88 | )% | 1.52 | % | (4.00 | )% | 6.65 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $622 | $345 | $265 | $841 | $2,631 | $267 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .74 | %^ | .72 | % | .57 | % | .51 | % | .50 | % | .52 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.01 | %^ | 1.03 | % | .76 | % | .69 | % | .83 | % | .95 | % | ||||||||||||
Net investment income (loss)(b) | 2.50 | %^ | 2.08 | % | (.50 | )% | 2.06 | % | 1.10 | % | 1.54 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See footnote summary on pages 91-92.
88 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.80 | $ 10.35 | $ 10.71 | $ 10.76 | $ 11.33 | $ 10.78 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .13 | .20 | .10 | .19 | .12 | .16 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.05 | ) | .51 | (.32 | ) | (.04 | ) | (.58 | ) | .55 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .08 | .71 | (.22 | ) | .15 | (.46 | ) | .71 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.26 | ) | (.14 | ) | (.20 | ) | (.11 | ) | (.16 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.09 | ) | (.26 | ) | (.14 | ) | (.20 | ) | (.11 | ) | (.16 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.79 | $ 10.80 | $ 10.35 | $ 10.71 | $ 10.76 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .72 | % | 6.89 | % | (2.04 | )% | 1.38 | % | (4.08 | )% | 6.63 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $252,689 | $226,408 | $253,402 | $288,565 | $315,187 | $193,864 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .84 | %^ | .82 | % | .68 | % | .61 | % | .60 | % | .61 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.02 | %^ | 1.03 | % | .87 | % | .77 | % | .81 | % | .96 | % | ||||||||||||
Net investment income(b) | 2.46 | %^ | 1.86 | % | .98 | % | 1.75 | % | 1.05 | % | 1.41 | % | ||||||||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See | footnote summary on pages 91-92. |
abfunds.com | AB BOND INFLATION STRATEGY | 89 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.79 | $ 10.35 | $ 10.71 | $ 10.75 | $ 11.33 | $ 10.77 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .14 | .20 | .11 | .20 | .12 | .14 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.06 | ) | .51 | (.32 | ) | (.03 | ) | (.58 | ) | .59 | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .08 | .71 | (.21 | ) | .17 | (.46 | ) | .73 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.27 | ) | (.15 | ) | (.21 | ) | (.12 | ) | (.17 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.09 | ) | (.27 | ) | (.15 | ) | (.21 | ) | (.12 | ) | (.17 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.78 | $ 10.79 | $ 10.35 | $ 10.71 | $ 10.75 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .77 | % | 6.92 | % | (1.95 | )% | 1.55 | % | (4.06 | )% | 6.80 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $59,644 | $37,207 | $40,897 | $47,314 | $46,554 | $47,200 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .74 | %^ | .72 | % | .58 | % | .51 | % | .51 | % | .51 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | .92 | %^ | .93 | % | .77 | % | .67 | % | .71 | % | .86 | % | ||||||||||||
Net investment income(b) | 2.64 | %^ | 1.93 | % | 1.09 | % | 1.87 | % | 1.05 | % | 1.36 | % | ||||||||||||
Portfolio turnover rate**. | 20 | % | 41 | % | 51 | % | 77 | % | 93 | % | 32 | % |
See | footnote summary on pages 91-92. |
90 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||
Six Months (unaudited) | Year Ended 2016 | December 11, 2014(f) to October 31, 2015 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 10.82 | $ 10.38 | $ 10.62 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(a)(b) | .14 | .25 | .19 | |||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.06 | ) | .46 | (.28 | ) | |||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | ||||||
|
| |||||||||||
Net increase (decrease) in net asset value from operations | .08 | .71 | (.09 | ) | ||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.09 | ) | (.27 | ) | (.15 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 10.81 | $ 10.82 | $ 10.38 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(d) | .76 | % | 6.89 | % | (.86 | )% | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period | $14,563 | $11,576 | $3,821 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(e) | .74 | %^ | .73 | % | .61 | %^ | ||||||
Expenses, before waivers/reimbursements(e) | .93 | %^ | .95 | % | .84 | %^ | ||||||
Net investment income(b) | 2.59 | %^ | 2.40 | % | 2.09 | %^ | ||||||
Portfolio turnover rate** | 20 | % | 41 | % | 51 | % |
(a) | Based on average shares outstanding. |
(b) | Net of fees and expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. 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 presented below exclude interest expense: |
Six Months Ended (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Net of waivers/reimbursements | .75 | %^ | .76 | % | .80 | % | .79 | % | .75 | % | .75 | % | ||||||||||||
Before waivers/reimbursements | 1.03 | %^ | 1.20 | % | 1.28 | % | 1.13 | % | 1.12 | % | 1.18 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Net of waivers/reimbursements | 1.50 | %^ | 1.50 | % | 1.50 | % | 1.48 | % | 1.45 | % | 1.45 | % | ||||||||||||
Before waivers/reimbursements | 1.79 | %^ | 1.94 | % | 1.99 | % | 1.84 | % | 1.81 | % | 1.90 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .49 | % | .45 | % | .45 | % | ||||||||||||
Before waivers/reimbursements | .78 | %^ | .93 | % | .98 | % | .84 | % | .82 | % | .89 | % |
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 91 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Six Months Ended (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Net of waivers/reimbursements | 1.00 | %^ | 1.00 | % | 1.00 | % | .99 | % | .95 | % | .95 | % | ||||||||||||
Before waivers/reimbursements | 1.38 | %^ | 1.47 | % | 1.44 | % | 1.38 | % | 1.39 | % | 1.54 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Net of waivers/reimbursements | .75 | %^ | .75 | % | .75 | % | .74 | % | .70 | % | .70 | % | ||||||||||||
Before waivers/reimbursements | 1.12 | %^ | 1.13 | % | 1.09 | % | 1.05 | % | 1.06 | % | 1.21 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .49 | % | .45 | % | .45 | % | ||||||||||||
Before waivers/reimbursements | .77 | %^ | .81 | % | .69 | % | .67 | % | .78 | % | .89 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Net of waivers/reimbursements | .60 | %^ | .60 | % | .60 | % | .59 | % | .55 | % | .55 | % | ||||||||||||
Before waivers/reimbursements | .78 | %^ | .81 | % | .79 | % | .74 | % | .76 | % | .89 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .49 | % | .45 | % | .45 | % | ||||||||||||
Before waivers/reimbursements | .68 | %^ | .71 | % | .69 | % | .64 | % | .66 | % | .80 | % | ||||||||||||
Class Z(g) | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | %^ | ||||||||||||||||||
Before waivers/reimbursements | .69 | %^ | .72 | % | .73 | %^ |
(f) | Commencement of distribution. |
(g) | Commenced distribution on December 11, 2014. |
^ | Annualized. |
** | The Strategy accounts for dollar roll transactions as purchases and sales. |
See notes to financial statements.
92 | AB BOND INFLATION STRATEGY | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Michael Canter(2), Vice President Shawn E. Keegan(2), Vice President Greg J. Wilensky(2) , Vice President | Emilie D. Wrapp, Secretary 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 State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 Strategy’s portfolio are made by the Adviser’s U.S. Core Fixed-Income Team. Mr. Michael Canter, Mr. Shawn E. Keegan and Mr. Greg J. Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
abfunds.com | AB BOND INFLATION STRATEGY | 93 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Bond Inflation Strategy (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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
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research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency and distribution services to 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 in 2014 was not unreasonable. The directors noted that the Fund was not profitable to the Adviser in 2015.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by
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the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s recent unprofitability to the Adviser would be exacerbated without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. 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 Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund
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and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the 12b-1 fee effective February 1, 2016. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
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NOTES
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NOTES
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AB BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
BIS-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB CREDIT LONG/SHORT PORTFOLIO
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 Credit Long/Short Portfolio (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 CREDIT LONG/SHORT PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
June 16, 2017
This report provides management’s discussion of fund performance for AB Credit Long/Short Portfolio for the semi-annual reporting period ended April 30, 2017.
The Fund’s investment objective is to seek absolute return over a full market cycle.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB CREDIT LONG/SHORT PORTFOLIO1 | ||||||||
Class A Shares | 0.45% | 0.35% | ||||||
Class C Shares | 0.05% | -0.35% | ||||||
Advisor Class Shares2 | 0.54% | 0.64% | ||||||
BofA ML 3-Month US T-Bill Index | 0.23% | 0.40% |
1 | Includes the impact of proceeds received and credited to the Fund resulting from class action settlements, which enhanced the performance of all share classes of the Fund for the six- and 12-month periods ended April 30, 2017, by 0.02% and 0.02%, respectively. |
2 | Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bank of America Merrill Lynch (“BofA ML”) 3-Month US Treasury Bill (“T-Bill”) Index, for the six- and 12-month periods ended April 30, 2017.
During the six-month period, Class A and Advisor Class shares of the Fund outperformed the benchmark, while Class C shares underperformed, before sales charges. Outperformance versus the benchmark was driven by gains on outright long positions and capital structure relative value trades, offset by losses on cyclical credit short positions (a capital structure relative value trade is when the Fund owns one instrument in an issuer’s capital structure and sells short another instrument in the same issuer’s capital structure). A broad rally in the credit markets, with little differentiation across sectors, was a headwind for performance due to the lack of relative movements between credit instruments.
During the 12-month period, Advisor Class shares outperformed the benchmark, while Class A and Class C shares underperformed, before sales charges. Outright shorts in cyclical sectors such as chemicals and automotive detracted, relative to the benchmark. The Fund benefitted from
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gains on outright long positions and capital structure relative value trades. Declining dispersion in performance across credit instruments during the period was a headwind against the Fund’s performance.
During both periods, the Fund utilized derivatives including currency forwards to hedge currency exposure, as well as to manage active currency risk. Purchased and written equity options were also used to hedge market exposure and for investment purposes. Total return swaps were used to hedge and take active risk. Credit default swaps, both single name and index, were used to hedge credit risk as well as to take active credit risk. Treasury futures were used for both hedging and investment purposes. Interest rate swaps were used for hedging purposes.
MARKET REVIEW AND INVESTMENT STRATEGY
During both periods, global credit markets rallied strongly. Following the US presidential election, a broad reflationary theme took hold across global financial markets, with equities and credit spreads rallying strongly and a mixed result for global interest rates.
During the six-month period, the Fund employed a variety of relative value focused strategies intended to take advantage of pricing inefficiencies across credit assets, as opposed to taking outright, directional positions. With increasingly stretched valuations, the Fund was positioned with a broadly neutral risk allocation.
INVESTMENT POLICIES
At least 80% of the Fund’s net assets will under normal circumstances be invested in long and short positions in credit-related instruments. For purposes of this 80% requirement, credit-related instruments will include any type of fixed-income security, such as corporate bonds, convertible fixed-income securities, preferred stocks, US government and agency securities, securities of foreign governments and supranational entities, mortgage-related and asset-backed securities and loan participations. It is expected that a substantial portion of the Fund’s long and short positions will relate to fixed-income securities rated below investment-grade (commonly known as “junk bonds”).
In selecting securities for purchase or sale by the Fund and securities for the Fund to take short positions in, the Adviser will attempt to take advantage of inefficiencies that it believes exist in the global debt markets. These inefficiencies arise from investor behavior, market complexity and the investment limitations to which investors are subject. The Adviser will combine quantitative analysis with fundamental credit and economic research in seeking to exploit these inefficiencies.
(continued on next page)
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Under normal market conditions, the net exposure of the Fund (long exposure minus short exposure) will range between 150% and -150%. For example, the Fund may hold long positions in fixed-income securities with a value equal to 95% of its net assets and hold short positions equal to 75% of its net assets, resulting in 20% net long exposure. The Fund may also take long and short positions in equity securities.
Short positions may be effectuated through derivative instruments or through conventional short sales. When the Fund sells securities short, it sells a security that it does not own (but has borrowed) at its current market price in anticipation that the price of the security will decline. To complete, or close out, the short sale transaction, the Fund buys the same security in the market at a later date and returns it to the lender. The Adviser expects that the Fund’s long positions will be effectuated both through derivatives and actual purchases of fixed-income securities. The Fund may invest in fixed-income securities with a range of maturities from short- to long-term, and expects to maintain a weighted average duration of between -3 and 6 years. The Fund would have a negative duration when the Adviser expects the value of the Fund’s assets to increase as interest rates rise.
While the Fund’s investments will be focused on US dollar-denominated securities, the Fund may invest to a lesser extent in securities denominated in foreign currencies. Fluctuations in currency exchange rates can have a dramatic impact on the returns of fixed-income securities. While the Adviser may hedge the foreign currency exposure resulting from the Fund’s security positions through the use of currency-related derivatives, it is not required to do so. The Fund may take long and short positions in currencies (or related derivatives) independent of any such security positions, including taking a position in a currency when it does not hold any securities denominated in that currency.
The Fund expects to use derivatives, such as options, futures contracts, forwards and swaps, to a significant extent. Derivatives may provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Fund’s exposure. The Fund may, for example, use credit default, interest rate and total return swaps to establish exposure to the fixed-income markets or particular fixed-income securities and, as noted above, may use currency derivatives to hedge foreign currency exposure.
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(continued on next page)
The Fund may borrow money and enter into transactions such as reverse repurchase agreements that are similar to borrowings (in addition to the borrowing of securities inherent in short sale transactions) for investment purposes. As a result of these borrowing transactions and the use of derivatives, the Fund will at times be highly leveraged, with aggregate exposure (long and short) substantially in excess of its net assets.
The Fund is “non-diversified”, which means that it may concentrate its assets in a smaller number of issuers than a diversified fund.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The BofA ML® 3-Month US T-Bill Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The BofA ML 3-Month US Treasury Bill Index measures the performance of Treasury securities maturing in 90 days. 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 bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Fund may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade 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, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a
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DISCLOSURES AND RISKS (continued)
fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.
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.
Short Sale Risk: Short sales involve the risk that the Fund will incur a loss by subsequently buying a security at a higher price than the price at which it sold the security. The amount of such loss is theoretically unlimited, as it will be based on the increase in value of the security sold short. In contrast, the risk of loss from a long position is limited to the Fund’s investment in the security, because the price of the security cannot fall below zero. The Fund may not always be able to close out a short position on favorable terms.
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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Non-Diversification Risk: The Fund may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s NAV.
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DISCLOSURES AND RISKS (continued)
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
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.
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 investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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 visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS A SHARES | -4.49% | |||||||||||
1 Year | 0.35% | -3.92% | ||||||||||
Since Inception2 | 1.15% | -0.30% | ||||||||||
CLASS C SHARES | -5.36% | |||||||||||
1 Year | -0.35% | -1.34% | ||||||||||
Since Inception2 | 0.39% | 0.39% | ||||||||||
ADVISOR CLASS SHARES3 | -4.44% | |||||||||||
1 Year | 0.64% | 0.64% | ||||||||||
Since Inception2 | 1.39% | 1.39% |
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 9.03%, 9.83% and 8.76% for Class A, Class C and Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios exclusive of expenses associated with securities sold short, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, extraordinary expenses, brokerage commission and other transaction costs to 1.24%, 1.99% and 0.99% for Class A, Class C and Advisor Class shares, respectively. These waivers/reimbursements may not be terminated before January 31, 2018 and may be extended by the Adviser for additional one-year terms. Any fees waived and expenses borne by the Adviser may be reimbursed by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne, provided that no reimbursement payment will be made that would cause the Fund’s total annual fund operating expenses to exceed the expense limitations. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended April 30, 2017. |
2 | Inception date: 5/7/2014. |
3 | Advisor Class shares are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 9 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
1 Year | -1.10% | |||
Since Inception1 | -0.07% | |||
CLASS C SHARES | ||||
1 Year | 1.51% | |||
Since Inception1 | 0.68% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 3.48% | |||
Since Inception1 | 1.67% |
1 | Inception date: 5/7/2014. |
2 | Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
10 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
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.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 11 |
EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,004.50 | $ | 33.45 | 6.73 | % | $ | 33.60 | 6.76 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 991.42 | $ | 33.23 | 6.73 | % | $ | 33.38 | 6.76 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,000.50 | $ | 37.10 | 7.48 | % | $ | 37.25 | 7.51 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 987.70 | $ | 36.86 | 7.48 | % | $ | 37.01 | 7.51 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,005.40 | $ | 32.27 | 6.49 | % | $ | 32.42 | 6.52 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 992.61 | $ | 32.06 | 6.49 | % | $ | 32.21 | 6.52 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. Currently the Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s effective expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
12 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $21.4
SECTOR BREAKDOWN1
Long | Short | |||||||
Asset-Backed Securities | 1.2 | % | — | % | ||||
Bank Loans | 1.0 | — | ||||||
Collateralized Mortgage Obligations | 0.7 | — | ||||||
Common Stocks | 5.3 | — | ||||||
Corporates – Investment Grade | 25.3 | -17.3 | ||||||
Corporates – Non-Investment Grade | 15.0 | -51.7 | ||||||
Emerging Markets – Corporate Bonds | 2.8 | -1.6 | ||||||
Emerging Markets – Sovereigns | 1.1 | -0.9 | ||||||
Governments – Treasuries | 0.7 | — | ||||||
Inflation-Linked Securities | 1.6 | — | ||||||
Preferred Stocks | 0.6 | — | ||||||
Quasi-Sovereigns | 1.8 | -0.7 | ||||||
Warrants | 0.1 | — |
NET COUNTRY EXPOSURE (TOP THREE)1
Long | Short | |||||||||||||
Mexico | 2.7 | % | United States | -17.6 | % | |||||||||
Brazil | 2.0 | Spain | -2.1 | |||||||||||
Switzerland | 1.2 | Italy | -1.4 |
1 | Holdings are expressed as a percentage of total net assets and may vary over time. |
The Portfolio 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 CREDIT LONG/SHORT PORTFOLIO | 13 |
PORTFOLIO SUMMARY (continued)
April 30, 2017 (unaudited)
TEN LARGEST HOLDINGS1
Long | Short | |||||||||||||
Security | Security | |||||||||||||
Societe Generale SA | 3.5 | % | First Data Corp. | -3.0 | % | |||||||||
Teva Pharmaceutical Finance Netherlands III BV | 2.6 | BNP Paribas SA | -3.0 | |||||||||||
BNP Paribas SA | 2.5 | Lear Corp. | -2.9 | |||||||||||
Odebrecht Finance Ltd. | 2.1 | Comcast Corp. | -2.9 | |||||||||||
Kerr-McGee Corp. | 1.7 | Lamar Media Corp. | -2.9 | |||||||||||
Hess Corp. | 1.6 | Ashland LLC | -2.9 | |||||||||||
Marathon Oil Corp. | 1.6 | Societe Generale SA | -2.8 | |||||||||||
Brazil Notas do Tesouro Nacional | 1.6 | Berry Plastics Corp. | -2.7 | |||||||||||
Nabors Industries, Inc. | 1.4 | Teva Pharmaceutical Finance Netherlands III BV | -2.4 | |||||||||||
Credit Suisse Group Funding Guernsey Ltd. | 1.2 | Spectrum Brands, Inc. | -2.0 |
1 | Holdings are expressed as a percentage of total net assets and may vary over time. |
14 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – INVESTMENT GRADE – 25.3% | ||||||||||||
Industrial – 17.0% | ||||||||||||
Basic – 0.5% | ||||||||||||
Southern Copper Corp. | U.S.$ | 100 | $ | 101,402 | ||||||||
|
| |||||||||||
Communications - Media – 2.5% | ||||||||||||
21st Century Fox America, Inc. | 55 | 57,830 | ||||||||||
Grupo Televisa SAB | 200 | 234,091 | ||||||||||
Omnicom Group, Inc. | 200 | 201,270 | ||||||||||
Time Warner, Inc. | 40 | 41,732 | ||||||||||
|
| |||||||||||
534,923 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.9% | ||||||||||||
AT&T, Inc. | 200 | 203,716 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 1.0% | ||||||||||||
Ford Motor Credit Co. LLC | 200 | 205,708 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 2.6% | ||||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 600 | 557,076 | ||||||||||
|
| |||||||||||
Energy – 8.9% | ||||||||||||
Devon Energy Corp. | 250 | 251,032 | ||||||||||
Hess Corp. | 350 | 348,495 | ||||||||||
Kerr-McGee Corp. | 300 | 356,004 | ||||||||||
Marathon Oil Corp. | 350 | 347,081 | ||||||||||
Nabors Industries, Inc. | 300 | 303,525 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 150 | 152,088 |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Regency Energy Partners LP/Regency Energy Finance Corp. | U.S.$ | 150 | $ | 156,062 | ||||||||
|
| |||||||||||
1,914,287 | ||||||||||||
|
| |||||||||||
Services – 0.2% | ||||||||||||
S&P Global, Inc. | 41 | 42,960 | ||||||||||
|
| |||||||||||
Technology – 0.4% | ||||||||||||
Dell International LLC/EMC Corp. | 71 | 78,092 | ||||||||||
Hewlett Packard Enterprise Co. | 17 | 17,671 | ||||||||||
|
| |||||||||||
95,763 | ||||||||||||
|
| |||||||||||
3,655,835 | ||||||||||||
|
| |||||||||||
Financial Institutions – 7.1% | ||||||||||||
Banking – 7.1% | ||||||||||||
Bank of America Corp. | 200 | 204,712 | ||||||||||
BNP Paribas SA | 500 | 545,365 | ||||||||||
Citigroup, Inc. | 200 | 203,472 | ||||||||||
Credit Suisse Group Funding Guernsey Ltd. | 250 | 255,525 | ||||||||||
Morgan Stanley | 148 | 153,714 | ||||||||||
Wells Fargo & Co. | 150 | 158,169 | ||||||||||
|
| |||||||||||
1,520,957 | ||||||||||||
|
| |||||||||||
Utility – 1.2% | ||||||||||||
Electric – 1.2% | ||||||||||||
Dominion Resources, Inc./VA | 100 | 94,543 | ||||||||||
Duke Energy Corp. | 150 | 158,144 | ||||||||||
|
| |||||||||||
252,687 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 5,429,479 | |||||||||||
|
| |||||||||||
16 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – 15.0% | ||||||||||||
Industrial – 9.1% | ||||||||||||
Basic – 0.3% | ||||||||||||
ArcelorMittal | U.S.$ | 56 | $ | 62,971 | ||||||||
ERP Iron Ore, LLC | 6 | 6,166 | ||||||||||
Magnetation LLC/Mag Finance Corp. | 35 | 3 | ||||||||||
Peabody Energy Corp. | 119 | – 0 | – | |||||||||
|
| |||||||||||
69,140 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.6% | ||||||||||||
iHeartCommunications, Inc. | 41 | 27,913 | ||||||||||
9.00%, 12/15/19-9/15/22 | 142 | 110,518 | ||||||||||
|
| |||||||||||
138,431 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 1.1% | ||||||||||||
Frontier Communications Corp. | 87 | 87,468 | ||||||||||
Intelsat Jackson Holdings SA | 150 | 137,174 | ||||||||||
|
| |||||||||||
224,642 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Exide Technologies | 29 | 14,359 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 1.3% | ||||||||||||
MDC Holdings, Inc. | 5 | 5,177 | ||||||||||
6.00%, 1/15/43 | 125 | 112,985 | ||||||||||
PulteGroup, Inc. | 140 | 139,226 | ||||||||||
7.875%, 6/15/32 | 19 | 21,622 | ||||||||||
|
| |||||||||||
279,010 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.9% | ||||||||||||
BI-LO LLC/BI-LO Finance Corp. | 33 | 16,907 | ||||||||||
9.25%, 2/15/19(a) | 88 | 77,160 | ||||||||||
CHS/Community Health Systems, Inc. | 100 | 82,734 |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Concordia International Corp. | U.S.$ | 54 | $ | 10,463 | ||||||||
HCA, Inc. | 104 | 108,009 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 150 | 110,913 | ||||||||||
|
| |||||||||||
406,186 | ||||||||||||
|
| |||||||||||
Energy – 1.6% | ||||||||||||
Berry Petroleum Co. LLC | 85 | – 0 | – | |||||||||
Denbury Resources, Inc. | 17 | 11,666 | ||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 75 | 67,103 | ||||||||||
Hilcorp Energy I LP/Hilcorp Finance Co. | 24 | 23,241 | ||||||||||
Noble Holding International Ltd. | 74 | 52,725 | ||||||||||
8.70%, 4/01/45 | 126 | 110,163 | ||||||||||
SandRidge Energy, Inc. | 150 | – 0 | – | |||||||||
Transocean, Inc. | 100 | 79,994 | ||||||||||
|
| |||||||||||
344,892 | ||||||||||||
|
| |||||||||||
Other Industrial – 1.7% | ||||||||||||
General Cable Corp. | 85 | 66,372 | ||||||||||
Global Partners LP/GLP Finance Corp. | 200 | 196,826 | ||||||||||
Laureate Education, Inc. | 81 | 85,066 | ||||||||||
10.00%, 9/01/19(a) | 9 | 9,680 | ||||||||||
|
| |||||||||||
357,944 | ||||||||||||
|
| |||||||||||
Technology – 0.2% | ||||||||||||
Avaya, Inc. | 277 | 41,896 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.3% | ||||||||||||
XPO CNW, Inc. | 75 | 70,396 | ||||||||||
|
| |||||||||||
1,946,896 | ||||||||||||
|
|
18 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Financial Institutions – 5.9% | ||||||||||||
Banking – 4.9% | ||||||||||||
Barclays Bank PLC | U.S.$ | 73 | $ | 83,251 | ||||||||
Royal Bank of Scotland Group PLC | 205 | 212,593 | ||||||||||
Societe Generale SA | 700 | 751,240 | ||||||||||
|
| |||||||||||
1,047,084 | ||||||||||||
|
| |||||||||||
Finance – 1.0% | ||||||||||||
Artsonig Pty Ltd. | 191 | 5,730 | ||||||||||
Enova International, Inc. | 53 | 53,987 | ||||||||||
Navient Corp. | 53 | 53,911 | ||||||||||
8.00%, 3/25/20 | 24 | 26,431 | ||||||||||
TMX Finance LLC/TitleMax Finance Corp. | 95 | 89,556 | ||||||||||
|
| |||||||||||
229,615 | ||||||||||||
|
| |||||||||||
1,276,699 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 3,223,595 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 5.3% | ||||||||||||
Consumer Discretionary – 1.6% | ||||||||||||
Media – 1.3% | ||||||||||||
Charter Communications, Inc. – Class A(h) | 100 | 34,516 | ||||||||||
Clear Channel Outdoor Holdings, Inc. – Class A | 4,650 | 23,948 | ||||||||||
DISH Network Corp. – Class A(h) | 400 | 25,776 | ||||||||||
Gray Television, Inc.(h) | 3,059 | 44,814 | ||||||||||
Nexstar Media Group, Inc. – Class A | 940 | 64,860 | ||||||||||
Sinclair Broadcast Group, Inc. – Class A | 1,086 | 42,843 | ||||||||||
Townsquare Media, Inc. – Class A(h) | 2,620 | 31,702 | ||||||||||
|
| |||||||||||
268,459 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure – 0.3% | ||||||||||||
eDreams ODIGEO SA(h) | 10,643 | 36,728 | ||||||||||
Eldorado Resorts, Inc.(h) | 1,381 | 26,412 | ||||||||||
|
| |||||||||||
63,140 | ||||||||||||
|
| |||||||||||
Household Durables – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. – Class A(h) | 2,224 | 5,204 | ||||||||||
|
| |||||||||||
336,803 | ||||||||||||
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Industrials – 1.3% | ||||||||||||
Trading Companies & Distributors – 0.1% | ||||||||||||
Emeco Holdings Ltd.(h) | 92,500 | $ | 5,887 | |||||||||
|
| |||||||||||
Machinery – 0.1% | ||||||||||||
Navistar International Corp.(h) | 935 | 25,161 | ||||||||||
|
| |||||||||||
Energy Equipment & Services – 0.0% | ||||||||||||
Sanchez Energy Corp.(h) | 87 | 673 | ||||||||||
|
| |||||||||||
Energy Other – 1.0% | ||||||||||||
Tervita Corp.(d)(e) | 30,203 | 218,494 | ||||||||||
|
| |||||||||||
Construction & Engineering – 0.1% | ||||||||||||
Modular Space Corp. | 44 | 572 | ||||||||||
Modular Space Corp.(d)(i) | 1,244 | 16,172 | ||||||||||
|
| |||||||||||
16,744 | ||||||||||||
|
| |||||||||||
266,959 | ||||||||||||
|
| |||||||||||
Energy – 0.9% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.9% | ||||||||||||
EP Energy Corp. – Class A(h) | 1,809 | 8,177 | ||||||||||
Chesapeake Energy Corp.(h) | 4,264 | 22,429 | ||||||||||
Halcon Resources Corp.(h) | 879 | 5,889 | ||||||||||
SandRidge Energy, Inc.(h) | 1,200 | 22,104 | ||||||||||
Oasis Petroleum, Inc.(h) | 354 | 4,227 | ||||||||||
Peabody Energy Corp.(d)(e) | 82 | 2,084 | ||||||||||
Whiting Petroleum Corp.(h) | 3,220 | 26,726 | ||||||||||
Berry Petroleum Co. LLC(e) | 3,329 | 38,283 | ||||||||||
CHC Group LLC(d)(h)(l) | 1,937 | 22,275 | ||||||||||
Peabody Energy Corp.(h) | 1,768 | 44,925 | ||||||||||
|
| |||||||||||
197,119 | ||||||||||||
|
| |||||||||||
Health Care – 0.6% | ||||||||||||
Health Care Providers & Services – 0.3% | ||||||||||||
Community Health Systems, Inc.(h) | 4,774 | 41,104 | ||||||||||
Quorum Health Corp.(h) | 322 | 1,375 | ||||||||||
Tenet Healthcare Corp.(h) | 1,684 | 26,388 | ||||||||||
|
| |||||||||||
68,867 | ||||||||||||
|
| |||||||||||
Pharmaceuticals – 0.3% | ||||||||||||
Endo International PLC(h) | 2,511 | 28,550 | ||||||||||
Horizon Pharma PLC(h) | 1,650 | 25,377 | ||||||||||
Valeant Pharmaceuticals International, Inc.(h) | 779 | 7,206 | ||||||||||
|
| |||||||||||
61,133 | ||||||||||||
|
| |||||||||||
130,000 | ||||||||||||
|
|
20 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Materials – 0.3% | ||||||||||||
Chemicals – 0.1% | ||||||||||||
LyondellBasell Industries NV – Class A | 230 | $ | 19,495 | |||||||||
|
| |||||||||||
Metals & Mining – 0.2% | ||||||||||||
AK Steel Holding Corp.(h) | 8,333 | 52,831 | ||||||||||
|
| |||||||||||
72,326 | ||||||||||||
|
| |||||||||||
Telecommunication Services – 0.3% | ||||||||||||
Diversified Telecommunication Services – 0.3% | ||||||||||||
Koninklijke KPN NV | 6,700 | 19,370 | ||||||||||
TDC A/S | 9,400 | 50,426 | ||||||||||
|
| |||||||||||
69,796 | ||||||||||||
|
| |||||||||||
Financials – 0.2% | ||||||||||||
Diversified Financial Services – 0.1% | ||||||||||||
Holdco, Inc. | 12,383 | 7,925 | ||||||||||
|
| |||||||||||
Consumer Finance – 0.1% | ||||||||||||
Enova International, Inc.(h) | 1,623 | 23,046 | ||||||||||
|
| |||||||||||
30,971 | ||||||||||||
|
| |||||||||||
Information Technology – 0.1% | ||||||||||||
IT Services – 0.1% | ||||||||||||
Travelport Worldwide Ltd. | 2,303 | 30,331 | ||||||||||
|
| |||||||||||
Total Common Stocks | 1,134,305 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
EMERGING MARKETS – CORPORATE BONDS – 2.8% | ||||||||||||
Industrial – 2.8% | ||||||||||||
Capital Goods – 2.1% | ||||||||||||
Odebrecht Finance Ltd. | U.S.$ | 1,000 | 450,000 | |||||||||
|
| |||||||||||
Energy – 0.7% | ||||||||||||
CHC Group LLC/CHC Finance Ltd. | 98 | 151,790 | ||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 601,790 | |||||||||||
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
QUASI-SOVEREIGNS – 1.8% | ||||||||||||
Quasi-Sovereign Bonds – 1.8% | ||||||||||||
Mexico – 0.7% | ||||||||||||
Petroleos Mexicanos | U.S.$ | 150 | $ | 157,125 | ||||||||
|
| |||||||||||
Venezuela – 1.1% | ||||||||||||
Petroleos de Venezuela SA | 500 | 237,500 | ||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 394,625 | |||||||||||
|
| |||||||||||
INFLATION-LINKED SECURITIES – 1.6% | ||||||||||||
Brazil – 1.6% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 340 | 332,879 | |||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 1.2% | ||||||||||||
Other ABS - Fixed Rate – 1.0% | ||||||||||||
Taco Bell Funding LLC | U.S.$ | 209 | 212,690 | |||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.2% | ||||||||||||
Morgan Stanley Mortgage Loan Trust | 76 | 53,312 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 266,002 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – | ||||||||||||
Venezuela – 1.1% | ||||||||||||
Venezuela Government International Bond | 450 | 238,502 | ||||||||||
|
| |||||||||||
BANK LOANS – 1.0% | ||||||||||||
Industrial – 1.0% | ||||||||||||
Basic – 0.0% | ||||||||||||
Magnetation LLC | 37 | – 0 | – | |||||||||
|
|
22 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Technology – 1.0% | ||||||||||||
Avaya Inc. | U.S.$ | 250 | $ | 208,438 | ||||||||
8.50% (LIBOR 3 Month + 7.50%), 1/24/18(e)(o) | 14 | 14,823 | ||||||||||
|
| |||||||||||
223,261 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 223,261 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 0.7% | ||||||||||||
Mexico – 0.4% | ||||||||||||
Mexican Bonos | MXN | 1,990 | 95,769 | |||||||||
|
| |||||||||||
South Africa – 0.3% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 721 | 60,226 | |||||||||
|
| |||||||||||
Total Governments – Treasuries | 155,995 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 0.7% | ||||||||||||
Non-Agency Fixed Rate – 0.7% | ||||||||||||
Alternative Loan Trust | U.S.$ | 59 | 53,006 | |||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 63 | 53,296 | ||||||||||
GSR Mortgage Loan Trust | 31 | 25,699 | ||||||||||
Wells Fargo Mortgage Backed Securities Trust | 21 | 20,439 | ||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 152,440 | |||||||||||
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
PREFERRED STOCKS – 0.6% | ||||||||||||
Industrial – 0.6% | ||||||||||||
Basic – 0.2% | ||||||||||||
Peabody Energy Corp. | 590 | $ | 32,450 | |||||||||
|
| |||||||||||
Energy – 0.4% | ||||||||||||
Berry Petroleum Co. LLC | 2,781 | 37,544 | ||||||||||
Sanchez Energy Corp. | 1,550 | 43,880 | ||||||||||
Tervita Corp. | 838 | 6,062 | ||||||||||
|
| |||||||||||
87,486 | ||||||||||||
|
| |||||||||||
119,936 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.0% | ||||||||||||
Services – 0.0% | ||||||||||||
Holdco, Inc. | 74 | 7,400 | ||||||||||
|
| |||||||||||
Total Preferred Stocks | 127,336 | |||||||||||
|
| |||||||||||
WARRANTS – 0.1% | ||||||||||||
Energy – 0.1% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.1% | ||||||||||||
Midstates Petroleum Co., Inc., | 1,429 | 6,431 | ||||||||||
Peabody Energy Corp., | 5 | 127 | ||||||||||
Peabody Energy Corp., | 83 | 2,108 | ||||||||||
SandRidge Energy, Inc., A-CW22, | 2,538 | 2,538 | ||||||||||
SandRidge Energy, Inc., B-CW22, | 122 | 68 | ||||||||||
|
| |||||||||||
11,272 | ||||||||||||
|
| |||||||||||
Financials – 0.0% | ||||||||||||
Diversified Financial Services – 0.0% | ||||||||||||
iPayment Holdings, Inc., | 13,856 | 7,344 | ||||||||||
|
| |||||||||||
Total Warrants | 18,616 | |||||||||||
|
|
24 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Contracts | U.S. $ Value | ||||||||||
| ||||||||||||
OPTIONS PURCHASED – PUTS – 0.0% | ||||||||||||
Options on Equities – 0.0% | ||||||||||||
DIEBOLD, Inc. | 86 | $ | 645 | |||||||||
Micron Technology, Inc. | 50 | 2,200 | ||||||||||
Tesla Motors, Inc. | 5 | 758 | ||||||||||
Universal Corp./VA | 20 | 700 | ||||||||||
|
| |||||||||||
4,303 | ||||||||||||
|
| |||||||||||
Options on Funds and Investment Trusts – 0.0% | ||||||||||||
SPDR S&P 500 ETF Trust | 25 | 988 | ||||||||||
|
| |||||||||||
Notional Amount (000) | ||||||||||||
Swaptions – 0.0% | ||||||||||||
CDX-NAHY Series 28, 5 Year Index RTP, Credit Suisse International (Buy Protection) | 1,210 | 430 | ||||||||||
|
| |||||||||||
Total Options Purchased – Puts | 5,721 | |||||||||||
|
| |||||||||||
Contracts | ||||||||||||
OPTIONS PURCHASED – CALLS – 0.0% | ||||||||||||
Options on Funds and Investment Trusts – 0.0% | ||||||||||||
SPDR S&P 500 ETF Trust | 15 | 1,448 | ||||||||||
|
| |||||||||||
Options on Equities – 0.0% | ||||||||||||
Valeant Pharmaceuticals International, Inc. | 64 | 832 | ||||||||||
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Contracts | U.S. $ Value | ||||||||||
| ||||||||||||
Options on Indices – 0.0% | ||||||||||||
Euro STOXX 50 Index | 50 | $ | 760 | |||||||||
|
| |||||||||||
Total Options Purchased – Calls | 3,040 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
SHORT-TERM INVESTMENTS – 44.0% | ||||||||||||
U.S. TREASURY BILLS – 29.6% | ||||||||||||
U.S. Treasury Bill | U.S.$ | 3,000 | 2,996,819 | |||||||||
Zero Coupon, 7/27/17-10/19/17 | 3,350 | 3,338,107 | ||||||||||
|
| |||||||||||
Total U.S. Treasury Bills | 6,334,926 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
Investment Companies – 14.4% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, | 3,086,235 | 3,086,235 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 9,421,161 | |||||||||||
|
| |||||||||||
Total Investments Before Securities Sold Short – 101.2% | 21,728,747 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
SECURITIES SOLD SHORT – (72.2)% | ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – (51.7)% | ||||||||||||
Industrial – (40.7)% | ||||||||||||
Basic – (11.5)% | ||||||||||||
Ashland LLC | U.S.$ | (600 | ) | (625,038 | ) | |||||||
Berry Plastics Corp. | (564 | ) | (588,709 | ) |
26 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Chemours Co. (The) | U.S.$ | (400 | ) | $ | (427,828 | ) | ||||||
INEOS Group Holdings SA | (400 | ) | (406,248 | ) | ||||||||
Lundin Mining Corp. | (200 | ) | (211,890 | ) | ||||||||
Platform Specialty Products Corp. | (200 | ) | (205,682 | ) | ||||||||
|
| |||||||||||
(2,465,395 | ) | |||||||||||
|
| |||||||||||
Capital Goods – (3.4)% | ||||||||||||
CNH Industrial Finance Europe SA | EUR | (300 | ) | (340,861 | ) | |||||||
Triumph Group, Inc. | U.S.$ | (400 | ) | (391,008 | ) | |||||||
|
| |||||||||||
(731,869 | ) | |||||||||||
|
| |||||||||||
Communications - Media – (2.9)% | ||||||||||||
Lamar Media Corp. | (400 | ) | (418,220 | ) | ||||||||
5.875%, 2/01/22 | (200 | ) | (207,594 | ) | ||||||||
|
| |||||||||||
(625,814 | ) | |||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – (1.9)% | ||||||||||||
Dana, Inc. | (400 | ) | (406,376 | ) | ||||||||
|
| |||||||||||
Consumer Cyclical - Other – (2.0)% | ||||||||||||
Scientific Games International, Inc. | (400 | ) | (428,156 | ) | ||||||||
|
| |||||||||||
Consumer Non-Cyclical – (2.0)% | ||||||||||||
Spectrum Brands, Inc. | (400 | ) | (428,400 | ) | ||||||||
|
| |||||||||||
Energy – (6.1)% | ||||||||||||
Continental Resources, Inc./OK | (200 | ) | (201,932 | ) | ||||||||
Laredo Petroleum, Inc. | (400 | ) | (415,424 | ) | ||||||||
Oasis Petroleum, Inc. | (175 | ) | (176,689 | ) | ||||||||
Parsley Energy LLC/Parsley Finance Corp. | (300 | ) | (315,786 | ) | ||||||||
SM Energy Co. | (200 | ) | (202,712 | ) | ||||||||
|
| |||||||||||
(1,312,543 | ) | |||||||||||
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Services – (2.0)% | ||||||||||||
Service Corp. International/US | U.S.$ | (400 | ) | $ | (421,400 | ) | ||||||
|
| |||||||||||
Technology – (6.9)% | ||||||||||||
CommScope, Inc. | (400 | ) | (418,536 | ) | ||||||||
First Data Corp. | (600 | ) | (643,266 | ) | ||||||||
MSCI, Inc. | (400 | ) | (423,536 | ) | ||||||||
|
| |||||||||||
(1,485,338 | ) | |||||||||||
|
| |||||||||||
Transportation - Services – (2.0)% | ||||||||||||
United Rentals North America, Inc. | (400 | ) | (423,000 | ) | ||||||||
|
| |||||||||||
(8,728,291 | ) | |||||||||||
|
| |||||||||||
Financial Institutions – (9.5)% | ||||||||||||
Banking – (4.6)% | ||||||||||||
Provident Funding Associates LP/PFG Finance Corp. | (400 | ) | (409,060 | ) | ||||||||
Societe Generale SA | (600 | ) | (591,204 | ) | ||||||||
|
| |||||||||||
(1,000,264 | ) | |||||||||||
|
| |||||||||||
Finance – (1.0)% | ||||||||||||
Fly Leasing Ltd. | (200 | ) | (207,176 | ) | ||||||||
|
| |||||||||||
REITS – (3.9)% | ||||||||||||
FelCor Lodging LP | (400 | ) | (420,920 | ) | ||||||||
Realogy Group LLC/Realogy Co-Issuer Corp. | (200 | ) | (207,788 | ) | ||||||||
4.875%, 6/01/23(a) | (200 | ) | (201,832 | ) | ||||||||
|
| |||||||||||
(830,540 | ) | |||||||||||
|
| |||||||||||
(2,037,980 | ) | |||||||||||
|
| |||||||||||
Utility – (1.5)% | ||||||||||||
Electric – (1.5)% | ||||||||||||
Calpine Corp. | (189 | ) | (197,637 | ) | ||||||||
Enel SpA | EUR | (100 | ) | (117,855 | ) | |||||||
|
| |||||||||||
(315,492 | ) | |||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | (11,081,763 | ) | ||||||||||
|
|
28 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – INVESTMENT GRADE – (17.3)% | ||||||||||||
Industrial – (12.4)% | ||||||||||||
Communications - Media – (2.9)% | ||||||||||||
Comcast Corp. | U.S.$ | (600 | ) | $ | (625,914 | ) | ||||||
|
| |||||||||||
Consumer Cyclical - Automotive – (2.9)% | ||||||||||||
Lear Corp. | (595 | ) | (629,189 | ) | ||||||||
|
| |||||||||||
Consumer Non-Cyclical – (2.4)% | ||||||||||||
Teva Pharmaceutical Finance Netherlands III BV | (600 | ) | (511,056 | ) | ||||||||
|
| |||||||||||
Energy – (2.2)% | ||||||||||||
Ecopetrol SA | (200 | ) | (222,000 | ) | ||||||||
Repsol International Finance BV | EUR | (200 | ) | (248,619 | ) | |||||||
|
| |||||||||||
(470,619 | ) | |||||||||||
|
| |||||||||||
Technology – (2.0)% | ||||||||||||
Hewlett Packard Enterprise Co. | U.S.$ | (400 | ) | (422,092 | ) | |||||||
|
| |||||||||||
(2,658,870 | ) | |||||||||||
|
| |||||||||||
Financial Institutions – (4.9)% | ||||||||||||
Banking – (4.9)% | ||||||||||||
Bankia SA | EUR | (200 | ) | (230,766 | ) | |||||||
BNP Paribas SA | U.S.$ | (600 | ) | (638,298 | ) | |||||||
Intesa Sanpaolo SpA | EUR | (150 | ) | (189,321 | ) | |||||||
|
| |||||||||||
(1,058,385 | ) | |||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | (3,717,255 | ) | ||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – (1.6)% | ||||||||||||
Brazil – (1.6)% | ||||||||||||
Odebrecht Finance Ltd. | U.S.$ | (800 | ) | (349,500 | ) | |||||||
|
| |||||||||||
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – SOVEREIGNS – (0.9)% | ||||||||||||
Venezuela – (0.9)% | ||||||||||||
Venezuela Government International Bond | U.S.$ | (400 | ) | $ | (193,996 | ) | ||||||
|
| |||||||||||
QUASI-SOVEREIGNS – (0.7)% | ||||||||||||
Quasi-Sovereign Bonds – (0.7)% | ||||||||||||
Venezuela – (0.7)% | ||||||||||||
Petroleos de Venezuela SA | (400 | ) | (158,132 | ) | ||||||||
|
| |||||||||||
Total Securities Sold Short | (15,500,646 | ) | ||||||||||
|
| |||||||||||
Total Investments – 29.0% | 6,228,101 | |||||||||||
Other assets less liabilities – 71.0% | 15,215,253 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 21,443,354 | ||||||||||
|
|
FUTURES (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at 2017 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts | ||||||||||||||||||||
Euro STOXX 50 Index Futures | 10 | June 2017 | $ | 364,051 | $ | 382,126 | $ | 18,075 | ||||||||||||
U.S. Long Bond (CBT) Futures | 4 | June 2017 | 600,850 | 611,875 | 11,025 | |||||||||||||||
Sold Contracts | ||||||||||||||||||||
Euro-BOBL Futures | 13 | June 2017 | 1,870,638 | 1,867,256 | 3,382 | |||||||||||||||
Euro-BTP Futures | 8 | June 2017 | 1,139,737 | 1,147,773 | (8,036 | ) | ||||||||||||||
Euro-OAT Futures | 6 | June 2017 | 958,934 | 979,324 | (20,390 | ) | ||||||||||||||
S&P 500 E Mini Futures | 4 | June 2017 | 472,043 | 476,100 | (4,057 | ) | ||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 8 | June 2017 | 993,669 | 1,005,750 | (12,081 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | (12,082 | ) | ||||||||||||||||||
|
|
30 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Bank of America, NA | USD | 121 | RUB | 6,841 | 6/22/17 | $ | (1,829 | ) | ||||||||||||||||
Barclays Bank PLC | KRW | 253,714 | USD | 224 | 5/18/17 | 1,129 | ||||||||||||||||||
Barclays Bank PLC | USD | 110 | KRW | 127,192 | 5/18/17 | 1,643 | ||||||||||||||||||
Barclays Bank PLC | CNY | 3,786 | USD | 547 | 6/12/17 | (922 | ) | |||||||||||||||||
Citibank, NA | TWD | 3,403 | USD | 111 | 6/13/17 | (1,632 | ) | |||||||||||||||||
Credit Suisse International | BRL | 743 | USD | 232 | 5/03/17 | (1,781 | ) | |||||||||||||||||
Credit Suisse International | USD | 234 | BRL | 743 | 5/03/17 | 291 | ||||||||||||||||||
Credit Suisse International | BRL | 743 | USD | 232 | 6/02/17 | (399 | ) | |||||||||||||||||
Credit Suisse International | USD | 136 | EUR | 124 | 7/13/17 | (513 | ) | |||||||||||||||||
Deutsche Bank AG | BRL | 743 | USD | 235 | 5/03/17 | 1,375 | ||||||||||||||||||
Deutsche Bank AG | USD | 232 | BRL | 743 | 5/03/17 | 1,781 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 216 | MXN | 4,102 | 6/16/17 | 537 | ||||||||||||||||||
State Street Bank & Trust Co. | DKK | 363 | USD | 52 | 5/11/17 | (1,553 | ) | |||||||||||||||||
State Street Bank & Trust Co. | SGD | 155 | USD | 110 | 5/18/17 | (1,307 | ) | |||||||||||||||||
State Street Bank & Trust Co. | ZAR | 728 | USD | 54 | 5/24/17 | (399 | ) | |||||||||||||||||
State Street Bank & Trust Co. | MXN | 951 | USD | 51 | 6/16/17 | 440 | ||||||||||||||||||
State Street Bank & Trust Co. | MXN | 3,073 | USD | 162 | 6/16/17 | (84 | ) | |||||||||||||||||
State Street Bank & Trust Co. | CAD | 326 | USD | 243 | 6/22/17 | 4,590 | ||||||||||||||||||
State Street Bank & Trust Co. | AUD | 150 | USD | 114 | 7/10/17 | 1,060 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 974 | EUR | 914 | 7/13/17 | 25,424 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | 27,851 | |||||||||||||||||||||||
|
|
CALL OPTIONS WRITTEN (see Note D)
Description | Contracts | Exercise Price | Expiration Month | Premiums Received | U.S. $ Value | |||||||||||||||
Valeant Pharmaceuticals International, Inc.(p) | 64 | $ | 20.00 | July 2017 | $ | 509 | $ | (384 | ) |
PUT OPTIONS WRITTEN (see Note D)
Description | Contracts | Exercise Price | Expiration Month | Premiums Received | U.S. $ Value | |||||||||||||||
Micron Technology, Inc.(p) | 50 | $ | 22.00 | June 2017 | $ | 598 | $ | (550 | ) | |||||||||||
SPDR S&P 500 ETF Trust(p) | 25 | 219.00 | May 2017 | 1,124 | (363 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||
$ | 1,722 | $ | (913 | ) | ||||||||||||||||
|
|
|
|
CREDIT DEFAULT SWAPTIONS WRITTEN (see Note D)
Description | Counterparty | Buy/Sell Protection | Strike Rate | Expiration Month | Notional Amount (000) | Premiums Received | Market Value | |||||||||||||||||||||
Put – CDX-NAHY Series 28, 5 Year Index RTP | | Credit Suisse International | | Sell | 103.00 | % | May 2017 | $ | 1,210 | $ | 726 | $ | (402 | ) |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Clearing Broker/(Exchange) & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional (000) | Market Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Buy Contracts | ||||||||||||||||||||
Morgan Stanley & Co. LLC/(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 23, | (5.00 | )% | 1.75 | % | $ | 490 | $ | (43,175 | ) | $ | (19,278 | ) | ||||||||
CDX-NAHY | (5.00 | ) | 3.28 | 312 | (25,544 | ) | (4,409 | ) | ||||||||||||
CDX-NAIG | (1.00 | ) | 0.32 | 2,500 | (46,945 | ) | (21,940 | ) | ||||||||||||
iTraxx-XOVER | (5.00 | ) | 2.17 | EUR | 18 | (2,277 | ) | (1,058 | ) | |||||||||||
iTraxx-XOVER | (5.00 | ) | 2.66 | 680 | (84,901 | ) | (17,596 | ) | ||||||||||||
Sale Contracts | ||||||||||||||||||||
Morgan Stanley & Co. LLC/(CME Group) | ||||||||||||||||||||
CDX-NAHY | 5.00 | 1.75 | $ | 490 | 43,175 | 22,381 | ||||||||||||||
Morgan Stanley & Co. LLC/(INTRCONX)iTraxx-XOVER | 5.00 | 1.56 | EUR | 114 | 13,727 | 5,604 | ||||||||||||||
|
|
|
| |||||||||||||||||
$ | (145,940 | ) | $ | (36,296 | ) | |||||||||||||||
|
|
|
|
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
Morgan Stanley & Co. LLC/(CME Group) | $ | 250 | 5/09/19 | 1.732% | 3 Month LIBOR | $ | (2,212 | ) |
32 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional (000) | Market Value | Upfront Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||
Bank of America, NA |
| |||||||||||||||||||||||
Anglo American Capital, 4.45%, 9/27/20, 6/20/22* | (5.00 | )% | 1.85 | % | EUR | 200 | $ | (35,260 | ) | $ | (30,736 | ) | $ | (4,524 | ) | |||||||||
Arcelormittal, 6.125%, 6/01/18, 6/20/22* | (5.00 | ) | 2.51 | 200 | (27,596 | ) | (24,617 | ) | (2,979 | ) | ||||||||||||||
Barclays Bank PLC |
| |||||||||||||||||||||||
Iceland Bondco PLC, 6.25%, 7/15/21, 6/20/22* | (5.00 | ) | 2.89 | 400 | (46,432 | ) | (32,732 | ) | (13,700 | ) | ||||||||||||||
Indonesia Government International Bond, 5.875%, 3/13/20, 6/20/22* | (1.00 | ) | 1.27 | $ | 600 | 6,969 | 9,248 | (2,279 | ) | |||||||||||||||
Repsol International Finance BV, 4.875%, 2/19/19, 6/20/22* | (1.00 | ) | 0.91 | EUR | 200 | (1,287 | ) | 1,382 | (2,669 | ) | ||||||||||||||
Russian Foreign Bond - Eurobond, 7.50%, 3/31/30, 6/20/22* | (1.00 | ) | 1.52 | $ | 400 | 9,618 | 13,608 | (3,990 | ) | |||||||||||||||
Citibank, NA | ||||||||||||||||||||||||
Dell, Inc., 7.10%, 4/15/28, 12/20/21* | (1.00 | ) | 2.15 | 200 | 10,167 | 18,598 | (8,431 | ) | ||||||||||||||||
Quest Diagnostics, Inc., 6.95%, 7/01/37, 12/20/20* | (1.00 | ) | 0.25 | 500 | (13,732 | ) | (1,372 | ) | (12,360 | ) | ||||||||||||||
Renault SA, 3.125%, 3/05/21, 12/20/19* | (1.00 | ) | 0.44 | EUR | 160 | (2,700 | ) | 0 | (2,700 | ) | ||||||||||||||
Transocean, Inc., 7.375%, 4/15/18, 6/20/20* | (5.00 | ) | 3.15 | $ | 1,000 | (60,477 | ) | 67,324 | (127,801 | ) | ||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||
BellSouth LLC, 6.55%, 6/15/34, 9/20/19* | (1.00 | ) | 0.33 | 1,000 | (16,208 | ) | (11,713 | ) | (4,495 | ) |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional (000) | Market Value | Upfront Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BB- Series 6, 5/11/63* | (5.00 | )% | 9.75 | % | $ | 50 | $ | 9,190 | $ | 6,565 | $ | 2,625 | ||||||||||||
Conagra Brands, Inc., 7.00%, 10/01/28, 12/20/21* | (1.00 | ) | 0.71 | 300 | (3,919 | ) | – 0 | – | (3,919 | ) | ||||||||||||||
Conagra Brands, Inc., 7.00%, 10/01/28, 12/20/21* | (1.00 | ) | 0.35 | 300 | (8,872 | ) | – 0 | – | (8,872 | ) | ||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||
Lloyds Bank PLC, 1.50%, 5/02/17, 12/20/19* | (1.00 | ) | 0.30 | EUR | 470 | (10,019 | ) | (7,110 | ) | (2,909 | ) | |||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||
AK Steel Corp., 7.625%, 5/15/20, 6/20/22* | (5.00 | ) | 4.67 | $ | 300 | (6,074 | ) | (5,541 | ) | (533 | ) | |||||||||||||
Amkor Technology, Inc., 6.625%, 6/01/21, 6/20/21* | (5.00 | ) | 1.17 | 100 | (15,742 | ) | (4,156 | ) | (11,586 | ) | ||||||||||||||
Arconic, Inc., 5.72%, 2/23/19, 6/20/22* | (1.00 | ) | 1.63 | 200 | 5,769 | 8,031 | (2,262 | ) | ||||||||||||||||
Boyd Gaming Corp., 7.125%, 2/01/16, 6/20/22* | (5.00 | ) | 1.41 | 200 | (35,925 | ) | (27,754 | ) | (8,171 | ) | ||||||||||||||
CDX-CMBX.NA.BB- Series 6, 5/11/63* | (5.00 | ) | 9.75 | 115 | 21,137 | 15,285 | 5,852 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | (3.00 | ) | 5.54 | 61 | 6,783 | 7,503 | (720 | ) | ||||||||||||||||
Gap, Inc. (The), 5.95%, 4/12/21, 6/20/22* | (1.00 | ) | 2.55 | 200 | 14,305 | 18,326 | (4,021 | ) | ||||||||||||||||
Teck Resources Ltd., 3.75%, 2/01/23, 6/20/18* | (1.00 | ) | 0.20 | 250 | (2,575 | ) | 2,300 | (4,875 | ) | |||||||||||||||
Yum! Brands, Inc., 6.25%, 3/15/18, 6/20/21* | (1.00 | ) | 0.70 | 200 | (2,655 | ) | 11,349 | (14,004 | ) |
34 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional (000) | Market Value | Upfront Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||||||
Brazilian Government International Bond, 4.25%, 1/07/25,6/20/22* | (1.00 | )% | 2.15 | % | $ | 200 | $ | 10,738 | $ | 12,321 | $ | (1,583 | ) | |||||||||||
Colombia Government International Bond, 10.375%, 1/28/33, 6/20/22* | (1.00 | ) | 1.26 | 600 | 6,835 | 12,147 | (5,312 | ) | ||||||||||||||||
Kohl’s Corp., 6.25%, 12/15/17, 6/20/19* | (1.00 | ) | 0.15 | 400 | (945 | ) | (238 | ) | (707 | ) | ||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||||||
British Telecommunications PLC, 5.75%, 12/07/28, 6/20/20* | (1.00 | ) | 0.51 | EUR | 960 | (19,094 | ) | (7,618 | ) | (11,476 | ) | |||||||||||||
Koninklijke KPN NV, 7.50%, 2/04/19, 12/20/20* | (1.00 | ) | 0.53 | 350 | (6,728 | ) | (414 | ) | (6,314 | ) | ||||||||||||||
Noble Holding International Ltd., 4.90%, 8/01/20, 12/20/21* | (1.00 | ) | 4.96 | $ | 150 | 23,508 | 28,322 | (4,814 | ) | |||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Bank of America, NA | ||||||||||||||||||||||||
Genworth Holdings, Inc., 6.515%, 5/22/18, 6/20/20* | 5.00 | 5.54 | 20 | (188 | ) | 555 | (743 | ) | ||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||
Assured Guaranty Municipal Corp., 6/20/20* | 5.00 | 0.86 | 20 | 2,645 | 991 | 1,654 | ||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||
Nabors Industries, Inc., 6.15%, 2/15/18, 6/20/20* | 1.00 | 1.33 | 20 | (175 | ) | (1,505 | ) | 1,330 | ||||||||||||||||
Safeway, Inc., 7.25%, 2/01/31, 6/20/20* | 1.00 | 1.30 | 20 | (158 | ) | (1,098 | ) | 940 | ||||||||||||||||
Staples, Inc., 2.75%, 1/12/18, 6/20/20* | 1.00 | 0.75 | 20 | 176 | (535 | ) | 711 |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional (000) | Market Value | Upfront Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Transocean, Inc., 7.375%, 4/15/18, 6/20/20* | 1.00 | % | 3.15 | % | $ | 1,200 | $ | (74,971 | ) | $ | (189,060 | ) | $ | 114,089 | ||||||||||
Unitymedia GmbH, 6.125%, 1/15/25, 6/20/20* | 5.00 | 0.85 | EUR | 90 | 13,356 | 10,449 | 2,907 | |||||||||||||||||
Weatherford International Ltd., 4.50%, 4/15/22, 6/20/20* | 1.00 | 2.37 | $ | 20 | (794 | ) | (1,166 | ) | 372 | |||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||
AT&T, Inc., 2.45%, 6/30/20, 9/20/19* | 1.00 | 0.35 | 1,000 | 16,050 | 13,596 | 2,454 | ||||||||||||||||||
Avon Products, Inc., 6.50%, 3/01/19, 6/20/20* | 1.00 | 2.88 | 20 | (1,107 | ) | (2,326 | ) | 1,219 | ||||||||||||||||
CDX-CMBX.NA.BB- Series 6, 5/11/63* | 5.00 | 9.75 | 65 | (12,218 | ) | (8,378 | ) | (3,840 | ) | |||||||||||||||
Freeport-McMoRan, Inc., 3.55%, 3/01/22, 6/20/20* | 1.00 | 1.65 | 20 | (372 | ) | (953 | ) | 581 | ||||||||||||||||
Transocean, Inc., 7.375%, 4/15/18, 6/20/20* | 1.00 | 3.15 | 20 | (1,250 | ) | (2,839 | ) | 1,589 | ||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 44 | (4,893 | ) | (3,098 | ) | (1,795 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 145 | (16,124 | ) | (10,481 | ) | (5,643 | ) | |||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||
CDX-CMBX.NA.BB- Series 6, 5/11/63* | 5.00 | 9.75 | 57 | (10,715 | ) | (9,546 | ) | (1,169 | ) |
36 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional (000) | Market Value | Upfront Paid | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BB- Series 6, 5/11/63* | 5.00 | % | 9.75 | % | $ | 138 | $ | (25,939 | ) | $ | (17,974 | ) | $ | (7,965 | ) | |||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 6 | (667 | ) | (422 | ) | (245 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (308,565 | ) | $ | (145,482 | ) | $ | (163,083 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note D)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||
Citibank, NA | ||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 454,000 | LIBOR | $ | 454 | 6/20/17 | $ | 8,438 | |||||||||||||
iBoxx $ Liquid High Yield Index | 300,000 | LIBOR | 300 | 6/20/17 | 2,624 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 119,000 | LIBOR | 119 | 6/20/17 | 1,858 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 149,000 | LIBOR | 149 | 6/20/17 | 1,303 | |||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 1,090,000 | LIBOR | 1,090 | 6/20/17 | 22,430 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 457,000 | LIBOR | 457 | 6/20/17 | 3,552 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 448,000 | LIBOR | 448 | 6/20/17 | 2,830 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 299,000 | LIBOR | 299 | 6/20/17 | 1,889 | |||||||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 870,000 | LIBOR | 870 | 6/20/17 | 20,296 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 289,000 | LIBOR | 289 | 6/20/17 | 2,387 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 175,000 | LIBOR | 175 | 6/20/17 | 1,445 | |||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 206,000 | LIBOR | 206 | 6/20/17 | 3,013 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 140,000 | LIBOR | 140 | 6/20/17 | 2,269 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 144,000 | LIBOR | 144 | 6/20/17 | 1,259 |
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Pay Total Return on Reference Obligation |
| |||||||||||||||||||
Citibank, NA | ||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 400,000 | LIBOR | $ | 400 | 6/20/17 | $ | (3,889 | ) | ||||||||||||
Goldman Sachs International | ||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 545,000 | LIBOR | 545 | 6/20/17 | (2,653 | ) | ||||||||||||||
iBoxx $ Liquid High Yield Index | 650,000 | LIBOR | 650 | 6/20/17 | (5,451 | ) | ||||||||||||||
JPMorgan Chase Bank, NA | ||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 545,000 | LIBOR | 545 | 6/20/17 | (2,443 | ) | ||||||||||||||
iBoxx $ Liquid High Yield Index | 440,000 | LIBOR | 440 | 6/20/17 | (6,870 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | 54,287 | |||||||||||||||||||
|
|
(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 April 30, 2017, the aggregate market value of these securities amounted to $-3,710,162 or -17.3% of net assets. |
(b) | Variable rate coupon, rate shown as of April 30, 2017. |
(c) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(d) | Fair valued by the Adviser. |
(e) | Illiquid security. |
(f) | Pay-In-Kind Payments (PIK). The issuer may pay cash interest and/or interest in additional debt securities. Rates shown are the rates in effect at April 30, 2017. |
(g) | Defaulted. |
(h) | Non-income producing security. |
(i) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.38% of net assets as of April 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Artsonig Pty Ltd. | 4/01/17 | $ | 26,732 | $ | 5,730 | 0.03 | % | |||||||||
Avaya, Inc. | 1/25/17-2/01/17 | 101,605 | 41,896 | 0.20 | % | |||||||||||
Exide Technologies | 11/10/16 | 16,067 | 14,359 | 0.07 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | 2/19/15 | 21,438 | 3 | 0.00 | % | |||||||||||
Modular Space Corp. 0.0% | 8/04/16-2/08/17 | 11,343 | 16,172 | 0.08 | % |
(j) | Convertible security. |
38 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(k) | Coupon rate adjusts periodically based upon a predetermined schedule. Stated interest rate in effect at April 30, 2017. |
(l) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
CHC Group LLC | 3/10/17-3/23/17 | $ | 141,676 | $ | 22,275 | 0.10 | % | |||||||||
CHC Group LLC/CHC Finance Ltd. | 3/10/17 | 63,155 | 151,790 | 0.71 | % |
(m) | Defaulted matured security. |
(n) | This position or a portion of this position represents an unsettled loan purchase. The coupon rate will be determined at the time of settlement and will be based upon the London-Interbank Offered Rate (“LIBOR”) plus a premium which was determined at the time of purchase. |
(o) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at April 30, 2017. |
(p) | One contract relates to 100 shares. |
(q) | One contract relates to 1 share. |
(r) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(s) | 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. |
(t) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CNY – Chinese Yuan Renminbi
DKK – Danish Krone
EUR – Euro
KRW – South Korean Won
MXN – Mexican Peso
RUB – Russian Ruble
SGD – Singapore Dollar
TWD – New Taiwan Dollar
USD – United States Dollar
ZAR – South African Rand
Glossary:
ABS – Asset-Backed Securities
BOBL – Bundesobligationen
BTP – Buoni del Tesoro Poliennali
CBT – Chicago Board of Trade
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAHY – North American High Yield Credit Default Swap Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CME – Chicago Mercantile Exchange
ETF – Exchange Traded Fund
INTRCONX – Inter-Continental Exchange
LIBOR – London Interbank Offered Rates
OAT – Obligations Assimilables du Trésor
REIT – Real Estate Investment Trust
RTP – Right To Pay
SPDR – Standard & Poor’s Depository Receipt
See notes to financial statements.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 39 |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $18,401,190) | $ | 18,642,512 | ||
Affiliated issuers (cost $3,086,235) | 3,086,235 | |||
Cash | 53,809 | |||
Cash collateral due from broker | 437,777 | |||
Foreign currencies, at value (cost $22,746) | 21,569 | |||
Deposit at broker for securities sold short | 15,434,161 | |||
Upfront premiums paid on credit default swaps | 257,900 | |||
Unaffiliated interest and dividends receivable | 144,979 | |||
Unrealized appreciation on credit default swaps | 136,323 | |||
Unrealized appreciation on total return swaps | 75,593 | |||
Unrealized appreciation on forward currency exchange contracts | 38,270 | |||
Receivable due from Adviser | 20,544 | |||
Receivable for investment securities sold | 18,591 | |||
Receivable for variation margin on exchange-traded derivatives | 5,290 | |||
Affiliated dividends receivable | 1,634 | |||
Receivable for terminated credit default swaps | 16 | |||
|
| |||
Total assets | 38,375,203 | |||
|
| |||
Liabilities | ||||
Options written, at value (premiums received $2,231) | 1,297 | |||
Swaptions written, at value (premiums received $726) | 402 | |||
Payable for securities sold short, at value (proceeds received $15,426,741) | 15,500,646 | |||
Upfront premiums received on credit default swaps | 403,382 | |||
Unrealized depreciation on credit default swaps | 299,406 | |||
Interest expense payable | 284,209 | |||
Payable for investment securities purchased | 203,438 | |||
Payable for newly entered credit default swaps | 44,608 | |||
Unrealized depreciation on total return swaps | 21,306 | |||
Unrealized depreciation on forward currency exchange contracts | 10,419 | |||
Transfer Agent fee payable | 1,436 | |||
Payable for variation margin on exchange-traded derivatives | 465 | |||
Distribution fee payable | 167 | |||
Accrued expenses | 160,668 | |||
|
| |||
Total liabilities | 16,931,849 | |||
|
| |||
Net Assets | $ | 21,443,354 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 2,122 | ||
Additional paid-in capital | 21,164,538 | |||
Accumulated net investment loss | (174,432 | ) | ||
Accumulated net realized gain on investment and foreign currency transactions | 414,309 | |||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 36,817 | |||
|
| |||
$ | 21,443,354 | |||
|
|
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 179,786 | 17,896 | $ | 10.05 | * | ||||||
| ||||||||||||
C | $ | 181,309 | 18,392 | $ | 9.86 | |||||||
| ||||||||||||
Advisor | $ | 21,082,259 | 2,085,534 | $ | 10.11 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.50 which reflects a sales charge of 4.25%. |
See notes to financial statements.
40 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest | $ | 443,294 | ||||||
Dividends | ||||||||
Unaffiliated issuers (net of foreign taxes withheld of $274) | 19,092 | |||||||
Affiliated issuers | 7,077 | |||||||
Other income | 4 | $ | 469,467 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 92,469 | |||||||
Distribution fee—Class A | 223 | |||||||
Distribution fee—Class C | 800 | |||||||
Transfer agency—Class A | 82 | |||||||
Transfer agency—Class C | 86 | |||||||
Transfer agency—Advisor Class | 9,660 | |||||||
Custodian | 75,742 | |||||||
Audit and tax | 60,081 | |||||||
Administrative | 29,191 | |||||||
Registration fees | 23,375 | |||||||
Legal | 19,146 | |||||||
Directors’ fees | 12,965 | |||||||
Printing | 7,068 | |||||||
Miscellaneous | 20,010 | |||||||
|
| |||||||
Total operating expenses (see Note B) | 350,898 | |||||||
Interest expense | 502,374 | |||||||
Broker fee on securities sold short | 83,647 | |||||||
|
| |||||||
Total expenses | 936,919 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (243,694 | ) | ||||||
|
| |||||||
Net expenses | 693,225 | |||||||
|
| |||||||
Net investment loss | (223,758 | ) | ||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 517,016 | |||||||
Securities sold short | (13,305 | ) | ||||||
Futures | 138,164 | |||||||
Options written | 40,070 | |||||||
Swaptions written | 1,593 | |||||||
Swaps | (95,213 | ) | ||||||
Foreign currency transactions | (67,348 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (33,054 | ) | ||||||
Securities sold short | (46,717 | ) | ||||||
Futures | (97,022 | ) | ||||||
Options written | 320 | |||||||
Swaptions written | 324 | |||||||
Swaps | (38,273 | ) | ||||||
Foreign currency denominated assets and liabilities | 38,069 | |||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 344,624 | |||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 14 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 120,880 | ||||||
|
|
See notes to financial statements.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 41 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment loss | $ | (223,758 | ) | $ | (134,207 | ) | ||
Net realized gain on investment and foreign currency transactions | 520,977 | 379,304 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (176,353 | ) | 465,451 | |||||
Contributions from Affiliates (see Note B) | 14 | �� | – 0 | – | ||||
|
|
|
| |||||
Net increase in net assets from operations | 120,880 | 710,548 | ||||||
Distributions to Shareholders from | ||||||||
Net realized gain on investment transactions | ||||||||
Class A | (2,076 | ) | (686 | ) | ||||
Class C | (1,830 | ) | (427 | ) | ||||
Advisor Class | (241,188 | ) | (88,969 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | 326,352 | (632,280 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | 202,138 | (11,814 | ) | |||||
Net Assets | ||||||||
Beginning of period | 21,241,216 | 21,253,030 | ||||||
|
|
|
| |||||
End of period (including accumulated net investment loss and undistributed net investment income of ($174,432) and $49,326, respectively) | $ | 21,443,354 | $ | 21,241,216 | ||||
|
|
|
|
See notes to financial statements.
42 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Credit Long/Short Portfolio (the “Portfolio”), a non-diversified portfolio. The Portfolio have authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class 1 and Class 2 shares. Class B, Class R, Class K, Class I, Class Z, Class 1 and Class 2 shares have not been issued. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class shares are sold without any initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All ten classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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 Portfolio 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 Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (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
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price 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.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements
44 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The 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. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Investment Grade | $ | – 0 | – | $ | 5,429,479 | $ | – 0 | – | $ | 5,429,479 | ||||||
Corporates – Non-Investment Grade | – 0 | – | 3,161,171 | 62,424 | (a) | 3,223,595 | ||||||||||
Common Stocks | 724,060 | 347,293 | 62,952 | 1,134,305 | ||||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 601,790 | – 0 | – | 601,790 | ||||||||||
Quasi-Sovereigns | – 0 | – | 394,625 | – 0 | – | 394,625 | ||||||||||
Inflation-Linked Securities | – 0 | – | 332,879 | – 0 | – | 332,879 | ||||||||||
Asset-Backed Securities | – 0 | – | 53,312 | 212,690 | 266,002 | |||||||||||
Emerging Markets – Sovereigns | – 0 | – | 238,502 | – 0 | – | 238,502 | ||||||||||
Bank Loans | – 0 | – | 223,261 | – 0 | –(a) | 223,261 | ||||||||||
Governments – Treasuries | – 0 | – | 155,995 | – 0 | – | 155,995 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 152,440 | – 0 | – | 152,440 | ||||||||||
Preferred Stocks | – 0 | – | 43,880 | 83,456 | 127,336 | |||||||||||
Warrants | 9,037 | – 0 | – | 9,579 | 18,616 | |||||||||||
Options Purchased – Puts | – 0 | – | 5,721 | – 0 | – | 5,721 | ||||||||||
Options Purchased – Calls | – 0 | – | 3,040 | – 0 | – | 3,040 | ||||||||||
Short-Term Investments: | ||||||||||||||||
U.S. Treasury Bills | – 0 | – | 6,334,926 | – 0 | – | 6,334,926 | ||||||||||
Investment Companies | 3,086,235 | – 0 | – | – 0 | – | 3,086,235 | ||||||||||
Liabilities: | ||||||||||||||||
Corporates – Non-Investment Grade | – 0 | – | (11,081,763 | ) | – 0 | – | (11,081,763 | ) | ||||||||
Corporates – Investment Grade | – 0 | – | (3,717,255 | ) | – 0 | – | (3,717,255 | ) | ||||||||
Emerging Markets – Corporate Bonds | – 0 | – | (349,500 | ) | – 0 | – | (349,500 | ) | ||||||||
Emerging Markets – Sovereigns | – 0 | – | (193,996 | ) | – 0 | – | (193,996 | ) | ||||||||
Quasi-Sovereigns | – 0 | – | (158,132 | ) | – 0 | – | (158,132 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 3,819,332 | 1,977,668 | 431,101 | 6,228,101 |
46 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | $ | 14,407 | $ | 18,075 | $ | – 0 | – | $ | 32,482 | (c) | ||||||
Forward Currency Exchange Contracts | – 0 | – | 38,270 | – 0 | – | 38,270 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 27,985 | – 0 | – | 27,985 | (c) | |||||||||
Credit Default Swaps | – 0 | – | 136,323 | – 0 | – | 136,323 | ||||||||||
Total Return Swaps | – 0 | – | 75,593 | – 0 | – | 75,593 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (44,564 | ) | – 0 | – | – 0 | – | (44,564 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (10,419 | ) | – 0 | – | (10,419 | ) | ||||||||
Call Options Written | – 0 | – | (384 | ) | – 0 | – | (384 | ) | ||||||||
Put Options Written | – 0 | – | (913 | ) | – 0 | – | (913 | ) | ||||||||
Credit Default Swaptions Written | – 0 | – | (402 | ) | – 0 | – | (402 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (64,281 | ) | – 0 | – | (64,281 | )(c) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (2,212 | ) | – 0 | – | (2,212 | )(c) | ||||||||
Credit Default Swaps | – 0 | – | (299,406 | ) | – 0 | – | (299,406 | ) | ||||||||
Total Return Swaps | – 0 | – | (21,306 | ) | – 0 | – | (21,306 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(d) | $ | 3,789,175 | $ | 1,874,591 | $ | 431,101 | $ | 6,094,867 | ||||||||
|
|
|
|
|
|
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(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 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) of exchange-traded derivatives as reported in the portfolio of investments. |
(d) | There were de minimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Corporates - Non-Investment Grade(a) | Common Stocks | Asset- Backed Securities | ||||||||||
Balance as of 10/31/16 | $ | 11,069 | $ | 2,355 | $ | 212,888 | ||||||
Accrued discounts/(premiums) | (2,260 | ) | – 0 | – | – 0 | – | ||||||
Realized gain (loss) | – 0 | – | (1,327 | ) | – 0 | – | ||||||
Change in unrealized appreciation/depreciation | (45,584 | ) | 3,165 | 852 | ||||||||
Purchases | 49,794 | 59,216 | – 0 | – | ||||||||
Sales | (9,047 | ) | (457 | ) | (1,050 | ) | ||||||
Transfers in to Level 3 | 58,452 | – 0 | – | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/17 | $ | 62,424 | $ | 62,952 | $ | 212,690 | ||||||
|
|
|
|
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
Corporates - Non-Investment Grade(a) | Common Stocks | Asset- Backed Securities | ||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | (43,562 | ) | $ | 3,736 | $ | 852 | |||||
|
|
|
|
|
| |||||||
Bank Loans(a) | Preferred Stocks | Warrants | ||||||||||
Balance as of 10/31/16 | $ | 5,508 | $ | – 0 | – | $ | 15,204 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | – 0 | – | ||||||
Realized gain (loss) | – 0 | – | – 0 | – | – 0 | – | ||||||
Change in unrealized appreciation/depreciation | (266 | ) | 29,576 | 2,235 | ||||||||
Purchases | 833 | 53,880 | – 0 | – | ||||||||
Sales | (6,075 | ) | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (7,860 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/17 | $ | – 0 | – | $ | 83,456 | $ | 9,579 | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | – 0 | – | $ | 29,576 | $ | 2,235 | |||||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Balance as of 10/31/16 | $ | 247,024 | ||||||||||
Accrued discounts/(premiums) | (2,260 | ) | ||||||||||
Realized gain (loss) | (1,327 | ) | ||||||||||
Change in unrealized appreciation/depreciation | (10,022 | ) | ||||||||||
Purchases | 163,723 | |||||||||||
Sales | (16,629 | ) | ||||||||||
Transfers in to Level 3 | 58,452 | |||||||||||
Transfers out of Level 3 | (7,860 | ) | ||||||||||
|
| |||||||||||
Balance as of 4/30/17 | $ | 431,101 | (c) | |||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | (7,163 | ) | |||||||||
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(b) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
(c) | There were de minimis transfers under 1% of net assets during the reporting period. |
48 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Portfolio’s Level 3 investments at April 30, 2017. Securities priced (i) by third party vendors or (ii) at cost, which approximate fair value, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/17 | Valuation Technique | Unobservable Input | Input | |||||||
Corporates Non-Investment Grade | $ | 14,359 | Discounted Cash Flow | Clean Debt Value Convertible Feature Value | 51.50%-76.0% / 63.8% 22.2%-2.2% /12.2% | |||||
Warrants | $ | 7,344 | Option Pricing Model | Exercise Price Expiration Date | $6.64 / NA June, 2019 /NA 50% / NA |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 49 |
NOTES TO FINANCIAL STATEMENTS (continued)
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current tax year and the prior tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
50 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
5. Investment Income and Investment Transactions
Dividend income (or dividend expense) is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income (or interest expense) is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .85% of the Portfolio’s average daily net assets. Effective January 1, 2017, the advisory fee was reduced from .90% to .85% of the Porfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding expenses associated with securities sold short, acquired fund fees and expenses other than the advisory fees of any AB Mutual Funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs), on an annual basis (the “Expense Caps”) to 1.24%, 1.99% and 1.99% of daily average net assets for Class A, Class C and Advisor Class shares, respectively. Effective January 1, 2017, the Expense Caps were reduced from 1.35% to 1.24%, 2.10% to 1.99% and 1.10% to .99% of the daily average net assets for Class A, Class C, and Advisor Class shares, respectively. Any fees waived and expenses borne
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 51 |
NOTES TO FINANCIAL STATEMENTS (continued)
by the Adviser through October 31, 2014 are subject to repayment by the Portfolio until October 31, 2017; any fees waived and expense borne by the Adviser from November 1, 2014 to May 6, 2015 are subject to repayment by the Portfolio until October 31, 2018; such waivers that are subject to repayment amounted to $252,520 and $212,257, respectively. In any case, no repayment will be made that would cause the Portfolio’s total annual operating expenses to exceed the net fee percentage set forth above. For the six months ended April 30, 2017, such reimbursements/waivers amounted to $211,123. The Expense Caps may not be terminated by the Adviser before January 31, 2018.
During the six months ended April 30, 2017, the Adviser reimbursed the Portfolio $14 for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended April 30, 2017, the Adviser voluntarily agreed to waive such fees amounting to $29,191.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $8,985 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $24 from the sale of Class A shares and received $0 in contingent deferred sales charges imposed upon redemptions by shareholders of Class C shares for the six months ended April 30, 2017.
The Portfolio 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. In connection with the investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver
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NOTES TO FINANCIAL STATEMENTS (continued)
amounted to $3,380. A summary of the Portfolio’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||||
$ 4,595 | $ | 18,388 | $ | 19,897 | $ | 3,086 | $ | 7 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2017 amounted to $5,868, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Portfolio’s average daily net assets attributable to Class A shares and 1% of the Portfolio’s average daily net assets attributable to Class C shares. There are no distribution and servicing fees on the Advisor Class shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amount of $678 for Class C shares. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017, were as follows:
Purchases | Sales | Securities Sold Short | Covers on Securities Sold Short | |||||||||||
$ 7,203,223 | $ | 6,717,864 | $ | 5,402,821 | $ | 6,302,357 |
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NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2017, there were no purchases or sales of U.S. Government Securities.
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 | Net Unrealized Appreciation on Investments | Net Unrealized depreciation on Securities Sold Short | Net Unrealized Appreciation | |||||||||||||
Appreciation on | Depreciation on Investments | |||||||||||||||
$ 825,198 | $ | (583,876 | ) | $ | 241,322 | $ | (73,905 | )(a) | $ | 167,417 |
(a) | Gross unrealized appreciation was $437,897 and gross unrealized depreciation was $(511,802), resulting in net unrealized depreciation of $(73,905). |
1. Derivative Financial Instruments
The Portfolio 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 Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio 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 Portfolio 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 Portfolio 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, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio 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 Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability
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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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio 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 Portfolio 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 April 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended April 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
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At April 30, 2017, Portfolio had maximum payments for written put options amounted to $657,500. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
At April 30, 2017, the maximum payments for written put swaptions amounted to $1,210,000, with net unrealized appreciation/depreciation of $324, and a term of less than one year, as reflected in the portfolio of investments.
During the six months ended April 30, 2017, the Portfolio held purchased options for hedging and non-hedging purposes. During the six months ended April 30, 2017, the Portfolio held written options for hedging and non-hedging purposes.
During the six months ended April 30, 2017, the Portfolio held written swaptions for hedging and non-hedging purposes.
For the six months ended April 30, 2017, the Portfolio had the following transactions in written options:
Number of Contracts | Premiums Received | |||||||
Options written outstanding as of 10/31/16 | 40 | $ | 2,526 | |||||
Options written | 777,639 | 59,423 | ||||||
Options assigned | (318,000 | ) | (12,679 | ) | ||||
Options expired | (309,540 | ) | (44,469 | ) | ||||
Options bought back | (150,000 | ) | (2,570 | ) | ||||
Options exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Options written outstanding as of 4/30/17 | 139 | $ | 2,231 | |||||
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Notional Amount | Premiums Received | |||||||
Swaptions written outstanding as of 10/31/16 | $ | – 0 | – | $ | – 0 | – | ||
Swaptions written | 4,420,000 | 4,668 | ||||||
Swaptions assigned | (1,070,000 | ) | (1,872 | ) | ||||
Swaptions expired | (1,070,000 | ) | (375 | ) | ||||
Swaptions bought back | (1,070,000 | ) | (1,695 | ) | ||||
Swaptions exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Swaptions written outstanding as of 4/30/17 | $ | 1,210,000 | $ | 726 | ||||
|
|
|
|
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. 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 Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio 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 Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio 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 Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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
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of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received 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 Portfolio enters into a centrally cleared swap, the Portfolio 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 Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio 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 Portfolio may
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NOTES TO FINANCIAL STATEMENTS (continued)
enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio 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 Portfolio 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 Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) 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 Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2017, the Portfolio held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Portfolio 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 Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio 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 Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio 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
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amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same reference obligation with the same counterparty. As of April 30, 2017, the Portfolio had Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sales Contracts which may partially offset the Maximum Payout Amount in the amount of $1,171,000.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
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 April 30, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.
Total Return Swaps:
The Portfolio may enter into total return swaps in order take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio 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
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NOTES TO FINANCIAL STATEMENTS (continued)
the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
During the six months ended April 30, 2017, the Portfolio held total return swaps for hedging and non-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.
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During the six months ended April 30, 2017, the Portfolio 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 exchange-traded derivatives | $ | 14,407 | * | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 42,719 | * | ||||
Credit contracts | Receivable/Payable for variation margin on exchange-traded derivatives | 27,985 | * | Receivable/Payable for variation margin on exchange-traded derivatives | 64,281 | * | ||||||
Equity contracts | Receivable/Payable for variation margin on exchange-traded derivatives | 18,075 | * | Receivable/Payable for variation margin on exchange-traded derivatives | 4,057 | * | ||||||
Foreign exchange contracts | Unrealized appreciation on forward currency exchange contracts |
| 38,270 |
| Unrealized depreciation on forward currency exchange contracts |
| 10,419 |
| ||||
Credit contracts | Investments in securities, at value | 430 | ||||||||||
Equity contracts | Investments in securities, at value | 8,331 | ||||||||||
Credit contracts | Swaptions written, at value | 402 | ||||||||||
Equity contracts | Options written, at value | 1,297 | ||||||||||
Credit contracts | Unrealized appreciation on credit default swaps | 136,323 | Unrealized depreciation on credit default swaps | 299,406 | ||||||||
Equity contracts | Unrealized appreciation on total return swaps | 75,593 | Unrealized depreciation on total return swaps | 21,306 | ||||||||
|
|
|
| |||||||||
Total | $ | 319,414 | $ | 443,887 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
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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 futures; Net change in unrealized appreciation/depreciation of futures | $ | 138,437 | $ | (105,588 | ) | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (273 | ) | 8,566 | ||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | (13,133 | ) | 38,692 | ||||||
Foreign exchange contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (2,477 | ) | – 0 | – | |||||
Credit contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (12,478 | ) | (4,039 | ) | |||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (74,467 | ) | (8,093 | ) | |||||
Credit contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 1,593 | 324 |
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Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | $ | 321 | $ | – 0 | – | ||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 39,749 | 320 | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (1,328 | ) | 3,136 | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (246,678 | ) | (87,601 | ) | |||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 152,793 | 46,192 | |||||||
|
|
|
| |||||||
Total | $ | (17,941 | ) | $ | (108,091 | ) | ||||
|
|
|
|
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended April 30, 2017:
Futures: | ||||
Average original value of buy contracts | $ | 1,459,899 | ||
Average original value of sale contracts | $ | 5,033,238 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 2,200,108 | ||
Average principal amount of sale contracts | $ | 2,670,850 | ||
Purchased Options: | ||||
Average monthly cost | $ | 31,997 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 250,000 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 10,371,008 | ||
Average notional amount of sale contracts | $ | 3,117,210 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 4,734,793 | ||
Average notional amount of sale contracts | $ | 1,800,745 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 5,365,429 |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of April 30, 2017:
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co. LLC/Morgan Stanley & Co., Inc.* | $ | 12,861 | $ | (1,762 | ) | $ | – 0 | – | $ | – 0 | – | $ | 11,099 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 12,861 | $ | (1,762 | ) | $ | – 0 | – | $ | – 0 | – | $ | 11,099 | |||||||
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|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Barclays Bank PLC | $ | 22,004 | $ | (22,004 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Citibank, NA | 37,922 | (37,922 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 25,961 | (25,961 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 3,156 | (3,156 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs International | 79,455 | (79,455 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 42,238 | (10,258 | ) | – 0 | – | – 0 | – | 31,980 | ||||||||||||
Morgan Stanley Capital Services LLC | 30,049 | (25,822 | ) | – 0 | – | – 0 | – | 4,227 | ||||||||||||
State Street Bank & Trust Co. | 31,514 | (3,343 | ) | – 0 | – | – 0 | – | 28,171 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 272,299 | $ | (207,921 | ) | $ | – 0 | – | $ | – 0 | – | $ | 64,378 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
66 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged | Security Collateral Pledged | Net Amount of Derivatives Liabilities | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co. LLC/Morgan Stanley & Co., Inc.* | $ | 1,762 | $ | (1,762 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,762 | $ | (1,762 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Bank of America, NA | $ | 64,873 | $ | – 0 – | $ | – 0 | – | $ | – 0 | – | $ | 64,873 | ||||||||
Barclays Bank PLC | 48,641 | (22,004 | ) | – 0 | – | – 0 | – | 26,637 | ||||||||||||
Citibank, NA | 158,528 | (37,922 | ) | – 0 | – | (69,926 | ) | 50,680 | ||||||||||||
Credit Suisse International | 47,041 | (25,961 | ) | – 0 | – | – 0 | – | 21,080 | ||||||||||||
Deutsche Bank AG | 31,036 | (3,156 | ) | – 0 | – | – 0 | – | 27,880 | ||||||||||||
Goldman Sachs International | 108,396 | (79,455 | ) | – 0 | – | – 0 | – | 28,941 | ||||||||||||
JPMorgan Chase Bank, NA | 10,258 | (10,258 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services LLC | 25,822 | (25,822 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 3,343 | (3,343 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 497,938 | $ | (207,921 | ) | $ | – 0 | – | $ | (69,926 | ) | $ | 220,091 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
^ | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 67 |
NOTES TO FINANCIAL STATEMENTS (continued)
3. Short Sales
The Portfolio may sell securities short. A short sale is a transaction in which the Portfolio sells securities it does not own, but has borrowed, in anticipation of a decline in the market price of the securities. The Portfolio is obligated to replace the borrowed securities at their market price at the time of settlement. The Portfolio’s obligation to replace the securities borrowed in connection with a short sale will be fully secured by collateral deposited with the broker. The Portfolio is liable to the buyer for any dividends/interest payable on securities while those securities are in a short position. These dividends/interest are recorded as an expense of the Portfolio. Short sales by the Portfolio involve certain risks and special considerations. Possible losses from short sales differ from losses that could be incurred from a purchase of a security because losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested.
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 2,984 | 6,854 | $ | 30,438 | $ | 67,378 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of distributions | 191 | 66 | 1,959 | 644 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,319 | ) | (7,812 | ) | (33,853 | ) | (76,892 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (144 | ) | (892 | ) | $ | (1,456 | ) | $ | (8,870 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 2,597 | 6,709 | $ | 25,750 | $ | 65,523 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of distributions | 170 | 40 | 1,713 | 385 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3 | ) | (1,312 | ) | (25 | ) | (12,650 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,764 | 5,437 | $ | 27,438 | $ | 53,258 | ||||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 37,576 | 4,752 | $ | 385,153 | $ | 47,706 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of distributions | 703 | 540 | 7,221 | 5,253 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (8,992 | ) | (73,073 | ) | (92,004 | ) | (729,627 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 29,287 | (67,781 | ) | $ | 300,370 | $ | (676,668 | ) | ||||||||||||||||
|
At April 30, 2017, the Adviser owned 94% of the Portfolio’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Portfolio’s performance.
68 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
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, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 69 |
NOTES TO FINANCIAL STATEMENTS (continued)
Leverage Risk—When the Portfolio 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 Portfolio’s investments. The Portfolio 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 Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Short Sale Risk—Short sales involve the risk that the Portfolio will incur a loss by subsequently buying a security at a higher price than the price at which it sold the security. The amount of such loss is theoretically unlimited, as it will be based on the increase in value of the security sold short. In contrast, the risk of loss from a long position is limited to the Portfolio’s investment in the security, because the price of the security cannot fall below zero. The Portfolio may not always be able to close out a short position on favorable terms.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Non-Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Portfolio’s NAV.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of fund shares. Over
70 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Indemnification Risk—In the ordinary course of business, the Portfolio enter into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expect the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended April 30, 2017.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2016 and October 31, 2015 were as follows:
2016 | 2015 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 90,082 | $ | 202,872 | ||||
|
|
|
| |||||
Total distributions paid | $ | 90,082 | $ | 202,872 | ||||
|
|
|
|
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 71 |
NOTES TO FINANCIAL STATEMENTS (continued)
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 240,793 | ||
Unrealized appreciation/(depreciation) | 240,738 | (a) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 481,531 | (b) | |
|
|
(a) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and the realization for tax purposes of gains/losses on certain derivative instruments. |
(b) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the tax treatment of defaulted securities. |
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, 2017, the Portfolio did not have any capital loss carryforwards.
NOTE I
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
NOTE J
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
72 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE K
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 73 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | May 7, 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.12 | $ 9.85 | $ 10.00 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income (loss)(b)(c) | (.12 | ) | (.09 | ) | .09 | .08 | ||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .17 | .40 | (.16 | ) | (.03 | ) | ||||||||||
Contributions from Affiliates | .00 | (d) | – 0 | – | .00 | (d) | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | .05 | .31 | (.07 | ) | .05 | |||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | – 0 | – | – 0 | – | (.08 | ) | (.05 | ) | ||||||||
Distributions from net realized gain on investment transactions | (.12 | ) | (.04 | ) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.12 | ) | (.04 | ) | (.08 | ) | (.05 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.05 | $ 10.12 | $ 9.85 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(e)(f) | .45 | %* | 3.18 | % | (.65 | )% | .57 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $180 | $182 | $186 | $84 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(g)(h) | 6.73 | %^ | 6.81 | % | 5.02 | % | 3.56 | %^ | ||||||||
Expenses, before waivers/reimbursements(g)(h) | 9.01 | %^ | 9.07 | % | 7.28 | % | 4.29 | %^ | ||||||||
Net investment income (loss)(c) | (2.33 | )%^ | (.91 | )% | .88 | % | 1.79 | %^ | ||||||||
Portfolio turnover rate | 54 | % | 201 | % | 163 | % | 69 | % | ||||||||
Portfolio turnover rate (including securities sold short) | 43 | % | 182 | % | 147 | % | 102 | % |
See footnote summary on page 77.
74 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | May 7, 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 9.97 | $ 9.77 | $ 9.97 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income (loss)(b)(c) | (.15 | ) | (.18 | ) | .01 | .06 | ||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .16 | .42 | (.15 | ) | (.05 | ) | ||||||||||
Contributions from Affiliates | .00 | (d) | – 0 | – | .00 | (d) | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .24 | (.14 | ) | .01 | |||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | – 0 | – | – 0 | – | (.06 | ) | (.04 | ) | ||||||||
Distributions from net realized gain on investment transactions | (.12 | ) | (.04 | ) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.12 | ) | (.04 | ) | (.06 | ) | (.04 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 9.86 | $ 9.97 | $ 9.77 | $ 9.97 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(e)(f) | .05 | %* | 2.49 | % | (1.45 | )% | .21 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $181 | $156 | $100 | $44 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(g)(h) | 7.48 | %^ | 7.61 | % | 5.78 | % | 4.18 | %^ | ||||||||
Expenses, before waivers/reimbursements(g)(h) | 9.79 | %^ | 9.87 | % | 8.08 | % | 6.31 | %^ | ||||||||
Net investment income (loss)(c) | (3.08 | )%^ | (1.88 | )% | .10 | % | 1.21 | %^ | ||||||||
Portfolio turnover rate | 54 | % | 201 | % | 163 | % | 69 | % | ||||||||
Portfolio turnover rate (including securities sold short) | 43 | % | 182 | % | 147 | % | 102 | % |
See footnote summary on page 77.
abfunds.com | AB CREDIT LONG/SHORT PORTFOLIO | 75 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | May 7, 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.17 | $ 9.87 | $ 10.01 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income (loss)(b)(c) | (.11 | ) | (.06 | ) | .12 | .10 | ||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .17 | .40 | (.17 | ) | (.04 | ) | ||||||||||
Contributions from Affiliates | .00 | (d) | – 0 | – | .00 | (d) | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | .06 | .34 | (.05 | ) | .06 | |||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | – 0 | – | – 0 | – | (.09 | ) | (.05 | ) | ||||||||
Distributions from net realized gain on investment transactions | (.12 | ) | (.04 | ) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.12 | ) | (.04 | ) | (.09 | ) | (.05 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.11 | $ 10.17 | $ 9.87 | $ 10.01 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(e)(f) | .54 | %* | 3.48 | % | (.45 | )% | .70 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $21,082 | $20,903 | $20,967 | $20,892 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(g)(h) | 6.49 | %^ | 6.55 | % | 4.67 | % | 2.79 | %^ | ||||||||
Expenses, before waivers/reimbursements(g)(h) | 8.77 | %^ | 8.80 | % | 6.91 | % | 5.37 | %^ | ||||||||
Net investment income (loss)(c) | (2.09 | )%^ | (.63 | )% | 1.20 | % | 2.01 | %^ | ||||||||
Portfolio turnover rate | 54 | % | 201 | % | 163 | % | 69 | % | ||||||||
Portfolio turnover rate (including securities sold short) | 43 | % | 182 | % | 147 | % | 102 | % |
See footnote summary on page 77.
76 | AB CREDIT LONG/SHORT PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees and expenses waived/reimbursed by the Adviser. |
(d) | Amount is less than $.005. |
(e) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. 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. |
(f) | The net asset value and total return include adjustments in accordance with accounting principles generally accepted in the United States of America for financial reporting purposes. As such, the net asset value and total return for shareholder transactions may differ from financial statements. |
(g) | The expense ratios presented below exclude expenses on securities sold short: |
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | May 7, 2014(a) to October 31, 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
Class A | ||||||||||||||||
Net of waivers/reimbursements | 1.25 | %^ | 1.34 | % | 1.35 | % | 1.35 | %^ | ||||||||
Before waivers/reimbursements | 3.53 | %^ | 3.59 | % | 3.61 | % | 2.08 | %^ | ||||||||
Class C | ||||||||||||||||
Net of waivers/reimbursements | 1.99 | %^ | 2.09 | % | 2.10 | % | 2.10 | %^ | ||||||||
Before waivers/reimbursements | 4.30 | %^ | 4.35 | % | 4.40 | % | 4.24 | %^ | ||||||||
Advisor Class | ||||||||||||||||
Net of waivers/reimbursements | 1.00 | %^ | 1.09 | % | 1.10 | % | 1.10 | %^ | ||||||||
Before waivers/reimbursements | 3.28 | %^ | 3.34 | % | 3.34 | % | 3.68 | %^ |
(h) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the six months ended April 30, 2017 and year ended October 31, 2016, such waiver amounted to 0.03% and 0.01%, respectively, annualized for the Portfolio. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from the class action settlements, which enhanced the Portfolio’s performance for the six months ended April 30, 2017 by 0.02%. |
^ | Annualized. |
See notes to financial statements.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Gershon M. Distenfeld(2), Vice President Sherif M. Hamid(2), Vice President Ivan Rudolph-Shabinsky(2), Vice President Robert Schwartz(2), Vice President | Ashish C. Shah(2), Vice President Joseph J. Mantineo, Treasurer and Chief Financial Officer Emilie D. Wrapp, Secretary Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 are made by the Credit Long/Short Investment Team. Messrs. Distenfeld, Hamid, Rudolph-Shabinksy, Schwartz and Shah are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser, as proposed to be amended (the “Advisory Agreement”) to effect a fee reduction, in respect of AB Credit Long/Short Portfolio (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the proposed advisory fee, in which the Senior Officer concluded that the proposed contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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 proposed advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors
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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. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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, 2014 and for calendar year 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund, and that the proposed reduction in the advisory fee rate would likely impact the Adviser’s profitability analysis in future years. 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
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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, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the proposed advisory fee rate payable by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual advisory fee rate (reflecting a reduction in the advisory fee rate effective January 1, 2017) with a peer group median.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences
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between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. 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 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 light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
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 may use ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the proposed 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 in which the Fund may invest.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the expense cap level by the Adviser effective January 1, 2017. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the proposed advisory fee schedule for the Fund, while reflecting a reduction in the advisory fee rate, does not contain
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breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability (currently unprofitable) to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
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AB CREDIT LONG/SHORT PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
CLS-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB HIGH YIELD PORTFOLIO
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 High Yield Portfolio (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 HIGH YIELD PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
June 15, 2017
This report provides management’s discussion of fund performance for AB High Yield Portfolio for the semi-annual reporting period ended April 30, 2017.
The Fund’s investment objective is to seek to maximize total return consistent with prudent investment management.
The performance information discussed herein reflects in part the historical performance of the High Yield Portfolio, a series of The AB Pooling Portfolios (the “Accounting Survivor”), and is based on the net asset value (“NAV”) per share of the Accounting Survivor prior to the reorganization of the Accounting Survivor into the Fund at the close of business July 26, 2016 (the “Reorganization”) and the Fund thereafter. Upon completion of the Reorganization, Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares of the Fund assumed the performance, financial and other historical information of the Accounting Survivor, and the Fund adopted the fiscal year end of the Accounting Survivor, August 31. The Fund subsequently changed its fiscal year end to October 31. Performance information of Class A, Class C, Advisor Class, Class R, Class K and Class I shares for periods prior to the Reorganization is the performance of the Fund’s Class Z shares, which is based on the Accounting Survivor’s performance, and is adjusted to reflect the respective expense ratios of the Class A, Class C, Advisor Class, Class R, Class K and Class I shares. The Accounting Survivor and the Fund have substantially similar investment objectives and strategies. Disclosure differences between the investment objectives and strategies for the Accounting Survivor and the Fund have not resulted in substantial differences in the actual management of the Funds, and the Reorganization is not expected to result in substantial changes in the actual management of the Fund. The portfolio managers of the Accounting Survivor are members of the portfolio management team of the Fund. The Fund has higher expenses than the Accounting Survivor (including a management fee, transfer agency and shareholder servicing fees). The Accounting Survivor’s performance would have been lower than that shown had it operated at the Fund’s current expense levels.
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NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB HIGH YIELD PORTFOLIO1 | ||||||||
Class A Shares | 4.96% | 11.28% | ||||||
Class C Shares | 4.59% | 10.47% | ||||||
Advisor Class Shares2 | 5.10% | 11.56% | ||||||
Class R Shares2 | 4.85% | 11.03% | ||||||
Class K Shares2 | 4.98% | 11.30% | ||||||
Class I Shares2 | 5.10% | 11.57% | ||||||
Class Z Shares2 | 5.11% | 11.46% | ||||||
Bloomberg Barclays US Corporate HY 2% Issuer Capped Index | 5.30% | 13.29% |
1 | Performance information of Class A, Class C, Advisor Class, Class R, Class K and Class I shares for periods prior to the Reorganization is the performance of the Fund’s Class Z shares, which is based on the Accounting Survivor’s performance, and is adjusted to reflect the respective expense ratios of Class A, Class C, Advisor Class, Class R, Class K and Class I shares. Includes the impact of proceeds received and credited to the Fund resulting from class-action settlements, which enhanced the performance of the Fund for the six- and 12-month periods ended April 30, 2017, by 0.06% and 0.06%, respectively. |
2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The preceding table shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays US Corporate High Yield (“HY”) 2% Issuer Capped Index, for the six- and 12-month periods ended April 30, 2017.
During both periods, all share classes of the Fund underperformed the benchmark, before sales charges. During the six-month period, industry allocation detracted from performance, relative to the benchmark, as losses from an underweight in energy and an exposure to Treasuries more than offset gains from an underweight position in retailers. Security selection contributed primarily within the energy, media, consumer cyclicals and financials sectors. Selections in transportation services, consumer non-cyclicals and real estate investment trusts detracted. Currency selection modestly contributed, while yield-curve positioning had an immaterial impact on performance.
During the 12-month period, industry allocation detracted from relative performance, mainly because of an underweight in the energy sector, which rallied over the period on the back of rising oil prices. An underweight in basics, overweight in banking and exposure to Treasuries also detracted. The Fund’s underweight in the retail sector contributed to returns. Security selection also weighed on performance, primarily because of selection in consumer non-cyclicals and transportation services. Security selections within the media and energy sectors were positive. Yield-curve positioning
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contributed due to underweights along the short and intermediate parts of the curve, as yields rose through the period. Currency selection also modestly contributed.
During both periods, the Fund utilized derivatives in the form of futures to hedge duration risk. Currency forwards were used to hedge foreign currency exposure and to take active currency risk. Currency options, both written and purchased, were used to hedge foreign currency exposure. Credit default swaps, both single name and index, were used to take active exposure as well as to hedge investment grade and high-yield credit risk taken through cash bonds. Interest rate swaps were used to manage and hedge duration risk. Total return swaps were used to create synthetic high-yield exposure. Written swaptions were used to manage and/or take active yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Bond markets rallied over the 12-month period, but were volatile in the latter half of the period. Political events had a significant impact on bond markets during both periods. In the US, Donald Trump’s presidential election victory and the promise of fiscal stimulus, a retreat from globalization and relaxed regulation were treated as positive developments by financial markets, though uncertainty regarding the specific details remained high. UK Prime Minister Theresa May surprised investors when she called for a snap parliamentary election three years ahead of schedule, in an effort to firm up the country’s mandate going into Brexit negotiations. The benign first-round outcome of the French presidential elections quelled some geopolitical uncertainty and renewed appetite for risk assets. Markets, especially in Europe, rallied on the news. The 10-year US Treasury yield rose almost half a percent to end higher at 2.28%. The 10-year German bund yield also rose through both periods, though only modestly in the latter, ending at 0.32%.
European central banks generally maintained an easing bias through the 12-month period, while the US Federal Reserve raised interest rates for the second and third time since the financial crisis in 2008. Accelerating trade and waning inflationary pressures contributed to a rally in emerging-market debt. Yields in developed markets had varying performance in both periods, generally rising in the US, Japan and Canada, and moving in different directions elsewhere, though longer maturities broadly rose. Developed-market treasuries, investment-grade credit securities and emerging-market local-currency government bonds rebounded over the 12-month period, but experienced volatility in the latter half. Global high yield rallied in both periods, during which sector performance was almost uniformly positive; energy and basics were the best performers in each period, benefiting from oil price increases. Consumer-related sectors generally lagged the rising markets, with pharmaceuticals one of the few sectors to fall in both periods.
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INVESTMENT POLICIES
At least 80% of the Fund’s net assets will, under normal circumstances, be invested in fixed-income securities rated Ba1 or lower by Moody’s Investors Service or BB+ or lower by S&P Global Ratings or Fitch Ratings (commonly known as “junk bonds”), unrated securities considered by the Adviser to be of comparable quality, and related derivatives. The Fund may invest in fixed-income securities with a range of maturities from short- to long-term. The Fund may also invest in equity securities.
In selecting securities for purchase or sale by the Fund, the Adviser attempts to take advantage of inefficiencies that it believes exist in the global debt markets. These inefficiencies arise from investor behavior, market complexity, and the investment limitations to which investors are subject. The Adviser combines quantitative analysis with fundamental credit and economic research in seeking to exploit these inefficiencies.
The Fund will most often invest in securities of US issuers, but may also purchase fixed-income securities of foreign issuers, including securities denominated in foreign currencies. Fluctuations in currency exchange rates can have a dramatic impact on the returns of fixed-income securities denominated in foreign currencies. The Adviser may or may not hedge any foreign currency exposure through the use of currency-related derivatives.
The Fund expects to use derivatives, such as options, futures contracts, forwards and swaps, to a significant extent. Derivatives may provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Fund’s exposure. The Fund may, for example, use credit default and interest rate swaps to gain exposure to the fixed-income markets or particular fixed-income securities and, as noted above, may use currency-related derivatives. The Adviser may use derivatives to effectively leverage the Fund by creating aggregate market exposure substantially in excess of the Fund’s net assets.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Corporate HY 2% Issuer Capped Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays US Corporate HY 2% Issuer Capped Index is the 2% Issuer Capped component of the US Corporate High Yield Index. The Bloomberg Barclays US Corporate HY Index represents the performance of fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $150 million and at least one year to maturity. An investor cannot invest directly in an index or average, and their 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 bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Fund may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade 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, negative perceptions of the junk bond market generally and less secondary market liquidity.
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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. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.
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.
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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Non-Diversification Risk: The Fund may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s NAV.
abfunds.com | AB HIGH YIELD PORTFOLIO | 7 |
DISCLOSURES AND RISKS (continued)
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
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.
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 investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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 visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
8 | AB HIGH YIELD PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns1 (reflects applicable sales charges) | SEC Yields2 | ||||||||||
CLASS A SHARES | 2.92% | |||||||||||
1 Year | 11.28% | 6.59% | ||||||||||
5 Years | 6.93% | 6.00% | ||||||||||
10 Years | 7.64% | 7.17% | ||||||||||
CLASS C SHARES | 2.32% | |||||||||||
1 Year | 10.47% | 9.47% | ||||||||||
5 Years | 6.13% | 6.13% | ||||||||||
10 Years | 6.84% | 6.84% | ||||||||||
ADVISOR CLASS SHARES3 | 3.32% | |||||||||||
1 Year | 11.56% | 11.56% | ||||||||||
5 Years | 7.20% | 7.20% | ||||||||||
10 Years | 7.90% | 7.90% | ||||||||||
CLASS R SHARES3 | 2.83% | |||||||||||
1 Year | 11.03% | 11.03% | ||||||||||
5 Years | 6.66% | 6.66% | ||||||||||
10 Years | 7.37% | 7.37% | ||||||||||
CLASS K SHARES3 | 3.10% | |||||||||||
1 Year | 11.30% | 11.30% | ||||||||||
5 Years | 6.93% | 6.93% | ||||||||||
10 Years | 7.64% | 7.64% | ||||||||||
CLASS I SHARES3 | 3.39% | |||||||||||
1 Year | 11.57% | 11.57% | ||||||||||
5 Years | 7.20% | 7.20% | ||||||||||
10 Years | 7.91% | 7.91% | ||||||||||
CLASS Z SHARES3 | 3.65% | |||||||||||
1 Year | 11.46% | 11.46% | ||||||||||
5 Years | 7.17% | 7.17% | ||||||||||
10 Years | 7.89% | 7.89% |
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 2.13%, 2.96%, 1.88%, 1.97%, 1.52%, 1.24% and 1.24% for Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios exclusive of acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs to 0.95%, 1.70%, 0.70%, 1.20%, 0.95%, 0.70% and 0.70% for Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. These waivers/reimbursements may not be terminated before January 31, 2018 and may be extended by
abfunds.com | AB HIGH YIELD PORTFOLIO | 9 |
(footnotes continued on next page)
HISTORICAL PERFORMANCE (continued)
the Adviser for additional one-year terms. Any fees waived and expenses borne by the
Adviser prior to July 15, 2015 may be reimbursed by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne, provided that no reimbursement payment will be made that would cause the Fund’s total annual fund operating expenses to exceed the expense limitations. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
1 | Performance information of Class A, Class C, Advisor Class, Class R, Class K and Class I shares for periods prior to the Reorganization is the performance of the Fund’s Class Z shares, which is based on the Accounting Survivor’s performance, and is adjusted to reflect the respective expense ratios of Class A, Class C, Advisor Class, Class R, Class K and Class I shares. |
2 | SEC yields are calculated based on SEC guidelines for the 30-day period ended April 30, 2017. |
3 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
10 | AB HIGH YIELD PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns1 (reflects applicable | ||||
CLASS A SHARES | ||||
1 Year | 9.80% | |||
5 Years | 6.11% | |||
10 Years | 7.23% | |||
CLASS C SHARES | ||||
1 Year | 12.94% | |||
5 Years | 6.26% | |||
10 Years | 6.91% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 15.07% | |||
5 Years | 7.32% | |||
10 Years | 7.98% | |||
CLASS R SHARES2 | ||||
1 Year | 14.40% | |||
5 Years | 6.77% | |||
10 Years | 7.43% | |||
CLASS K SHARES2 | ||||
1 Year | 14.80% | |||
5 Years | 7.05% | |||
10 Years | 7.71% | |||
CLASS I SHARES2 | ||||
1 Year | 15.08% | |||
5 Years | 7.32% | |||
10 Years | 7.98% | |||
CLASS Z SHARES2 | ||||
1 Year | 14.96% | |||
5 Years | 7.30% | |||
10 Years | 7.97% |
1 | Performance information of Class A, Class C, Advisor Class, Class R, Class K and Class I shares for periods prior to the Reorganization is the performance of the Fund’s Class Z shares, which is based on the Accounting Survivor’s performance, and is adjusted to reflect the respective expense ratios of Class A, Class C, Advisor Class, Class R, Class K and Class I shares. |
2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
abfunds.com | AB HIGH YIELD PORTFOLIO | 11 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,049.60 | $ | 4.88 | 0.96 | % | $ | 4.93 | 0.97 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.03 | $ | 4.81 | 0.96 | % | $ | 4.86 | 0.97 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,045.90 | $ | 8.73 | 1.72 | % | $ | 8.78 | 1.73 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,016.27 | $ | 8.60 | 1.72 | % | $ | 8.65 | 1.73 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,051.00 | $ | 3.66 | 0.72 | % | $ | 3.71 | 0.73 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.22 | $ | 3.61 | 0.72 | % | $ | 3.66 | 0.73 | % |
12 | AB HIGH YIELD PORTFOLIO | abfunds.com |
EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class R | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,048.50 | $ | 6.20 | 1.22 | % | $ | 6.20 | 1.22 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.74 | $ | 6.11 | 1.22 | % | $ | 6.11 | 1.22 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,049.80 | $ | 5.03 | 0.99 | % | $ | 5.03 | 0.99 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.89 | $ | 4.96 | 0.99 | % | $ | 4.96 | 0.99 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,051.00 | $ | 3.71 | 0.73 | % | $ | 3.76 | 0.74 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.17 | $ | 3.66 | 0.73 | % | $ | 3.71 | 0.74 | % | ||||||||||||
Class Z | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,051.10 | $ | 3.71 | 0.73 | % | $ | 3.76 | 0.74 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.17 | $ | 3.66 | 0.73 | % | $ | 3.71 | 0.74 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. Currently the Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s effective expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
abfunds.com | AB HIGH YIELD PORTFOLIO | 13 |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $26.1
1 | All data are as of April 30, 2017. 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). “Other” security type weightings represent 0.1% or less in the following types: Emerging Markets–Sovereigns, Investment Companies, Options Purchased–Calls, Options Purchased–Puts and Warrants. |
14 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – 65.2% | ||||||||||||
Industrial – 55.3% | ||||||||||||
Basic – 4.8% | ||||||||||||
AK Steel Corp. | U.S.$ | 13 | $ | 13,368 | ||||||||
Aleris International, Inc. | 17 | 17,329 | ||||||||||
Anglo American Capital PLC | EUR | 23 | 27,580 | |||||||||
3.75%, 4/10/22(a) | U.S.$ | 64 | 64,743 | |||||||||
ArcelorMittal | 42 | 43,822 | ||||||||||
7.50%, 3/01/41 | 41 | 45,873 | ||||||||||
7.75%, 10/15/39 | 82 | 94,028 | ||||||||||
Axalta Coating Systems LLC | 44 | 45,270 | ||||||||||
CF Industries, Inc. | 33 | 30,998 | ||||||||||
5.375%, 3/15/44 | 22 | 18,975 | ||||||||||
ERP Iron Ore, LLC | 11 | 10,778 | ||||||||||
First Quantum Minerals Ltd. | 13 | 13,861 | ||||||||||
7.25%, 4/01/23(a) | 58 | 59,240 | ||||||||||
Freeport-McMoRan, Inc. | 30 | 30,209 | ||||||||||
3.875%, 3/15/23 | 76 | 70,946 | ||||||||||
4.55%, 11/14/24 | 28 | 26,070 | ||||||||||
5.40%, 11/14/34 | 15 | 13,231 | ||||||||||
5.45%, 3/15/43 | 50 | 42,943 | ||||||||||
6.75%, 2/01/22(a) | 32 | 33,852 | ||||||||||
Grinding Media, Inc./MC Grinding Media Canada, Inc. | 25 | 27,010 | ||||||||||
INEOS Group Holdings SA | EUR | 41 | 47,900 | |||||||||
Joseph T Ryerson & Son, Inc. | U.S.$ | 14 | 15,454 | |||||||||
Lecta SA | EUR | 35 | 39,715 | |||||||||
Lundin Mining Corp. | U.S.$ | 10 | 11,196 | |||||||||
Magnetation LLC/Mag Finance Corp. | 60 | 6 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Momentive Performance Materials, Inc. | U.S.$ | 47 | $ | 46,685 | ||||||||
8.875%, 10/15/20(c)(g)(h) | 47 | – 0 | – | |||||||||
Novelis Corp. | 23 | 23,334 | ||||||||||
6.25%, 8/15/24(a) | 39 | 41,066 | ||||||||||
Pactiv LLC | 41 | 45,383 | ||||||||||
Peabody Energy Corp. | 93 | – 0 | – | |||||||||
6.00%, 3/31/22(a) | 5 | 5,346 | ||||||||||
Sealed Air Corp. | 70 | 76,020 | ||||||||||
SPCM SA | 58 | 58,987 | ||||||||||
Steel Dynamics, Inc. | 4 | 4,515 | ||||||||||
Teck Resources Ltd. | 36 | 34,583 | ||||||||||
5.40%, 2/01/43 | 32 | 31,318 | ||||||||||
6.25%, 7/15/41 | 6 | 6,804 | ||||||||||
8.50%, 6/01/24(a) | 4 | 4,727 | ||||||||||
United States Steel Corp. | 21 | 23,097 | ||||||||||
Valvoline, Inc. | 7 | 7,422 | ||||||||||
W.R. Grace & Co.-Conn | 9 | 9,975 | ||||||||||
|
| |||||||||||
1,263,659 | ||||||||||||
|
| |||||||||||
Capital Goods – 3.4% | ||||||||||||
Apex Tool Group LLC | 34 | 31,907 | ||||||||||
ARD Finance SA | EUR | 57 | 63,928 | |||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. | U.S.$ | 79 | 79,905 | |||||||||
4.625%, 5/15/23(a) | 17 | 17,916 | ||||||||||
7.25%, 5/15/24(a) | 3 | 3,152 | ||||||||||
B456 Systems, Inc. | 21 | 1,241 | ||||||||||
Ball Corp. | 36 | 38,039 | ||||||||||
5.00%, 3/15/22 | 59 | 62,499 |
16 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Bombardier, Inc. | U.S.$ | 91 | $ | 94,640 | ||||||||
8.75%, 12/01/21(a) | 13 | 14,582 | ||||||||||
BWAY Holding Co. | 64 | 65,102 | ||||||||||
Clean Harbors, Inc. | 50 | 50,710 | ||||||||||
5.25%, 8/01/20 | 5 | 5,344 | ||||||||||
CNH Industrial Capital LLC | 26 | 25,984 | ||||||||||
3.625%, 4/15/18 | 17 | 17,733 | ||||||||||
3.875%, 7/16/18 | 29 | 29,432 | ||||||||||
4.375%, 4/05/22 | 38 | 38,959 | ||||||||||
Energizer Holdings, Inc. | 13 | 13,033 | ||||||||||
EnPro Industries, Inc. | 25 | 26,297 | ||||||||||
Gates Global LLC/Gates Global Co. | 18 | 17,898 | ||||||||||
GFL Environmental, Inc. | 7 | 7,258 | ||||||||||
9.875%, 2/01/21(a) | 28 | 30,550 | ||||||||||
Jefferson Smurfit Corp./US | 48 | – 0 | – | |||||||||
KLX, Inc. | 25 | 26,000 | ||||||||||
Owens-Brockway Glass Container, Inc. | 20 | 20,126 | ||||||||||
Smurfit-Stone Container Enterprises, Inc. | 50 | – 0 | – | |||||||||
TA MFG. Ltd. | EUR | 29 | 32,540 | |||||||||
TransDigm, Inc. | U.S.$ | 73 | 73,395 | |||||||||
|
| |||||||||||
888,170 | ||||||||||||
|
| |||||||||||
Communications - Media – 8.8% | ||||||||||||
Altice Financing SA | 67 | 70,618 | ||||||||||
7.50%, 5/15/26(a) | 58 | 62,947 | ||||||||||
Altice Luxembourg SA | EUR | 24 | 27,184 | |||||||||
Altice US Finance I Corp. | U.S.$ | 58 | 60,496 | |||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 52 | 53,531 | ||||||||||
5.125%, 5/01/27(a) | 40 | 41,013 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.25%, 9/30/22 | U.S.$ | 6 | $ | 6,339 | ||||||||
5.375%, 5/01/25(a) | 12 | 12,760 | ||||||||||
5.75%, 1/15/24 | 1 | 920 | ||||||||||
5.875%, 5/01/27(a) | 20 | 21,004 | ||||||||||
Clear Channel Worldwide Holdings, Inc. | 41 | 41,375 | ||||||||||
Series B | 50 | 51,949 | ||||||||||
CSC Holdings LLC | 34 | 33,937 | ||||||||||
6.625%, 10/15/25(a) | 3 | 2,867 | ||||||||||
7.625%, 7/15/18 | 50 | 53,107 | ||||||||||
10.125%, 1/15/23(a) | 97 | 112,545 | ||||||||||
DISH DBS Corp. | 38 | 38,079 | ||||||||||
5.00%, 3/15/23 | 12 | 11,686 | ||||||||||
5.125%, 5/01/20 | 12 | 12,478 | ||||||||||
5.875%, 11/15/24 | 160 | 167,742 | ||||||||||
6.75%, 6/01/21 | 20 | 21,889 | ||||||||||
7.75%, 7/01/26 | 7 | 8,188 | ||||||||||
7.875%, 9/01/19 | 18 | 20,050 | ||||||||||
iHeartCommunications, Inc. | 50 | 33,924 | ||||||||||
9.00%, 12/15/19-9/15/22 | 87 | 69,102 | ||||||||||
11.25%, 3/01/21(a) | 10 | 7,872 | ||||||||||
Lamar Media Corp. | 6 | 6,049 | ||||||||||
McGraw-Hill Global Education Holdings LLC/McGraw-Hill Global Education Finance | 40 | 38,828 | ||||||||||
Mediacom Broadband LLC/Mediacom Broadband Corp. | 47 | 49,355 | ||||||||||
NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp. | 7 | 7,339 | ||||||||||
Netflix, Inc. | 34 | 33,385 | ||||||||||
Radio One, Inc. | 37 | 38,272 | ||||||||||
9.25%, 2/15/20(a) | 47 | 46,319 | ||||||||||
RR Donnelley & Sons Co. | 29 | 30,941 | ||||||||||
SFR Group SA | 68 | 70,777 | ||||||||||
7.375%, 5/01/26(a) | 185 | 194,764 |
18 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sinclair Television Group, Inc. | U.S.$ | 17 | $ | 17,647 | ||||||||
Sirius XM Radio, Inc. | 125 | 133,536 | ||||||||||
TEGNA, Inc. | 45 | 46,863 | ||||||||||
5.125%, 7/15/20 | 25 | 26,140 | ||||||||||
5.50%, 9/15/24(a) | 5 | 5,085 | ||||||||||
Time, Inc. | 51 | 51,915 | ||||||||||
Townsquare Media, Inc. | 7 | 6,776 | ||||||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH | 31 | 32,470 | ||||||||||
Univision Communications, Inc. | 96 | 94,998 | ||||||||||
Videotron Ltd. | 19 | 19,767 | ||||||||||
Virgin Media Finance PLC | 2 | 2,092 | ||||||||||
Virgin Media Secured Finance PLC | GBP | 68 | 90,016 | |||||||||
Wave Holdco LLC/Wave Holdco Corp. | U.S.$ | 13 | 13,110 | |||||||||
WaveDivision Escrow LLC/WaveDivision Escrow Corp. | 3 | 3,004 | ||||||||||
WideOpenWest Finance LLC/WideOpenWest Capital Corp. | 50 | 52,131 | ||||||||||
Ziggo Bond Finance BV | 18 | 18,566 | ||||||||||
Ziggo Secured Finance BV | 110 | 112,834 | ||||||||||
|
| |||||||||||
2,286,581 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 7.9% | ||||||||||||
Arqiva Broadcast Finance PLC | GBP | 22 | 30,533 | |||||||||
CenturyLink, Inc. | U.S.$ | 29 | 31,787 | |||||||||
Series T | 50 | 52,757 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series U | U.S.$ | 16 | $ | 14,966 | ||||||||
Series W | 34 | 36,168 | ||||||||||
Cincinnati Bell, Inc. | 25 | 26,761 | ||||||||||
Embarq Corp. | 58 | 58,747 | ||||||||||
Frontier Communications Corp. | 18 | 14,807 | ||||||||||
7.125%, 3/15/19-1/15/23 | 75 | 71,530 | ||||||||||
7.625%, 4/15/24 | 55 | 47,652 | ||||||||||
7.875%, 1/15/27 | 13 | 10,360 | ||||||||||
8.125%, 10/01/18 | 4 | 4,647 | ||||||||||
8.75%, 4/15/22 | 26 | 25,335 | ||||||||||
8.875%, 9/15/20 | 30 | 31,686 | ||||||||||
9.00%, 8/15/31 | 31 | 26,159 | ||||||||||
10.50%, 9/15/22 | 57 | 56,835 | ||||||||||
11.00%, 9/15/25 | 66 | 63,538 | ||||||||||
Hughes Satellite Systems Corp. | 29 | 31,481 | ||||||||||
7.625%, 6/15/21 | 19 | 21,674 | ||||||||||
Intelsat Jackson Holdings SA | 110 | 94,039 | ||||||||||
7.25%, 4/01/19-10/15/20 | 23 | 21,875 | ||||||||||
7.50%, 4/01/21 | 13 | 11,992 | ||||||||||
8.00%, 2/15/24(a) | 10 | 10,974 | ||||||||||
9.50%, 9/30/22(a) | 44 | 52,010 | ||||||||||
Intelsat Luxembourg SA | 17 | 9,592 | ||||||||||
Level 3 Communications, Inc. | 8 | 7,887 | ||||||||||
Level 3 Financing, Inc. | 68 | 69,525 | ||||||||||
Sable International Finance Ltd. | 42 | 45,067 | ||||||||||
SoftBank Group Corp. | 75 | 77,723 | ||||||||||
Sprint Capital Corp. | 67 | 82,025 | ||||||||||
Sprint Communications, Inc. | 61 | 66,884 | ||||||||||
9.00%, 11/15/18(a) | 132 | 144,655 | ||||||||||
Sprint Corp. | 6 | 6,345 | ||||||||||
7.25%, 9/15/21 | 49 | 53,535 |
20 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
7.625%, 2/15/25 | U.S.$ | 96 | $ | 106,600 | ||||||||
7.875%, 9/15/23 | 25 | 27,777 | ||||||||||
T-Mobile USA, Inc. | 62 | 67,834 | ||||||||||
Telecom Italia Capital SA | 56 | 58,248 | ||||||||||
7.20%, 7/18/36 | 33 | 36,003 | ||||||||||
7.721%, 6/04/38 | 28 | 31,930 | ||||||||||
Uniti Group, Inc./CSL Capital LLC | 60 | 63,788 | ||||||||||
Wind Acquisition Finance SA | 52 | 53,291 | ||||||||||
6.50%, 4/30/20(a) | 32 | 33,156 | ||||||||||
Windstream Services LLC | 70 | 61,687 | ||||||||||
7.50%, 4/01/23 | 35 | 32,996 | ||||||||||
7.75%, 10/01/21 | 29 | 29,140 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc. | 38 | 40,222 | ||||||||||
|
| |||||||||||
2,054,223 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 1.2% | ||||||||||||
Adient Global Holdings Ltd. | 58 | 58,371 | ||||||||||
BCD Acquisition, Inc. | 37 | 40,166 | ||||||||||
Commercial Vehicle Group, Inc. | 54 | 54,252 | ||||||||||
Dana Financing Luxembourg SARL | 25 | 25,904 | ||||||||||
Dana, Inc. | 12 | 12,425 | ||||||||||
Exide Technologies | 4 | 1,744 | ||||||||||
Series AI | 84 | 41,792 | ||||||||||
11.00% (11.00% Cash or 7.00% PIK), | 31 | 24,179 | ||||||||||
IHO Verwaltungs GmbH | 58 | 59,104 | ||||||||||
|
| |||||||||||
317,937 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.2% | ||||||||||||
AMC Entertainment Holdings, Inc. | 13 | 12,921 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
ClubCorp Club Operations, Inc. | U.S.$ | 12 | $ | 13,055 | ||||||||
National CineMedia LLC | 14 | 13,956 | ||||||||||
|
| |||||||||||
39,932 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 4.9% | ||||||||||||
Beazer Homes USA, Inc. | 15 | 15,286 | ||||||||||
6.75%, 3/15/25(a) | 26 | 26,690 | ||||||||||
8.75%, 3/15/22 | 10 | 10,681 | ||||||||||
Caesars Entertainment Operating Co., Inc. | 63 | 54,776 | ||||||||||
Caesars Entertainment Resort Properties LLC/Caesars Entertainment Resort Prope | 33 | 34,050 | ||||||||||
CalAtlantic Group, Inc. | 32 | 34,767 | ||||||||||
6.25%, 12/15/21 | 23 | 25,255 | ||||||||||
8.375%, 5/15/18 | 62 | 65,656 | ||||||||||
Diamond Resorts International, Inc. | 25 | 26,268 | ||||||||||
Eagle II Acquisition Co. LLC | 16 | 16,869 | ||||||||||
GLP Capital LP/GLP Financing II, Inc. | 6 | 6,092 | ||||||||||
4.875%, 11/01/20 | 8 | 8,068 | ||||||||||
5.375%, 11/01/23-4/15/26 | 15 | 15,512 | ||||||||||
International Game Technology | 21 | 22,647 | ||||||||||
International Game Technology PLC | 46 | 50,283 | ||||||||||
Isle of Capri Casinos, Inc. | 2 | 2,405 | ||||||||||
K. Hovnanian Enterprises, Inc. | 43 | 32,333 | ||||||||||
7.25%, 10/15/20(a) | 13 | 12,151 | ||||||||||
KB Home | 57 | 59,266 | ||||||||||
7.00%, 12/15/21 | 22 | 24,694 | ||||||||||
7.50%, 9/15/22 | 10 | 11,547 | ||||||||||
8.00%, 3/15/20 | 6 | 6,560 | ||||||||||
Lennar Corp. | 29 | 29,851 | ||||||||||
4.50%, 11/15/19 | 61 | 63,146 | ||||||||||
4.75%, 11/15/22 | 8 | 8,483 |
22 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
MDC Holdings, Inc. | U.S.$ | 6 | $ | 6,034 | ||||||||
5.625%, 2/01/20 | 23 | 24,976 | ||||||||||
6.00%, 1/15/43 | 36 | 32,397 | ||||||||||
Meritage Homes Corp. | 21 | 22,655 | ||||||||||
7.00%, 4/01/22 | 4 | 4,956 | ||||||||||
MGM Resorts International | 45 | 49,931 | ||||||||||
Pinnacle Entertainment, Inc. | 13 | 12,899 | ||||||||||
PulteGroup, Inc. | 9 | 8,853 | ||||||||||
6.00%, 2/15/35 | 53 | 53,031 | ||||||||||
7.875%, 6/15/32 | 10 | 11,938 | ||||||||||
RSI Home Products, Inc. | 88 | 91,396 | ||||||||||
Scientific Games International, Inc. | 25 | 26,760 | ||||||||||
Shea Homes LP/Shea Homes Funding Corp. | 7 | 7,377 | ||||||||||
6.125%, 4/01/25(a) | 60 | 60,930 | ||||||||||
Standard Industries, Inc./NJ | 21 | 21,594 | ||||||||||
6.00%, 10/15/25(a) | 31 | 32,420 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 13 | 13,059 | ||||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 17 | 18,400 | ||||||||||
Toll Brothers Finance Corp. | 15 | 15,250 | ||||||||||
4.875%, 3/15/27 | 11 | 11,229 | ||||||||||
5.875%, 2/15/22 | 35 | 38,874 | ||||||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | 36 | 37,537 | ||||||||||
|
| |||||||||||
1,265,832 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.1% | ||||||||||||
Pizzaexpress Financing 1 PLC | GBP | 1 | 1,138 | |||||||||
Stonegate Pub Co. Financing PLC | 29 | 37,931 | ||||||||||
|
| |||||||||||
39,069 | ||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Retailers – 1.2% | ||||||||||||
CST Brands, Inc. | U.S.$ | 8 | $ | 8,465 | ||||||||
Group 1 Automotive, Inc. | 66 | 66,980 | ||||||||||
Hanesbrands, Inc. | 21 | 20,940 | ||||||||||
JC Penney Corp., Inc. | 15 | 11,564 | ||||||||||
L Brands, Inc. | 25 | 26,171 | ||||||||||
6.875%, 11/01/35 | 37 | 36,801 | ||||||||||
7.00%, 5/01/20 | 44 | 48,414 | ||||||||||
Neiman Marcus Group Ltd. LLC | 24 | 14,170 | ||||||||||
Penske Automotive Group, Inc. | 26 | 25,426 | ||||||||||
PetSmart, Inc. | 6 | 5,321 | ||||||||||
Rite Aid Corp. | 18 | 17,909 | ||||||||||
Sonic Automotive, Inc. | 4 | 4,191 | ||||||||||
6.125%, 3/15/27(a) | 20 | 19,614 | ||||||||||
|
| |||||||||||
305,966 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 8.7% | ||||||||||||
Air Medical Group Holdings, Inc. | 57 | 55,876 | ||||||||||
Albertsons Cos. LLC/Safeway, Inc./New Albertson’s, Inc./Albertson’s LLC | 24 | 23,760 | ||||||||||
6.625%, 6/15/24(a) | 25 | 25,599 | ||||||||||
Alere, Inc. | 8 | 8,563 | ||||||||||
BI-LO LLC/BI-LO Finance Corp. | 39 | 20,155 | ||||||||||
9.25%, 2/15/19(a) | 65 | 57,233 | ||||||||||
Boparan Finance PLC | GBP | 7 | 9,458 | |||||||||
Catalent Pharma Solutions, Inc. | EUR | 44 | 50,982 | |||||||||
CHS/Community Health Systems, Inc. | U.S.$ | 172 | 141,998 | |||||||||
8.00%, 11/15/19 | 10 | 9,372 |
24 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Concordia International Corp. | U.S.$ | 5 | $ | 839 | ||||||||
9.50%, 10/21/22(a) | 60 | 11,574 | ||||||||||
Endo Dac/Endo Finance LLC/Endo Finco, Inc. | 72 | 63,106 | ||||||||||
6.00%, 2/01/25(a) | 18 | 15,553 | ||||||||||
Endo Finance LLC | 47 | 43,892 | ||||||||||
Endo Finance LLC/Endo Finco, Inc. | 7 | 7,174 | ||||||||||
First Quality Finance Co., Inc. | 96 | 94,321 | ||||||||||
HCA, Inc. | 100 | 101,808 | ||||||||||
4.25%, 10/15/19 | 185 | 192,472 | ||||||||||
4.50%, 2/15/27 | 14 | 13,839 | ||||||||||
5.25%, 6/15/26 | 24 | 26,198 | ||||||||||
6.50%, 2/15/20 | 152 | 166,924 | ||||||||||
Hill-Rom Holdings, Inc. | 7 | 7,632 | ||||||||||
Horizon Pharma, Inc./Horizon Pharma USA, Inc. | 53 | 55,304 | ||||||||||
Kinetic Concepts, Inc./KCI USA, Inc. | 49 | 51,883 | ||||||||||
Lamb Weston Holdings, Inc. | 7 | 6,915 | ||||||||||
LifePoint Health, Inc. | 9 | 8,815 | ||||||||||
Mallinckrodt International Finance SA | 29 | 28,683 | ||||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 24 | 22,330 | ||||||||||
5.625%, 10/15/23(a) | 32 | 30,221 | ||||||||||
5.75%, 8/01/22(a) | 34 | 33,666 | ||||||||||
MEDNAX, Inc. | 10 | 10,194 | ||||||||||
MPH Acquisition Holdings LLC | 34 | 36,600 | ||||||||||
Nature’s Bounty Co. (The) | 24 | 26,022 | ||||||||||
Post Holdings, Inc. | 33 | 32,798 | ||||||||||
5.50%, 3/01/25(a) | 2 | 2,433 | ||||||||||
6.00%, 12/15/22(a) | 6 | 5,904 | ||||||||||
7.75%, 3/15/24(a) | 3 | 3,235 | ||||||||||
8.00%, 7/15/25(a) | 9 | 10,263 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Spectrum Brands, Inc. | U.S.$ | 11 | $ | 11,363 | ||||||||
Synlab Bondco PLC | EUR | 48 | 56,375 | |||||||||
Tenet Healthcare Corp. | U.S.$ | 20 | 19,594 | |||||||||
5.50%, 3/01/19 | 34 | 34,707 | ||||||||||
6.75%, 6/15/23 | 18 | 17,521 | ||||||||||
6.875%, 11/15/31 | 99 | 84,450 | ||||||||||
7.50%, 1/01/22(a) | 6 | 5,915 | ||||||||||
8.00%, 8/01/20 | 106 | 108,485 | ||||||||||
8.125%, 4/01/22 | 34 | 34,929 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 59 | 50,880 | ||||||||||
5.50%, 3/01/23(a) | 63 | 46,234 | ||||||||||
5.875%, 5/15/23(a) | 86 | 63,797 | ||||||||||
6.125%, 4/15/25(a) | 224 | 165,907 | ||||||||||
6.50%, 3/15/22(a) | 14 | 14,015 | ||||||||||
Vizient, Inc. | 9 | 9,993 | ||||||||||
Voyage Care Bondco PLC | GBP | 32 | 42,255 | |||||||||
|
| |||||||||||
2,280,014 | ||||||||||||
|
| |||||||||||
Energy – 6.5% | ||||||||||||
Alta Mesa Holdings LP/Alta Mesa Finance Services Corp. | U.S.$ | 23 | 24,153 | |||||||||
Antero Resources Corp. | 62 | 63,030 | ||||||||||
Berry Petroleum Co. LLC | 56 | – 0 | – | |||||||||
Bill Barrett Corp. | 29 | 29,731 | ||||||||||
8.75%, 6/15/25(a) | 19 | 18,699 | ||||||||||
California Resources Corp. | 19 | 13,238 | ||||||||||
6.00%, 11/15/24 | 5 | 3,249 | ||||||||||
8.00%, 12/15/22(a) | 45 | 34,394 | ||||||||||
Cheniere Corpus Christi Holdings LLC | 34 | 35,620 | ||||||||||
Chesapeake Energy Corp. | 20 | 18,741 | ||||||||||
6.125%, 2/15/21 | 2 | 2,014 | ||||||||||
6.875%, 11/15/20 | 1 | 585 | ||||||||||
8.00%, 12/15/22-1/15/25(a) | 99 | 98,173 |
26 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Continental Resources, Inc./OK | U.S.$ | 31 | $ | 29,065 | ||||||||
4.50%, 4/15/23 | 12 | 11,799 | ||||||||||
4.90%, 6/01/44 | 25 | 21,911 | ||||||||||
Covey Park Energy LLC/FI | 40 | 40,000 | ||||||||||
DCP Midstream Operating LP | 22 | 21,235 | ||||||||||
5.60%, 4/01/44 | 27 | 24,982 | ||||||||||
Denbury Resources, Inc. | 16 | 10,798 | ||||||||||
5.50%, 5/01/22 | 20 | 14,560 | ||||||||||
Diamond Offshore Drilling, Inc. | 68 | 49,742 | ||||||||||
Energy Transfer Equity LP | 63 | 70,685 | ||||||||||
Ensco PLC | 7 | 5,535 | ||||||||||
5.20%, 3/15/25 | 47 | 39,488 | ||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 8 | 5,706 | ||||||||||
7.75%, 9/01/22 | 27 | 21,502 | ||||||||||
8.00%, 2/15/25(a) | 24 | 21,118 | ||||||||||
9.375%, 5/01/20 | 8 | 7,731 | ||||||||||
Gulfport Energy Corp. | 18 | 17,677 | ||||||||||
Hilcorp Energy I LP/Hilcorp Finance Co. | 66 | 64,337 | ||||||||||
Murphy Oil Corp. | 21 | 19,814 | ||||||||||
6.875%, 8/15/24 | 4 | 4,018 | ||||||||||
Murphy Oil USA, Inc. | 2 | 2,380 | ||||||||||
Noble Holding International Ltd. | 10 | 6,851 | ||||||||||
7.70%, 4/01/25(j) | 20 | 17,903 | ||||||||||
8.70%, 4/01/45 | 17 | 14,522 | ||||||||||
Oasis Petroleum, Inc. | 10 | 10,049 | ||||||||||
Pacific Drilling SA | 41 | 19,722 | ||||||||||
Paragon Offshore PLC | 20 | 3,340 | ||||||||||
7.25%, 8/15/24(a)(f)(g) | 85 | 13,885 | ||||||||||
PHI, Inc. | 84 | 78,195 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
QEP Resources, Inc. | U.S.$ | 2 | $ | 2,004 | ||||||||
5.375%, 10/01/22 | 34 | 33,246 | ||||||||||
6.875%, 3/01/21 | 1 | 617 | ||||||||||
Range Resources Corp. | 26 | 24,688 | ||||||||||
Rowan Cos., Inc. | 35 | 27,355 | ||||||||||
7.375%, 6/15/25 | 21 | 20,769 | ||||||||||
SandRidge Energy, Inc. | 29 | – 0 | – | |||||||||
8.125%, 10/15/22(b)(c)(g) | 47 | – 0 | – | |||||||||
SM Energy Co. | 19 | 17,816 | ||||||||||
5.625%, 6/01/25 | 12 | 11,140 | ||||||||||
6.75%, 9/15/26 | 16 | 16,125 | ||||||||||
Southern Star Central Corp. | 35 | 35,360 | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 19 | 18,454 | ||||||||||
Tesoro Logistics LP/Tesoro Logistics Finance Corp. | 50 | 51,357 | ||||||||||
Transocean Phoenix 2 Ltd. | 26 | 27,766 | ||||||||||
Transocean, Inc. | 70 | 64,807 | ||||||||||
6.80%, 3/15/38 | 89 | 71,328 | ||||||||||
9.00%, 7/15/23(a) | 24 | 26,176 | ||||||||||
Vantage Drilling International | 46 | – 0 | – | |||||||||
10.00%, 12/31/20(e) | 1 | 848 | ||||||||||
10.00%, 12/31/20(b) | 1 | 1,131 | ||||||||||
Weatherford International Ltd. | 8 | 7,362 | ||||||||||
6.50%, 8/01/36 | 28 | 26,436 | ||||||||||
6.75%, 9/15/40 | 3 | 3,019 | ||||||||||
7.00%, 3/15/38 | 33 | 31,065 | ||||||||||
9.875%, 2/15/24(a) | 47 | 54,340 | ||||||||||
Whiting Petroleum Corp. | 28 | 24,403 | ||||||||||
5.00%, 3/15/19 | 17 | 17,651 | ||||||||||
Williams Cos., Inc. (The) | 26 | 26,304 |
28 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
WPX Energy, Inc. | U.S.$ | 33 | $ | 32,210 | ||||||||
6.00%, 1/15/22 | 14 | 14,175 | ||||||||||
|
| |||||||||||
1,698,129 | ||||||||||||
|
| |||||||||||
Other Industrial – 1.6% | ||||||||||||
Algeco Scotsman Global Finance PLC | 13 | 12,056 | ||||||||||
American Builders & Contractors Supply Co., Inc. | 13 | 13,932 | ||||||||||
American Tire Distributors, Inc. | 52 | 53,003 | ||||||||||
Belden, Inc. | 38 | 38,520 | ||||||||||
5.50%, 4/15/23(a) | EUR | 6 | 7,028 | |||||||||
General Cable Corp. | U.S.$ | 29 | 22,981 | |||||||||
5.75%, 10/01/22 | 19 | 19,058 | ||||||||||
Global Partners LP/GLP Finance Corp. | 85 | 83,164 | ||||||||||
7.00%, 6/15/23 | 12 | 11,556 | ||||||||||
HRG Group, Inc. | 46 | 47,500 | ||||||||||
Laureate Education, Inc. | 26 | 26,950 | ||||||||||
9.25%, 9/01/19(a) | 4 | 4,063 | ||||||||||
9.25%, 9/01/19 | 36 | 38,254 | ||||||||||
Travis Perkins PLC | GBP | 29 | 38,237 | |||||||||
|
| |||||||||||
416,302 | ||||||||||||
|
| |||||||||||
Services – 1.6% | ||||||||||||
ADT Corp. (The) | U.S.$ | 23 | 22,671 | |||||||||
4.125%, 6/15/23 | 26 | 25,350 | ||||||||||
APX Group, Inc. | 36 | 39,155 | ||||||||||
8.75%, 12/01/20 | 59 | 61,809 | ||||||||||
Aramark Services, Inc. | 7 | 7,071 | ||||||||||
Ceridian HCM Holding, Inc. | 23 | 23,938 | ||||||||||
Gartner, Inc. | 12 | 12,369 | ||||||||||
GEO Group, Inc. (The) | 4 | 3,785 | ||||||||||
5.875%, 1/15/22-10/15/24 | 16 | 16,560 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
IHS Markit Ltd. | U.S.$ | 27 | $ | 29,051 | ||||||||
Nielsen Co. Luxembourg SARL (The) | 28 | 28,992 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co. | 48 | 49,699 | ||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | 60 | 65,863 | ||||||||||
Ritchie Bros Auctioneers, Inc. | 9 | 9,041 | ||||||||||
Team Health Holdings, Inc. | 21 | 19,996 | ||||||||||
|
| |||||||||||
415,350 | ||||||||||||
|
| |||||||||||
Technology – 2.9% | ||||||||||||
Avaya, Inc. | 129 | 19,480 | ||||||||||
BMC Software Finance, Inc. | 76 | 76,996 | ||||||||||
BMC Software, Inc. | 1 | 594 | ||||||||||
CommScope, Inc. | 22 | 22,164 | ||||||||||
Conduent Finance, Inc./Xerox Business Services LLC | 29 | 33,797 | ||||||||||
CURO Financial Technologies Corp. | 16 | 16,669 | ||||||||||
Dell International LLC/EMC Corp. | 32 | 33,943 | ||||||||||
Dell, Inc. | 52 | 51,454 | ||||||||||
EMC Corp. | 91 | 90,795 | ||||||||||
First Data Corp. | 24 | 25,052 | ||||||||||
7.00%, 12/01/23(a) | 31 | 33,115 | ||||||||||
Goodman Networks, Inc. | 60 | 22,401 | ||||||||||
Infor US, Inc. | 29 | 29,997 | ||||||||||
Iron Mountain Europe PLC | GBP | 22 | 29,977 | |||||||||
Iron Mountain, Inc. | U.S.$ | 20 | 20,874 | |||||||||
6.00%, 10/01/20(a) | 7 | 7,590 |
30 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Micron Technology, Inc. | U.S.$ | 9 | $ | 9,020 | ||||||||
5.50%, 2/01/25 | 11 | 11,267 | ||||||||||
5.875%, 2/15/22 | 49 | 51,585 | ||||||||||
Nokia Oyj | 4 | 4,625 | ||||||||||
6.625%, 5/15/39 | 14 | 15,282 | ||||||||||
Quintiles IMS, Inc. | EUR | 38 | 41,465 | |||||||||
Radiate Holdco LLC/Radiate Finance, Inc. | U.S.$ | 17 | 17,471 | |||||||||
Sanmina Corp. | 36 | 37,363 | ||||||||||
Solera LLC/Solera Finance, Inc. | 9 | 10,655 | ||||||||||
Symantec Corp. | 26 | 27,077 | ||||||||||
Western Digital Corp. | 19 | 21,936 | ||||||||||
|
| |||||||||||
762,644 | ||||||||||||
|
| |||||||||||
Transportation - Services – 1.5% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 27 | 25,566 | ||||||||||
5.50%, 4/01/23 | 8 | 8,001 | ||||||||||
CEVA Group PLC | 22 | 16,588 | ||||||||||
Europcar Groupe SA | EUR | 7 | 7,998 | |||||||||
Herc Rentals, Inc. | U.S.$ | 43 | 47,399 | |||||||||
Hertz Corp. (The) | 81 | 69,761 | ||||||||||
5.875%, 10/15/20 | 29 | 27,446 | ||||||||||
Hornbeck Offshore Services, Inc. | 50 | 32,264 | ||||||||||
Loxam SAS | EUR | 29 | 32,566 | |||||||||
4.25%, 4/15/24(a) | 29 | 32,888 | ||||||||||
United Rentals North America, Inc. | U.S.$ | 25 | 26,036 | |||||||||
5.75%, 11/15/24 | 15 | 15,715 | ||||||||||
XPO CNW, Inc. | 35 | 33,094 | ||||||||||
7.25%, 1/15/18 | 13 | 12,861 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
XPO Logistics, Inc. | U.S.$ | 12 | $ | 12,863 | ||||||||
|
| |||||||||||
401,046 | ||||||||||||
|
| |||||||||||
14,434,854 | ||||||||||||
|
| |||||||||||
Financial Institutions – 7.9% | ||||||||||||
Banking – 4.6% | ||||||||||||
Ally Financial, Inc. | 29 | 29,660 | ||||||||||
4.125%, 3/30/20 | 121 | 123,885 | ||||||||||
4.75%, 9/10/18 | 56 | 57,533 | ||||||||||
8.00%, 12/31/18-11/01/31 | 106 | 119,547 | ||||||||||
Banco Bilbao Vizcaya Argentaria SA | EUR | 58 | 72,212 | |||||||||
Banco Santander SA | 58 | 64,218 | ||||||||||
Barclays Bank PLC | U.S.$ | 15 | 16,616 | |||||||||
Barclays PLC | EUR | 58 | 70,087 | |||||||||
Citigroup, Inc. | U.S.$ | 52 | 54,573 | |||||||||
Countrywide Capital III | 46 | 57,763 | ||||||||||
Credit Agricole SA | GBP | 44 | 63,053 | |||||||||
Lloyds Bank PLC | EUR | 15 | 17,246 | |||||||||
Lloyds Banking Group PLC | U.S.$ | 29 | 31,730 | |||||||||
6.657%, 5/21/37(a)(l) | 22 | 24,062 | ||||||||||
Royal Bank of Scotland Group PLC | EUR | 52 | 57,957 | |||||||||
8.00%, 8/10/25(l) | U.S.$ | 32 | 33,400 | |||||||||
8.625%, 8/15/21(l) | 117 | 125,888 | ||||||||||
Series U | 58 | 54,509 | ||||||||||
Societe Generale SA | 31 | 33,775 | ||||||||||
Standard Chartered PLC | 67 | 71,495 | ||||||||||
Zions Bancorporation | 14 | 14,412 | ||||||||||
|
| |||||||||||
1,193,621 | ||||||||||||
|
|
32 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Brokerage – 0.2% | ||||||||||||
Lehman Brothers Holdings, Inc. | U.S.$ | 423 | $ | 22,228 | ||||||||
LPL Holdings, Inc. | 24 | 24,510 | ||||||||||
|
| |||||||||||
46,738 | ||||||||||||
|
| |||||||||||
Finance – 2.4% | ||||||||||||
Artsonig Pty Ltd. | 72 | 2,147 | ||||||||||
CIT Group, Inc. | 6 | 5,999 | ||||||||||
5.25%, 3/15/18 | 52 | 53,503 | ||||||||||
5.50%, 2/15/19(a) | 61 | 64,079 | ||||||||||
Enova International, Inc. | 38 | 39,181 | ||||||||||
Lincoln Finance Ltd. | EUR | 26 | 30,046 | |||||||||
Navient Corp. | U.S.$ | 42 | 42,380 | |||||||||
4.875%, 6/17/19 | 103 | 106,256 | ||||||||||
5.00%, 10/26/20 | 47 | 48,017 | ||||||||||
5.875%, 3/25/21 | 1 | 603 | ||||||||||
6.50%, 6/15/22 | 32 | 33,431 | ||||||||||
7.25%, 1/25/22 | 13 | 13,688 | ||||||||||
8.00%, 3/25/20 | 98 | 107,507 | ||||||||||
SLM Corp. | 13 | 12,749 | ||||||||||
TMX Finance LLC/TitleMax Finance Corp. | 71 | 66,751 | ||||||||||
|
| |||||||||||
626,337 | ||||||||||||
|
| |||||||||||
Insurance – 0.4% | ||||||||||||
American Equity Investment Life Holding Co. | 9 | 9,096 | ||||||||||
Galaxy Bidco Ltd. | GBP | 4 | 5,822 | |||||||||
Genworth Holdings, Inc. | U.S.$ | 9 | 7,222 | |||||||||
Liberty Mutual Group, Inc. | 69 | 80,037 | ||||||||||
|
| |||||||||||
102,177 | ||||||||||||
|
| |||||||||||
Other Finance – 0.2% | ||||||||||||
Creditcorp | 33 | 28,568 |
abfunds.com | AB HIGH YIELD PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Intelsat Connect Finance SA | U.S.$ | 22 | $ | 19,734 | ||||||||
iPayment, Inc. | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||
48,302 | ||||||||||||
|
| |||||||||||
REITS – 0.1% | ||||||||||||
MPT Operating Partnership LP/MPT Finance Corp. | 40 | 40,664 | ||||||||||
5.50%, 5/01/24 | 2 | 2,120 | ||||||||||
|
| |||||||||||
42,784 | ||||||||||||
|
| |||||||||||
2,059,959 | ||||||||||||
|
| |||||||||||
Utility – 2.0% | ||||||||||||
Electric – 2.0% | ||||||||||||
AES Corp./VA | 32 | 32,330 | ||||||||||
7.375%, 7/01/21 | 51 | 57,768 | ||||||||||
Calpine Corp. | 4 | 4,205 | ||||||||||
5.75%, 1/15/25 | 82 | 80,120 | ||||||||||
DPL, Inc. | 25 | 26,255 | ||||||||||
Dynegy, Inc. | 8 | 6,728 | ||||||||||
6.75%, 11/01/19 | 32 | 32,873 | ||||||||||
7.375%, 11/01/22 | 52 | 49,511 | ||||||||||
7.625%, 11/01/24 | 7 | 6,174 | ||||||||||
Emera, Inc. | 25 | 27,686 | ||||||||||
GenOn Energy, Inc. | 44 | 30,674 | ||||||||||
NRG Energy, Inc. | 74 | 74,040 | ||||||||||
7.875%, 5/15/21 | 10 | 9,896 | ||||||||||
Talen Energy Supply LLC | 33 | 25,973 | ||||||||||
6.50%, 5/01/18-6/01/25 | 31 | 27,888 | ||||||||||
Texas Competitive/TCEH | 59 | – 0 | – | |||||||||
Viridian Group FundCo II Ltd. | EUR | 33 | 38,134 | |||||||||
|
| |||||||||||
530,255 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 17,025,068 | |||||||||||
|
|
34 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – INVESTMENT GRADE – 14.2% | ||||||||||||
Industrial – 7.8% | ||||||||||||
Basic – 0.4% | ||||||||||||
FMG Resources (August 2006) Pty Ltd. | U.S.$ | 12 | $ | 13,435 | ||||||||
Glencore Finance Canada Ltd. | 5 | 5,113 | ||||||||||
Glencore Funding LLC | 5 | 4,978 | ||||||||||
Rio Tinto Finance USA Ltd. | 38 | 40,003 | ||||||||||
Southern Copper Corp. | 41 | 41,367 | ||||||||||
|
| |||||||||||
104,896 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.5% | ||||||||||||
Embraer Netherlands Finance BV | 40 | 41,365 | ||||||||||
General Electric Co. | 50 | 53,004 | ||||||||||
Masco Corp. | 17 | 19,819 | ||||||||||
7.125%, 3/15/20 | 9 | 9,857 | ||||||||||
|
| |||||||||||
124,045 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.7% | ||||||||||||
21st Century Fox America, Inc. | 32 | 33,703 | ||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 63 | 67,335 | ||||||||||
Time Warner, Inc. | 24 | 24,625 | ||||||||||
Viacom, Inc. | 60 | 53,007 | ||||||||||
|
| |||||||||||
178,670 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.5% | ||||||||||||
AT&T, Inc. | 39 | 40,003 | ||||||||||
Qwest Corp. | 78 | 86,823 | ||||||||||
6.875%, 9/15/33 | 11 | 11,041 | ||||||||||
|
| |||||||||||
137,867 | ||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
General Motors Financial Co., Inc. | U.S.$ | 26 | $ | 26,628 | ||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.0% | ||||||||||||
Royal Caribbean Cruises Ltd. | 4 | 4,567 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.3% | ||||||||||||
DR Horton, Inc. | 44 | 46,081 | ||||||||||
Seminole Tribe of Florida, Inc. | 29 | 29,378 | ||||||||||
|
| |||||||||||
75,459 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||||
AutoNation, Inc. | 52 | 54,540 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.4% | ||||||||||||
AbbVie, Inc. | 127 | 126,298 | ||||||||||
Anheuser-Busch InBev Finance, Inc. | 38 | 38,033 | ||||||||||
Constellation Brands, Inc. | 21 | 21,851 | ||||||||||
7.25%, 5/15/17 | 72 | 72,401 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 38 | 38,077 | ||||||||||
Universal Health Services, Inc. | 64 | 65,761 | ||||||||||
|
| |||||||||||
362,421 | ||||||||||||
|
| |||||||||||
Energy – 3.0% | ||||||||||||
Anadarko Petroleum Corp. | 35 | 39,168 | ||||||||||
Cenovus Energy, Inc. | 5 | 5,158 | ||||||||||
3.80%, 9/15/23 | 2 | 2,345 | ||||||||||
4.45%, 9/15/42 | 31 | 26,612 | ||||||||||
5.70%, 10/15/19 | 10 | 10,320 | ||||||||||
6.75%, 11/15/39 | 1 | 1,630 | ||||||||||
Devon Energy Corp. | 25 | 25,456 | ||||||||||
Ecopetrol SA | 15 | 13,877 | ||||||||||
Enable Midstream Partners LP | 54 | 52,555 |
36 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EnLink Midstream Partners LP | U.S.$ | 26 | $ | 25,995 | ||||||||
Hess Corp. | 78 | 77,758 | ||||||||||
Kinder Morgan, Inc./DE | 11 | 14,386 | ||||||||||
Marathon Oil Corp. | 53 | 52,592 | ||||||||||
5.20%, 6/01/45 | 10 | 9,928 | ||||||||||
MPLX LP | 15 | 15,639 | ||||||||||
4.50%, 7/15/23 | 8 | 8,302 | ||||||||||
Nabors Industries, Inc. | 24 | 24,176 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 91 | 92,477 | ||||||||||
Regency Energy Partners LP/Regency Energy Finance Corp. | 40 | 41,838 | ||||||||||
5.00%, 10/01/22 | 15 | 16,476 | ||||||||||
5.50%, 4/15/23 | 31 | 32,464 | ||||||||||
Shell International Finance BV | 114 | 114,247 | ||||||||||
Williams Partners LP | 39 | 39,221 | ||||||||||
5.10%, 9/15/45 | 22 | 22,604 | ||||||||||
|
| |||||||||||
765,224 | ||||||||||||
|
| |||||||||||
Technology – 0.6% | ||||||||||||
Dell International LLC/EMC Corp. | 38 | 39,787 | ||||||||||
6.02%, 6/15/26(a) | 25 | 27,243 | ||||||||||
Hewlett Packard Enterprise Co. | 3 | 3,635 | ||||||||||
Micron Technology, Inc. | 18 | 19,884 | ||||||||||
Seagate HDD Cayman | 28 | 27,292 | ||||||||||
4.875%, 6/01/27 | 8 | 7,309 | ||||||||||
Western Digital Corp. | 36 | 39,194 | ||||||||||
|
| |||||||||||
164,344 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
AerCap Aviation Solutions BV | 29 | 29,244 | ||||||||||
|
| |||||||||||
2,027,905 | ||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Financial Institutions – 5.7% | ||||||||||||
Banking – 3.9% | ||||||||||||
BNP Paribas SA | U.S.$ | 58 | $ | 63,567 | ||||||||
BPCE SA | 82 | 89,044 | ||||||||||
Credit Suisse Group Funding Guernsey Ltd. | 92 | 93,818 | ||||||||||
Deutsche Bank AG | 50 | 50,721 | ||||||||||
HSBC Capital Funding Dollar 1 LP | 19 | 28,495 | ||||||||||
HSBC Holdings PLC | EUR | 58 | 70,120 | |||||||||
ING Groep NV | U.S.$ | 58 | 59,678 | |||||||||
JPMorgan Chase & Co. | 48 | 48,026 | ||||||||||
Series V | 5 | 4,733 | ||||||||||
Morgan Stanley | 87 | 90,189 | ||||||||||
Nationwide Building Society | 73 | 72,119 | ||||||||||
Royal Bank of Scotland Group PLC | 58 | 58,356 | ||||||||||
Santander UK Group Holdings PLC | 58 | 58,075 | ||||||||||
Standard Chartered PLC | 58 | 58,706 | ||||||||||
UBS Group Funding Jersey Ltd. | 64 | 63,176 | ||||||||||
US Bancorp | 17 | 18,122 | ||||||||||
Wells Fargo & Co. | 88 | 92,795 | ||||||||||
|
| |||||||||||
1,019,740 | ||||||||||||
|
| |||||||||||
Brokerage – 0.2% | ||||||||||||
E*TRADE Financial Corp. | 4 | 4,617 | ||||||||||
GFI Group, Inc. | 34 | 36,207 | ||||||||||
|
| |||||||||||
40,824 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
International Lease Finance Corp. | 64 | 65,873 | ||||||||||
|
|
38 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Insurance – 0.7% | ||||||||||||
Allstate Corp. (The) | U.S.$ | 10 | $ | 12,013 | ||||||||
Chubb Corp. (The) | 29 | 28,522 | ||||||||||
Nationwide Mutual Insurance Co. | 31 | 50,374 | ||||||||||
Progressive Corp. (The) | 22 | 22,218 | ||||||||||
Prudential Financial, Inc. | 70 | 76,177 | ||||||||||
|
| |||||||||||
189,304 | ||||||||||||
|
| |||||||||||
REITS – 0.7% | ||||||||||||
DDR Corp. | 12 | 13,477 | ||||||||||
EPR Properties | 48 | 55,014 | ||||||||||
HCP, Inc. | 50 | 51,483 | ||||||||||
Senior Housing Properties Trust | 9 | 9,793 | ||||||||||
VEREIT Operating Partnership LP | 8 | 8,349 | ||||||||||
Welltower, Inc. | 33 | 35,442 | ||||||||||
|
| |||||||||||
173,558 | ||||||||||||
|
| |||||||||||
1,489,299 | ||||||||||||
|
| |||||||||||
Utility – 0.7% | ||||||||||||
Electric – 0.7% | ||||||||||||
Duke Energy Corp. | 87 | 91,858 | ||||||||||
Empresa de Energia de Bogota SA ESP | 44 | 45,075 | ||||||||||
FirstEnergy Corp. | 6 | 5,866 | ||||||||||
Series B | 8 | 8,789 | ||||||||||
PPL Capital Funding, Inc. | 35 | 33,695 | ||||||||||
|
| |||||||||||
185,283 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 3,702,487 | |||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
COMMON STOCKS – 3.8% | ||||||||||||
Consumer Discretionary – 1.0% | ||||||||||||
Media – 0.7% | ||||||||||||
Charter Communications, Inc. – Class A(g) | 79 | $ | 27,268 | |||||||||
Clear Channel Outdoor Holdings, Inc. – Class A | 3,060 | 15,759 | ||||||||||
DISH Network Corp. – Class A(g) | 251 | 16,174 | ||||||||||
Gray Television, Inc.(g) | 1,832 | 26,839 | ||||||||||
Nexstar Media Group, Inc. – Class A | 563 | 38,847 | ||||||||||
Sinclair Broadcast Group, Inc. – Class A | 650 | 25,642 | ||||||||||
Townsquare Media, Inc. – Class A(g) | 2,427 | 29,367 | ||||||||||
|
| |||||||||||
179,896 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure – 0.3% | ||||||||||||
eDreams ODIGEO SA(g) | 12,126 | 41,846 | ||||||||||
Eldorado Resorts, Inc.(g) | 965 | 18,456 | ||||||||||
|
| |||||||||||
60,302 | ||||||||||||
|
| |||||||||||
Household Durables – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. – Class A(g) | 3,276 | 7,666 | ||||||||||
|
| |||||||||||
Auto Components – 0.0% | ||||||||||||
Exide Technologies(g) | 1,012 | 759 | ||||||||||
|
| |||||||||||
248,623 | ||||||||||||
|
| |||||||||||
Energy – 0.8% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.8% | ||||||||||||
Berry Petroleum Co. LLC(b) | 2,202 | 25,323 | ||||||||||
CHC Group LLC(c)(g)(h) | 1,219 | 14,018 | ||||||||||
Chesapeake Energy Corp.(g) | 4,047 | 21,287 | ||||||||||
Edcon Ltd. A Shares(b)(c) | 191,574 | – 0 | – | |||||||||
Edcon Ltd. B Shares(b)(c) | 30,276 | – 0 | – | |||||||||
EP Energy Corp. – Class A(g) | 2,501 | 11,305 | ||||||||||
Halcon Resources Corp.(g) | 276 | 1,849 | ||||||||||
Linn Energy, Inc. | 96 | 2,691 | ||||||||||
Linn Energy, Inc.(g) | 1,696 | 47,539 | ||||||||||
Peabody Energy Corp.(g) | 1,386 | 35,218 | ||||||||||
Peabody Energy Corp.(b)(c) | 64 | 1,626 | ||||||||||
SandRidge Energy, Inc.(g) | 578 | 10,647 | ||||||||||
Triangle Petroleum Corp.(g) | 3,047 | 208 | ||||||||||
Vantage Drilling International(b)(g) | 82 | 13,530 | ||||||||||
Whiting Petroleum Corp.(g) | 2,571 | 21,339 | ||||||||||
|
| |||||||||||
206,580 | ||||||||||||
|
| |||||||||||
Financials – 0.2% | ||||||||||||
Diversified Financial Services – 0.2% | ||||||||||||
Holdco, Inc. | 59,949 | 38,367 | ||||||||||
|
|
40 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Consumer Finance – 0.0% | ||||||||||||
Enova International, Inc.(g) | 747 | $ | 10,608 | |||||||||
|
| |||||||||||
48,975 | ||||||||||||
|
| |||||||||||
Health Care – 0.5% | ||||||||||||
Health Care Providers & Services – 0.3% | ||||||||||||
Community Health Systems, Inc.(g) | 4,311 | 37,118 | ||||||||||
LifePoint Health, Inc.(g) | 413 | 25,668 | ||||||||||
Quorum Health Corp.(g) | 188 | 803 | ||||||||||
Tenet Healthcare Corp.(g) | 1,007 | 15,779 | ||||||||||
|
| |||||||||||
79,368 | ||||||||||||
|
| |||||||||||
Pharmaceuticals – 0.2% | ||||||||||||
Endo International PLC(g) | 2,387 | 27,140 | ||||||||||
Horizon Pharma PLC(g) | 1,188 | 18,271 | ||||||||||
Valeant Pharmaceuticals International, Inc.(g) | 559 | 5,171 | ||||||||||
|
| |||||||||||
50,582 | ||||||||||||
|
| |||||||||||
129,950 | ||||||||||||
|
| |||||||||||
Industrials – 0.9% | ||||||||||||
Machinery – 0.1% | ||||||||||||
Navistar International Corp.(g) | 752 | 20,237 | ||||||||||
|
| |||||||||||
Energy Equipment & Services – 0.0% | ||||||||||||
Sanchez Energy Corp.(g) | 54 | 418 | ||||||||||
|
| |||||||||||
Trading Companies & Distributors – 0.0% | ||||||||||||
Emeco Holdings Ltd.(g) | 16,027 | 1,020 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Exide Corp.(c)(g)(h) | 511 | 383 | ||||||||||
|
| |||||||||||
Energy Other – 0.7% | ||||||||||||
Tervita Corp.(b)(c)(g) | 24,991 | 180,789 | ||||||||||
|
| |||||||||||
Construction & Engineering – 0.1% | ||||||||||||
Modular Space Corp.(c)(e) | 2,407 | 31,291 | ||||||||||
|
| |||||||||||
234,138 | ||||||||||||
|
| |||||||||||
Information Technology – 0.1% | ||||||||||||
IT Services – 0.1% | ||||||||||||
Travelport Worldwide Ltd. | 2,772 | 36,507 | ||||||||||
|
| |||||||||||
Materials – 0.3% | ||||||||||||
Metals & Mining – 0.2% | ||||||||||||
ArcelorMittal (New York)(g) | 3,016 | 23,525 | ||||||||||
Constellium NV – Class A(g) | 3,700 | 25,715 | ||||||||||
Neenah Enterprises, Inc.(b)(c)(g) | 4,481 | 10,037 | ||||||||||
|
| |||||||||||
59,277 | ||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Chemicals – 0.1% | ||||||||||||
LyondellBasell Industries NV – Class A | 177 | $ | 15,003 | |||||||||
|
| |||||||||||
74,280 | ||||||||||||
|
| |||||||||||
Total Common Stocks | 979,053 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
BANK LOANS – 2.2% | ||||||||||||
Industrial – 2.2% | ||||||||||||
Basic – 0.1% | ||||||||||||
Foresight Energy LLC | U.S.$ | 13 | 12,658 | |||||||||
Magnetation LLC | 65 | – 0 | – | |||||||||
Unifrax I LLC | 11 | 11,258 | ||||||||||
|
| |||||||||||
23,916 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
Gardner Denver, Inc. | – 0 | –** | 622 | |||||||||
4.568% (LIBOR 6 Month + 3.25%), | 22 | 21,648 | ||||||||||
|
| |||||||||||
22,270 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.2% | ||||||||||||
Cooper-Standard Automotive Inc. | 12 | 11,681 | ||||||||||
Navistar, Inc. | 32 | 32,317 | ||||||||||
|
| |||||||||||
43,998 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.1% | ||||||||||||
Seaworld Parks & Entertainment, Inc. (fka SW Acquisitions Co., Inc.) | 25 | 25,110 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||||
Serta Simmons Bedding, LLC | 51 | 51,927 | ||||||||||
|
|
42 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Non-Cyclical – 0.2% | ||||||||||||
Air Medical Group Holdings, Inc. | U.S.$ | 22 | $ | 21,556 | ||||||||
DJO Finance LLC | 25 | 24,537 | ||||||||||
Vizient, Inc. | 2 | 1,929 | ||||||||||
|
| |||||||||||
48,022 | ||||||||||||
|
| |||||||||||
Energy – 0.2% | ||||||||||||
California Resources Corporation | 46 | 50,861 | ||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
Travelport Finance (Luxembourg) SARL | 38 | 37,864 | ||||||||||
|
| |||||||||||
Technology – 1.0% | ||||||||||||
Avaya Inc. | 121 | 100,664 | ||||||||||
8.50% (LIBOR 3 Month + 7.50%), | 7 | 7,127 | ||||||||||
Conduent Incorporated | 5 | 5,024 | ||||||||||
MTS Systems Corporation | 27 | 27,226 | ||||||||||
Smart Modular Technologies (Global), Inc. | 21 | 20,639 | ||||||||||
Solera, LLC (Solera Finance, Inc.) | 60 | 60,729 | ||||||||||
Veritas US Inc. | 42 | 41,898 | ||||||||||
|
| |||||||||||
263,307 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 567,275 | |||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – CORPORATE BONDS – 2.1% | ||||||||||||
Industrial – 2.1% | ||||||||||||
Basic – 0.3% | ||||||||||||
Consolidated Energy Finance SA | U.S.$ | 85 | $ | 86,291 | ||||||||
|
| |||||||||||
Capital Goods – 0.2% | ||||||||||||
Odebrecht Finance Ltd. | 95 | 42,617 | ||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.4% | ||||||||||||
Columbus Cable Barbados Ltd. | 67 | 71,484 | ||||||||||
Digicel Ltd. | 36 | 34,513 | ||||||||||
|
| |||||||||||
105,997 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.2% | ||||||||||||
Silversea Cruise Finance Ltd. | 34 | 36,131 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||||
K2016470219 South Africa Ltd. | 14 | 1,484 | ||||||||||
K2016470260 South Africa Ltd. | 3 | 4,371 | ||||||||||
|
| |||||||||||
5,855 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.4% | ||||||||||||
Arcelik AS | 29 | 28,485 | ||||||||||
Minerva Luxembourg SA | 58 | 57,623 | ||||||||||
Tonon Luxembourg SA | 6 | 631 | ||||||||||
Virgolino de Oliveira Finance SA | 96 | 7,573 | ||||||||||
|
| |||||||||||
94,312 | ||||||||||||
|
| |||||||||||
Energy – 0.6% | ||||||||||||
CHC Group LLC/CHC Finance Ltd. | 65 | 101,014 |
44 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Petrobras Global Finance BV | U.S.$ | 35 | $ | 36,261 | ||||||||
8.375%, 5/23/21 | 23 | 26,325 | ||||||||||
|
| |||||||||||
163,600 | ||||||||||||
|
| |||||||||||
534,803 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.0% | ||||||||||||
Insurance – 0.0% | ||||||||||||
XLIT Ltd. | 3 | 2,973 | ||||||||||
|
| |||||||||||
Other Finance – 0.0% | ||||||||||||
Guanay Finance Ltd. | 8 | 7,918 | ||||||||||
|
| |||||||||||
10,891 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 545,694 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 1.7% | ||||||||||||
Financial Institutions – 1.3% | ||||||||||||
Banking – 0.3% | ||||||||||||
GMAC Capital Trust I | 357 | 9,089 | ||||||||||
Morgan Stanley | 1,814 | 47,851 | ||||||||||
US Bancorp | 1,056 | 30,983 | ||||||||||
|
| |||||||||||
87,923 | ||||||||||||
|
| |||||||||||
REITS – 0.9% | ||||||||||||
Sovereign Real Estate Investment Trust | 182 | 226,362 | ||||||||||
|
| |||||||||||
Services – 0.1% | ||||||||||||
Holdco, Inc. | 361 | 36,100 | ||||||||||
|
| |||||||||||
350,385 | ||||||||||||
|
| |||||||||||
Industrial – 0.3% | ||||||||||||
Basic – 0.1% | ||||||||||||
Peabody Energy Corp. | 462 | 25,410 | ||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. | 490 | $ | 3,347 | |||||||||
|
| |||||||||||
Energy – 0.2% | ||||||||||||
Berry Petroleum Co. LLC | 1,821 | 24,584 | ||||||||||
Sanchez Energy Corp. | 962 | 27,234 | ||||||||||
Tervita Corp. | 599 | 4,333 | ||||||||||
|
| |||||||||||
56,151 | ||||||||||||
|
| |||||||||||
84,908 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
SCE Trust III | 423 | 11,971 | ||||||||||
|
| |||||||||||
Total Preferred Stocks | 447,264 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
GOVERNMENTS – TREASURIES – 1.0% | ||||||||||||
Mexico – 0.2% | ||||||||||||
Mexican Bonos | MXN | 1,202 | 57,846 | |||||||||
|
| |||||||||||
United States – 0.8% | ||||||||||||
U.S. Treasury Bonds | U.S.$ | 135 | 140,124 | |||||||||
U.S. Treasury Notes | 76 | 75,716 | ||||||||||
|
| |||||||||||
215,840 | ||||||||||||
|
| |||||||||||
Total Governments – Treasuries | 273,686 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 1.0% | ||||||||||||
Risk Share Floating Rate – 0.9% | ||||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 15 | 17,955 |
46 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2013-DN2, Class M2 | U.S.$ | 52 | $ | 57,832 | ||||||||
Series 2014-DN1, Class M3 | 36 | 41,941 | ||||||||||
Series 2014-HQ2, Class M3 | 54 | 58,483 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 15 | 16,843 | ||||||||||
Series 2014-C01, Class M2 | 27 | 30,342 | ||||||||||
Series 2015-C03, Class 1M2 | 7 | 8,038 | ||||||||||
Series 2015-C03, Class 2M2 | 3 | 3,244 | ||||||||||
|
| |||||||||||
234,678 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.1% | ||||||||||||
Alternative Loan Trust | 7 | 5,432 | ||||||||||
CSMC Mortgage-Backed Trust | 11 | 8,792 | ||||||||||
|
| |||||||||||
14,224 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 248,902 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 0.8% | ||||||||||||
Home Equity Loans - Fixed Rate – 0.4% | ||||||||||||
CWABS Asset-Backed Certificates Trust | 57 | 56,527 | ||||||||||
GSAA Home Equity Trust | 82 | 39,914 | ||||||||||
|
| |||||||||||
96,441 | ||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Home Equity Loans - Floating Rate – 0.2% | ||||||||||||
Lehman XS Trust | U.S.$ | 39 | $ | 57,779 | ||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 0.2% | ||||||||||||
Taco Bell Funding LLC | 16 | 16,655 | ||||||||||
Series 2016-1A, Class A2I | 29 | 29,513 | ||||||||||
|
| |||||||||||
46,168 | ||||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 200,388 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.4% | ||||||||||||
United States – 0.4% | ||||||||||||
State of California | 25 | 37,200 | ||||||||||
7.95%, 3/01/36 | 55 | 63,473 | ||||||||||
|
| |||||||||||
Total Local Governments – US Municipal Bonds | 100,673 | |||||||||||
|
| |||||||||||
QUASI-SOVEREIGNS – 0.3% | ||||||||||||
Quasi-Sovereign Bonds – 0.3% | ||||||||||||
Mexico – 0.3% | ||||||||||||
Petroleos Mexicanos | 87 | 91,571 | ||||||||||
|
| |||||||||||
COLLATERALIZED LOAN OBLIGATIONS – 0.3% | ||||||||||||
Collateralized Loan Obligation - Floating Rate – 0.3% | ||||||||||||
CIFC Funding Ltd. | 73 | 70,771 | ||||||||||
|
| |||||||||||
48 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.2% | ||||||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||||||
Bear Stearns Commercial Mortgage Securities Trust | U.S.$ | 1 | $ | 983 | ||||||||
Citigroup Commercial Mortgage Trust | 15 | 12,633 | ||||||||||
GS Mortgage Securities Trust | 29 | 24,888 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 29 | 27,184 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 65,688 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 0.1% | ||||||||||||
Funds and Investment Trusts – 0.1%(p) | ||||||||||||
iShares Russell 2000 ETF | 243 | 33,792 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.1% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentine Republic Government International Bond | U.S.$ | 26 | 27,314 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
WARRANTS – 0.1% | ||||||||||||
Energy – 0.0% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.0% | ||||||||||||
Midstates Petroleum Co., Inc., | 860 | 3,870 | ||||||||||
Peabody Energy Corp., expiring 7/03/17(b)(c)(g) | 69 | 1,752 | ||||||||||
SandRidge Energy, Inc., A-CW22, | 1,975 | 1,975 | ||||||||||
SandRidge Energy, Inc., B-CW22, | 830 | 465 | ||||||||||
|
| |||||||||||
8,062 | ||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Financials – 0.1% | ||||||||||||
Diversified Financial Services – 0.1% | ||||||||||||
iPayment Holdings, Inc., expiring 12/29/22(b)(c)(g) | 21,438 | $ | 11,362 | |||||||||
|
| |||||||||||
Information Technology – 0.0% | ||||||||||||
Semiconductors & Semiconductor Equipment – 0.0% | ||||||||||||
Smart Modular Technologies, expiring 11/05/21(g) | 455 | – 0 | – | |||||||||
Smart Modular Technologies, expiring 11/05/22(g) | 569 | – 0 | – | |||||||||
|
| |||||||||||
– 0 | – | |||||||||||
|
| |||||||||||
Materials – 0.0% | ||||||||||||
Communications Equipment – 0.0% | ||||||||||||
FairPoint Communications, Inc., expiring 1/24/18(b)(g) | 973 | 10 | ||||||||||
|
| |||||||||||
Total Warrants | 19,434 | |||||||||||
|
| |||||||||||
Contracts | ||||||||||||
OPTIONS PURCHASED – PUTS – 0.1% | ||||||||||||
Options on Equities – 0.1% | ||||||||||||
Micron Technology, Inc. | 205 | 9,020 | ||||||||||
Universal Corp./VA | 81 | 2,835 | ||||||||||
|
| |||||||||||
11,855 | ||||||||||||
|
| |||||||||||
Options on Funds and Investment Trusts – 0.0% | ||||||||||||
SPDR S&P 500 ETF Trust | 104 | 4,108 | ||||||||||
|
| |||||||||||
Notional Amount (000) | ||||||||||||
Swaptions – 0.0% | ||||||||||||
CDX-NAHY Series 28, 5 Year Index RTP, Credit Suisse International (Buy Protection) | U.S.$ | 4,980 | 1,771 | |||||||||
|
| |||||||||||
Total Options Purchased – Puts | 17,734 | |||||||||||
|
|
50 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Contracts | U.S. $ Value | ||||||||||
| ||||||||||||
OPTIONS PURCHASED – CALLS – 0.0% | ||||||||||||
Options on Equities – 0.0% | ||||||||||||
Valeant Pharmaceuticals International, Inc. | 264 | $ | 3,432 | |||||||||
|
| |||||||||||
Options on Funds and Investment Trusts – 0.0% | ||||||||||||
SPDR S&P 500 ETF Trust | 20 | 1,930 | ||||||||||
|
| |||||||||||
Options on Indices – 0.0% | ||||||||||||
Euro STOXX 50 Index | 105 | 1,597 | ||||||||||
|
| |||||||||||
Total Options Purchased – Calls | 6,959 | |||||||||||
|
| |||||||||||
Total Investments – 93.6% | 24,423,753 | |||||||||||
Other assets less liabilities – 6.4% | 1,668,059 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 26,091,812 | ||||||||||
|
|
FUTURES (see Note C)
Type | Number of Contracts | Expiration Month | Original Value | Value at April 30, 2017 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts |
| |||||||||||||||||||
Euro STOXX 50 Index Futures | 7 | June 2017 | $ | 254,836 | $ | 267,488 | $ | 12,652 | ||||||||||||
Sold Contracts | ||||||||||||||||||||
Euro-OAT Futures | 2 | June 2017 | 319,652 | 326,441 | (6,789 | ) | ||||||||||||||
Russell 2000 Mini Futures | 2 | June 2017 | 137,385 | 139,840 | (2,455 | ) | ||||||||||||||
S&P 500 E Mini Futures | 1 | June 2017 | 117,661 | 119,025 | (1,364 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | 2,044 | |||||||||||||||||||
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 51 |
PORTFOLIO OF INVESTMENTS (continued)
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note C)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Bank of America, NA | USD | 240 | RUB | 13,610 | 6/22/17 | $ | (3,644 | ) | ||||||||||||
Barclays Bank PLC | KRW | 502,334 | USD | 444 | 5/18/17 | 2,143 | ||||||||||||||
Barclays Bank PLC | USD | 211 | KRW | 243,438 | 5/18/17 | 3,189 | ||||||||||||||
Barclays Bank PLC | EUR | 3,170 | USD | 3,457 | 7/13/17 | (8,698 | ) | |||||||||||||
Citibank, NA | GBP | 792 | USD | 969 | 5/18/17 | (57,645 | ) | |||||||||||||
Citibank, NA | USD | 676 | GBP | 527 | 5/18/17 | 5,984 | ||||||||||||||
Citibank, NA | USD | 161 | KRW | 182,418 | 5/18/17 | (298 | ) | |||||||||||||
Citibank, NA | BRL | 512 | USD | 159 | 6/02/17 | (1,490 | ) | |||||||||||||
Citibank, NA | USD | 780 | CNY | 5,395 | 6/12/17 | (712 | ) | |||||||||||||
Citibank, NA | TWD | 6,964 | USD | 228 | 6/13/17 | (3,057 | ) | |||||||||||||
Citibank, NA | USD | 163 | TWD | 4,880 | 6/13/17 | (811 | ) | |||||||||||||
Citibank, NA | USD | 265 | PEN | 862 | 6/14/17 | (439 | ) | |||||||||||||
Citibank, NA | PEN | 585 | USD | 179 | 6/16/17 | (521 | ) | |||||||||||||
Citibank, NA | CAD | 921 | USD | 689 | 6/22/17 | 13,307 | ||||||||||||||
Citibank, NA | RUB | 9,607 | USD | 166 | 6/22/17 | (882 | ) | |||||||||||||
Credit Suisse International | BRL | 729 | USD | 229 | 5/03/17 | (286 | ) | |||||||||||||
Credit Suisse International | USD | 228 | BRL | 729 | 5/03/17 | 1,749 | ||||||||||||||
Credit Suisse International | USD | 228 | BRL | 729 | 6/02/17 | 392 | ||||||||||||||
Deutsche Bank AG | BRL | 729 | USD | 228 | 5/03/17 | (1,749 | ) | |||||||||||||
Deutsche Bank AG | USD | 231 | BRL | 729 | 5/03/17 | (1,351 | ) | |||||||||||||
JPMorgan Chase Bank, NA | CNY | 7,745 | USD | 1,116 | 6/12/17 | (2,317 | ) | |||||||||||||
State Street Bank & Trust Co. | GBP | 100 | USD | 122 | 5/18/17 | (7,956 | ) | |||||||||||||
State Street Bank & Trust Co. | SGD | 317 | USD | 225 | 5/18/17 | (2,306 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 262 | GBP | 204 | 5/18/17 | 2,321 | ||||||||||||||
State Street Bank & Trust Co. | USD | 162 | SGD | 226 | 5/18/17 | 78 | ||||||||||||||
State Street Bank & Trust Co. | MXN | 2,209 | USD | 116 | 6/16/17 | 9 | ||||||||||||||
State Street Bank & Trust Co. | MXN | 4,210 | USD | 222 | 6/16/17 | (241 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 211 | MXN | 3,960 | 6/16/17 | (1,834 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 477 | CAD | 649 | 6/22/17 | (1,450 | ) | |||||||||||||
State Street Bank & Trust Co. | AUD | 572 | USD | 432 | 7/10/17 | 4,029 | ||||||||||||||
State Street Bank & Trust Co. | USD | 294 | AUD | 394 | 7/10/17 | 1,101 | ||||||||||||||
State Street Bank & Trust Co. | USD | 2,503 | EUR | 2,293 | 7/13/17 | 3,793 | ||||||||||||||
|
| |||||||||||||||||||
$ | (59,592 | ) | ||||||||||||||||||
|
|
CALL OPTIONS WRITTEN (see Note C)
Description | Contracts | Exercise Price | Expiration Month | Premiums Received | U.S. $ Value | |||||||||||||||
Valeant Pharmaceuticals International, Inc.(q) | 264 | $ | 20.00 | July 2017 | $ | 2,101 | $ | (1,584 | ) |
PUT OPTIONS WRITTEN (see Note C)
Description | Contracts | Exercise Price | Expiration Month | Premiums Received | U.S. $ Value | |||||||||||||||
Micron Technology, Inc.(q) | 205 | $ | 22.00 | June 2017 | $ | 2,451 | $ | (2,255 | ) | |||||||||||
SPDR S&P 500 ETF Trust(q) | 104 | 219.00 | May 2017 | 4,675 | (1,508 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||
$ | 7,126 | $ | (3,763 | ) | ||||||||||||||||
|
|
|
|
52 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CREDIT DEFAULT SWAPTIONS WRITTEN (see Note C)
Description | Counter- party | Buy/Sell Protection | Strike Rate | Expiration Month | Notional Amount (000) | Premiums Received | Market Value | |||||||||||||||||||
Put – CDX-NAHY Series 28, 5 Year Index | Credit Suisse International | Sell | 103.00 | % | May, 2017 | $ | 4,980 | $ | 2,988 | $ | (1,656 | ) |
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note C)
Clearing Broker/(Exchange) & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Buy Contracts | ||||||||||||||||||||
Citigroup Global Markets, Inc./(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 26, 5 Year Index, 6/20/21* | (5.00 | )% | 2.68 | % | $ | 489 | $ | (45,308 | ) | $ | (35,247 | ) | ||||||||
iTraxx-XOVER Series 25, 5 Year Index, 6/20/21* | (5.00 | ) | 2.17 | EUR | 14 | (1,770 | ) | (955 | ) | |||||||||||
Morgan Stanley & Co., LLC/(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 28, 5 Year Index, 6/20/22* | (5.00 | ) | 3.28 | $ | 1,039 | (84,932 | ) | (10,866 | ) | |||||||||||
CDX-NAIG Series 20, 5 Year Index, 6/20/18* | (1.00 | ) | 0.09 | 227 | (2,635 | ) | (1,917 | ) | ||||||||||||
iTraxx-XOVER Series 21, 5 Year Index, 6/20/19* | (5.00 | ) | 0.57 | EUR | – 0 | – | (14 | ) | (7 | ) | ||||||||||
iTraxx-XOVER Series 25, 5 Year Index, 6/20/21* | (5.00 | ) | 2.17 | 46 | (5,818 | ) | (3,149 | ) | ||||||||||||
iTraxx-XOVER Series 27, 5 Year Index, 6/20/22* | (5.00 | ) | 2.66 | 1,390 | (173,548 | ) | (35,968 | ) | ||||||||||||
Sale Contracts | ||||||||||||||||||||
Morgan Stanley & Co., LLC/(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 26, 5 Year Index, 6/20/21* | 5.00 | 2.68 | $ | 509 | 47,143 | 28,846 | ||||||||||||||
iTraxx-XOVER Series 27, 5 Year Index, 6/20/22* | 5.00 | 2.66 | EUR | 1,080 | 134,933 | 9,564 | ||||||||||||||
|
|
|
| |||||||||||||||||
$ | (131,949 | ) | $ | (49,699 | ) | |||||||||||||||
|
|
|
|
* | Termination date |
abfunds.com | AB HIGH YIELD PORTFOLIO | 53 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||
Clearing Broker/ (Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Citigroup Global Markets, Inc./(CME Group) | $ | 300 | 1/15/26 | 1.978% | 3 Month LIBOR | $ | 4,107 | |||||||||||||
Citigroup Global Markets, Inc./(CME Group) | 170 | 2/16/26 | 1.625% | 3 Month LIBOR | 7,998 | |||||||||||||||
Citigroup Global Markets, Inc./(CME Group) | 150 | 3/31/26 | 1.693% | 3 Month LIBOR | 6,500 | |||||||||||||||
Citigroup Global Markets, Inc./(CME Group) | 100 | 5/03/26 | 1.770% | 3 Month LIBOR | 3,189 | |||||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,835 | 9/02/25 | 2.248% | 3 Month LIBOR | (17,598 | ) | ||||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 661 | 1/15/26 | 1.978% | 3 Month LIBOR | 9,050 | |||||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 481 | 2/16/26 | 1.625% | 3 Month LIBOR | 22,629 | |||||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 800 | 6/01/26 | 1.714% | 3 Month LIBOR | 30,510 | |||||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 4,650 | 4/28/27 | 3 Month LIBOR | 2.330% | 21,650 | |||||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 350 | 5/03/27 | 2.285% | 3 Month LIBOR | 64 | |||||||||||||||
|
| |||||||||||||||||||
$ | 88,099 | |||||||||||||||||||
|
|
CREDIT DEFAULT SWAPS (see Note C)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||
CDX-CMBX.NA.BB | (5.00 | )% | 9.75 | % | $ | 180 | $ | 33,859 | $ | 23,635 | $ | 10,224 | ||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
British Telecommunications PLC, | (1.00 | ) | 0.44 | EUR | 170 | (3,500 | ) | (3,877 | ) | 377 | ||||||||||||||
British Telecommunications PLC, | (1.00 | ) | 0.44 | 880 | (18,115 | ) | (14,741 | ) | (3,374 | ) |
54 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BB | (5.00 | )% | 9.75 | % | $ | 390 | $ | 73,361 | $ | 51,836 | $ | 21,525 | ||||||||||||
CDX-CMBX.NA.BB | (5.00 | ) | 9.75 | 245 | 46,052 | 50,142 | (4,090 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB | (3.00 | ) | 5.54 | 130 | 14,456 | 15,991 | (1,535 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB | (3.00 | ) | 5.54 | 405 | 45,036 | 50,831 | (5,795 | ) | ||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||
K. Hovnanian Enterprises, Inc., | 5.00 | 17.04 | 63 | (18,101 | ) | (12,160 | ) | (5,941 | ) | |||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 29 | (5,451 | ) | (3,751 | ) | (1,700 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 69 | (12,970 | ) | (8,283 | ) | (4,687 | ) | |||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB | 3.00 | 5.54 | 75 | (8,339 | ) | (5,280 | ) | (3,059 | ) | |||||||||||||||
CDX-CMBX.NA.BBB | 3.00 | 5.54 | 252 | (28,023 | ) | (18,215 | ) | (9,808 | ) | |||||||||||||||
Goldman Sachs Bank USA | ||||||||||||||||||||||||
Nine West Holdings, Inc., | 5.00 | 58.78 | 50 | (33,428 | ) | 627 | (34,055 | ) | ||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc., | 5.00 | 4.65 | 27 | 572 | 1,850 | (1,278 | ) | |||||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 35 | (6,579 | ) | (4,704 | ) | (1,875 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 35 | (6,579 | ) | (4,581 | ) | (1,998 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 42 | (7,874 | ) | (5,217 | ) | (2,657 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 60 | (11,278 | ) | (7,843 | ) | (3,435 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 121 | (22,744 | ) | (16,212 | ) | (6,532 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 227 | (42,669 | ) | (29,620 | ) | (13,049 | ) | |||||||||||||||
CDX-CMBX.NA.BB | 5.00 | 9.75 | 278 | (52,258 | ) | (34,536 | ) | (17,722 | ) |
abfunds.com | AB HIGH YIELD PORTFOLIO | 55 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BBB Series 6, 5/11/63* | 3.00 | % | 5.54 | % | $ | 11 | $ | (1,223 | ) | $ | (774 | ) | $ | (449 | ) | |||||||||
CDX-CMBX.NA.BBB Series 6, 5/11/63* | 3.00 | 5.54 | 332 | (36,918 | ) | (24,684 | ) | (12,234 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (102,713 | ) | $ | 434 | $ | (103,147 | ) | |||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note C)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||
Citibank, NA | ||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 613,000 | LIBOR | $ | 613 | 6/20/17 | $ | 11,394 | |||||||||||||
iBoxx $ Liquid High Yield Index | 409,000 | LIBOR | 409 | 6/20/17 | 3,577 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 162,000 | LIBOR | 162 | 6/20/17 | 2,530 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 202,000 | LIBOR | 202 | 6/20/17 | 1,767 | |||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 2,220,000 | LIBOR | 2,220 | 6/20/17 | 45,683 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 622,000 | LIBOR | 622 | 6/20/17 | 4,835 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 606,000 | LIBOR | 606 | 6/20/17 | 3,828 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 404,000 | LIBOR | 404 | 6/20/17 | 2,552 | |||||||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 1,770,000 | LIBOR | 1,770 | 6/20/17 | 41,292 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 393,000 | LIBOR | 393 | 6/20/17 | 3,246 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 236,000 | LIBOR | 236 | 6/20/17 | 1,949 | |||||||||||||||
Morgan Stanley & Co. International PLC | ||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 467,000 | LIBOR | 467 | 6/20/17 | 7,569 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 196,000 | LIBOR | 196 | 6/20/17 | 1,714 | |||||||||||||||
Pay Total Return on Reference Obligation |
| |||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 1,120,000 | LIBOR | 1,120 | 6/20/17 | (5,453 | ) | ||||||||||||||
iBoxx $ Liquid High Yield Index | 890,000 | LIBOR | 890 | 6/20/17 | (7,463 | ) | ||||||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 2,290,000 | LIBOR | 2,290 | 6/20/17 | 4,249 | |||||||||||||||
iBoxx $ Liquid High Yield Index | 890,000 | LIBOR | 890 | 6/20/17 | (13,897 | ) | ||||||||||||||
iBoxx $ Liquid High Yield Index | 2,240,000 | LIBOR | 2,240 | 6/20/17 | (34,424 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | 74,948 | |||||||||||||||||||
|
|
** | Principal amount less than 500. |
(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 April 30, 2017, the aggregate market value of these securities amounted to $9,229,929 or 35.4% of net assets. |
(b) | Illiquid security. |
(c) | Fair valued by the Adviser. |
56 | AB HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(d) | Pay-In-Kind Payments (PIK). The issuer may pay cash interest and/or interest in additional debt securities. Rates shown are the rates in effect at April 30, 2017. |
(e) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.35% of net assets as of April 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Artsonig Pty Ltd. | 4/01/17 | $ | 5,865 | $ | 2,147 | 0.01 | % | |||||||||
Avaya, Inc. | 1/25/17-2/01/17 | 32,309 | 19,480 | 0.07 | % | |||||||||||
Creditcorp | 6/28/13-7/21/14 | 33,128 | 28,568 | 0.11 | % | |||||||||||
Exide Technologies 7.00%, 4/30/25 | 11/10/16 | 1,951 | 1,744 | 0.01 | % | |||||||||||
iPayment, Inc. | 12/29/14-2/27/15 | – 0 | – | – 0 | – | 0.00 | % | |||||||||
Magnetation LLC/Mag Finance Corp. | 7/17/14-2/19/15 | 36,767 | 6 | 0.00 | % | |||||||||||
Modular Space Corp. | 7/16/14-4/03/17 | 10,434 | 31,291 | 0.12 | % | |||||||||||
Tonon Luxembourg SA 7.25%, 1/24/20 | 7/24/15 | 5,690 | 631 | 0.00 | % | |||||||||||
Vantage Drilling International 10.00%, 12/31/20 | 6/17/16 | 850 | 848 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 2/13/13 | 97,067 | 7,573 | 0.03 | % |
(f) | Defaulted. |
(g) | Non-income producing security. |
(h) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
CHC Group LLC | 3/10/17 | $ | 62,260 | $ | 14,018 | 0.05 | % | |||||||||
CHC Group LLC/CHC Finance Ltd. Series AI | 3/10/17 | 41,082 | 101,014 | 0.39 | % | |||||||||||
Exide Corp. | 4/30/15-12/01/16 | 969 | 383 | 0.00 | % | |||||||||||
Exide Technologies Series AI | 12/01/16 | 30,062 | 24,179 | 0.09 | % | |||||||||||
Momentive Performance Materials, Inc. | 7/16/14-10/24/14 | – 0 | – | – 0 | – | 0.00 | % |
(i) | Convertible security. |
(j) | Variable rate coupon, rate shown as of April 30, 2017. |
(k) | Coupon rate adjusts periodically based upon a predetermined schedule. Stated interest rate in effect at April 30, 2017. |
(l) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(m) | Defaulted matured security. |
(n) | Floating Rate Security. Stated interest/floor rate was in effect at April 30, 2017. |
abfunds.com | AB HIGH YIELD PORTFOLIO | 57 |
PORTFOLIO OF INVESTMENTS (continued)
(o) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at April 30, 2017. |
(p) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. |
(q) | One contract relates to 100 shares. |
(r) | One contract relates to 1 share. |
Currency Abbreviations:
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CNY – Chinese Yuan Renminbi
EUR – Euro
GBP – Great British Pound
KRW – South Korean Won
MXN – Mexican Peso
PEN – Peruvian Sol
RUB – Russian Ruble
SGD – Singapore Dollar
TWD – New Taiwan Dollar
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAHY – North American High Yield Credit Default Swap Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
CME – Chicago Mercantile Exchange
ETF – Exchange Traded Fund
INTRCONX – Inter-Continental Exchange
LIBOR – London Interbank Offered Rates
OAT – Obligations Assimilables du Trésor
REIT – Real Estate Investment Trust
RTP – Right To Pay
SPDR – Standard & Poor’s Depository Receipt
See notes to financial statements.
58 | AB HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value (cost $24,008,108) | $ | 24,423,753 | ||
Cash | 1,282,666 | |||
Cash collateral due from broker | 120,628 | |||
Foreign currencies, at value (cost $3,794) | 1,374 | |||
Receivable for investment securities sold | 1,857,938 | |||
Interest receivable | 335,505 | |||
Receivable for terminated centrally cleared credit default swaps | 334,647 | |||
Upfront premiums paid on credit default swaps | 194,912 | |||
Unrealized appreciation on total return swaps | 136,185 | |||
Receivable for capital stock sold | 48,630 | |||
Unrealized appreciation on forward currency exchange contracts | 38,095 | |||
Unrealized appreciation on credit default swaps | 32,126 | |||
Receivable for variation margin on exchange-traded derivatives | 13,403 | |||
Receivable due from Adviser | 12,797 | |||
Affiliated dividends receivable | 975 | |||
|
| |||
Total assets | 28,833,634 | |||
|
| |||
Liabilities | ||||
Options written, at value (premiums received $9,227) | 5,347 | |||
Swaptions written, at value (premiums received $2,988) | 1,656 | |||
Payable for investment securities purchased | 993,384 | |||
Payable to affiliate | 889,609 | |||
Upfront premiums received on credit default swaps | 194,478 | |||
Unrealized depreciation on credit default swaps | 135,273 | |||
Unrealized depreciation on forward currency exchange contracts | 97,687 | |||
Dividends payable | 64,646 | |||
Payable for terminated centrally cleared credit default swaps | 62,619 | |||
Unrealized depreciation on total return swaps | 61,237 | |||
Payable for capital stock redeemed | 10,216 | |||
Transfer Agent fee payable | 6,319 | |||
Distribution fee payable | 1,301 | |||
Payable for variation margin on exchange-traded derivatives | 857 | |||
Accrued expenses and other liabilities | 217,193 | |||
|
| |||
Total liabilities | 2,741,822 | |||
|
| |||
Net Assets | $ | 26,091,812 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 2,691 | ||
Additional paid-in capital | 48,139,703 | |||
Distributions in excess of net investment income | (363,208 | ) | ||
Accumulated net realized loss on investment and foreign currency transactions | (22,059,838 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 372,464 | |||
|
| |||
$ | 26,091,812 | |||
|
|
See notes to financial statements.
abfunds.com | AB HIGH YIELD PORTFOLIO | 59 |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 4,166,276 | 429,848 | $ | 9.69 | * | ||||||
| ||||||||||||
C | $ | 606,754 | 62,584 | $ | 9.70 | |||||||
| ||||||||||||
Advisor | $ | 3,419,629 | 352,662 | $ | 9.70 | |||||||
| ||||||||||||
R | $ | 61,397 | 6,334 | $ | 9.69 | |||||||
| ||||||||||||
K | $ | 9,715 | 1,002 | $ | 9.70 | |||||||
| ||||||||||||
I | $ | 17,455,610 | 1,800,255 | $ | 9.70 | |||||||
| ||||||||||||
Z | $ | 372,431 | 38,447 | $ | 9.69 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.12 which reflects a sales charge of 4.25%. |
See notes to financial statements.
60 | AB HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest | $ | 2,404,001 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 26,778 | |||||||
Affiliated issuers | 6,280 | |||||||
Other income | 3,705 | $ | 2,440,764 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 242,502 | |||||||
Distribution fee—Class A | 4,001 | |||||||
Distribution fee—Class C | 2,288 | |||||||
Distribution fee—Class R | 103 | |||||||
Distribution fee—Class K | 12 | |||||||
Transfer agency—Class A | 2,777 | |||||||
Transfer agency—Class C | 542 | |||||||
Transfer agency—Advisor Class | 2,955 | |||||||
Transfer agency—Class R | 25 | |||||||
Transfer agency—Class K | 2 | |||||||
Transfer agency—Class I | 1,705 | |||||||
Transfer agency—Class Z | 6,210 | |||||||
Custodian | 124,668 | |||||||
Audit and tax | 64,992 | |||||||
Registration fees | 46,429 | |||||||
Administrative | 42,097 | |||||||
Legal | 27,746 | |||||||
Printing | 19,264 | |||||||
Directors’ fees | 11,811 | |||||||
Miscellaneous | 27,963 | |||||||
|
| |||||||
Total expenses before interest expense | 628,092 | |||||||
Interest expense | 145 | |||||||
|
| |||||||
Total expenses | 628,237 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (310,995 | ) | ||||||
|
| |||||||
Net expenses | 317,242 | |||||||
|
| |||||||
Net investment income | 2,123,522 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 835,511 | |||||||
Futures | (173,655 | ) | ||||||
Options written | 63,522 | |||||||
Swaptions written | 6,696 | |||||||
Swaps | (129,633 | ) | ||||||
Foreign currency transactions | 39,989 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 1,439,725 | |||||||
Futures | (7,544 | ) | ||||||
Options written | 5,096 | |||||||
Swaptions written | 1,332 | |||||||
Swaps | 286,687 | |||||||
Foreign currency denominated assets and liabilities | (229,722 | ) | ||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 2,138,004 | |||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 92 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 4,261,618 | ||||||
|
|
See notes to financial statements.
abfunds.com | AB HIGH YIELD PORTFOLIO | 61 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | September 1, 2016 to October 31, 2016(a) | Year Ended August 31, 2016 | ||||||||||
Increase in Net Assets from Operations | ||||||||||||
Net investment income | $ | 2,123,522 | $ | 724,918 | $ | 13,704,381 | ||||||
Net realized gain (loss) on investment and foreign currency transactions | 642,430 | 42,348 | (23,901,121 | ) | ||||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 1,495,574 | 65,248 | 14,488,760 | |||||||||
Contributions from Affiliates (see Note B) | 92 | – 0 | – | – 0 | – | |||||||
|
|
|
|
|
| |||||||
Net increase in net assets from operations | 4,261,618 | 832,514 | 4,292,020 | |||||||||
Dividends to Shareholders from | ||||||||||||
Net investment income | ||||||||||||
Class A | (70,300 | ) | (7,490 | ) | (4,614 | ) | ||||||
Class C | (9,012 | ) | (1,328 | ) | (736 | ) | ||||||
Advisor Class | (66,932 | ) | (16,712 | ) | (8,493 | ) | ||||||
Class R | (920 | ) | (198 | ) | (133 | ) | ||||||
Class K | (226 | ) | (65 | ) | (45 | ) | ||||||
Class I | (426,407 | ) | (123,447 | ) | (82,698 | ) | ||||||
Class Z | (1,561,679 | ) | (487,477 | ) | (17,643,339 | ) | ||||||
Capital Stock Transactions | ||||||||||||
Net decrease | (62,474,473 | ) | (1,725,148 | ) | (221,421,717 | ) | ||||||
|
|
|
|
|
| |||||||
Total decrease | (60,348,331 | ) | (1,529,351 | ) | (234,869,755 | ) | ||||||
Net Assets | ||||||||||||
Beginning of period | 86,440,143 | 87,969,494 | 322,839,249 | |||||||||
|
|
|
|
|
| |||||||
End of period (including distributions in excess of net investment income of ($363,208) and ($351,254) and undistributed net investment income of $942,963, respectively) | $ | 26,091,812 | $ | 86,440,143 | $ | 87,969,494 | ||||||
|
|
|
|
|
|
(a) | The Portfolio changed its fiscal year end from August 31 to October 31. |
See notes to financial statements.
62 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB High Yield Portfolio (the “Portfolio”), a non-diversified portfolio. The Portfolio acquired the assets and liabilities of AB High-Yield Portfolio, a series of AB Pooling Portfolios (the “Accounting Survivor”), in a reorganization that was effective at the close of business July 26, 2016 (the “Reorganization”). The Reorganization was approved by the Accounting Survivor’s Board of Trustees and shareholders pursuant to an Agreement and Plan of Acquisition and Dissolution (the “Reorganization Agreement”) (see Note I for additional information). Upon completion of the Reorganization, the Portfolio assumed the performance, financial and other historical accounting information of the Accounting Survivor, including the adoption of the Accounting Survivor’s fiscal year end of August 31. As such, the financial statements and the Class Z shares financial highlights reflect the financial information of the Accounting Survivor through July 26, 2016. The fiscal year end of the Portfolio was subsequently changed to October 31. The Portfolio has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class 1 and Class 2 shares. Class B, Class 1 and Class 2 shares have not been issued. As of April 30, 2017, AllianceBernstein L.P. (the “Adviser”), was the sole shareholder of Class K and Class I shares. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I and Class Z shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All seven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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
abfunds.com | AB HIGH YIELD PORTFOLIO | 63 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Portfolio 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 Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (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 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
64 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement 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 Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
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NOTES TO FINANCIAL STATEMENTS (continued)
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The 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. In addition, non-agency rated investments are classified as Level 3.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are 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 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
66 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
Bank loan prices are provided by third party pricing services and consist of a composite of the quotes received by the vendor into a consensus price. Certain bank loans are classified as Level 3, as significant input used in the fair value measurement of these instruments is the market quotes that are received by the vendor and these inputs are not observable.
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 Portfolio’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Non-Investment Grade | $ | – 0 | – | $ | 16,807,239 | $ | 217,829 | (a) | $ | 17,025,068 | ||||||
Corporates – Investment Grade | – 0 | – | 3,702,487 | – 0 | – | 3,702,487 | ||||||||||
Common Stocks | 636,240 | 236,653 | 106,160 | (a) | 979,053 | |||||||||||
Bank Loans | – 0 | – | 468,549 | 98,726 | (a) | 567,275 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 539,208 | 6,486 | 545,694 | |||||||||||
Preferred Stocks | 103,241 | 253,596 | 90,427 | 447,264 | ||||||||||||
Governments – Treasuries | – 0 | – | 273,686 | – 0 | – | 273,686 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 248,902 | – 0 | – | 248,902 | ||||||||||
Asset-Backed Securities | – 0 | – | – 0 | – | 200,388 | 200,388 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 100,673 | – 0 | – | 100,673 | ||||||||||
Quasi-Sovereigns | – 0 | – | 91,571 | – 0 | – | 91,571 | ||||||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 70,771 | 70,771 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | – 0 | – | 65,688 | 65,688 | ||||||||||
Investment Companies | 33,792 | – 0 | – | – 0 | – | 33,792 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 27,314 | – 0 | – | 27,314 | ||||||||||
Warrants | 6,320 | – 0 | – | 13,114 | (a) | 19,434 | ||||||||||
Options Purchased – Puts | – 0 | – | 17,734 | – 0 | – | 17,734 | ||||||||||
Options Purchased – Calls | – 0 | – | 6,959 | – 0 | – | 6,959 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 779,593 | 22,774,571 | 869,589 | 24,423,753 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | $ | – 0 | – | $ | 12,652 | $ | – 0 | – | $ | 12,652 | (c) | |||||
Forward Currency Exchange Contracts | – 0 | – | 38,095 | – 0 | – | 38,095 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 38,410 | – 0 | – | 38,410 | (c) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 105,697 | – 0 | – | 105,697 | (c) | |||||||||
Credit Default Swaps | – 0 | – | 32,126 | – 0 | – | 32,126 | ||||||||||
Total Return Swaps | – 0 | – | 136,185 | – 0 | – | 136,185 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (10,608 | ) | – 0 | – | – 0 | – | (10,608 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (97,687 | ) | – 0 | – | (97,687 | ) | ||||||||
Call Options Written | – 0 | – | (1,584 | ) | – 0 | – | (1,584 | ) | ||||||||
Put Options Written | – 0 | – | (3,763 | ) | – 0 | – | (3,763 | ) | ||||||||
Credit Default Swaptions Written | – 0 | – | (1,656 | ) | – 0 | – | (1,656 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (88,109 | ) | – 0 | – | (88,109 | )(c) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (17,598 | ) | – 0 | – | (17,598 | )(c) | ||||||||
Credit Default Swaps | – 0 | – | (135,273 | ) | – 0 | – | (135,273 | ) | ||||||||
Total Return Swaps | – 0 | – | (61,237 | ) | – 0 | – | (61,237 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(d) | $ | 768,985 | $ | 22,730,829 | $ | 869,589 | $ | 24,369,403 | ||||||||
|
|
|
|
|
|
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(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 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) of exchange-traded derivatives as reported in the portfolio of investments. |
(d) | There were de minimis transfers under 1% of net assets during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Corporates - Non- Investment Grade(a) | Common Stocks(a) | Bank Loans(a) | ||||||||||
Balance as of 10/31/16 | $ | 386,482 | $ | 105,846 | $ | 195,482 | ||||||
Accrued discounts/(premiums) | (5,525 | ) | – 0 | – | 1,341 | |||||||
Realized gain (loss) | (493,669 | ) | (67,155 | ) | (136,362 | ) | ||||||
Change in unrealized appreciation/depreciation | 376,008 | 22,885 | 155,611 | |||||||||
Purchases/Payups | 109,075 | 236,680 | 131,203 | |||||||||
Sales/Paydowns | (846,737 | ) | (192,096 | ) | (638,171 | ) | ||||||
Transfers in to Level 3 | 692,195 | – 0 | – | 391,451 | ||||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (1,829 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 04/30/17 | $ | 217,829 | $ | 106,160 | $ | 98,726 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 04/30/17(b) | $ | 434,928 | $ | 33,491 | $ | 8,849 | ||||||
|
|
|
|
|
|
68 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Emerging Markets - Corporate Bonds | Preferred Stocks | Asset-Backed Securities | ||||||||||
Balance as of 10/31/16 | $ | 3,739 | $ | – 0 | – | $ | 723,664 | |||||
Accrued discounts/(premiums) | (609 | ) | – 0 | – | 4,452 | |||||||
Realized gain (loss) | (50,080 | ) | 52,162 | 52,336 | ||||||||
Change in unrealized appreciation/depreciation | (4,631 | ) | 21,777 | (73,654 | ) | |||||||
Purchases/Payups | 73,807 | 147,875 | – 0 | – | ||||||||
Sales/Paydowns | (15,740 | ) | (131,387 | ) | (506,410 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 04/30/17 | $ | 6,486 | $ | 90,427 | $ | 200,388 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 04/30/17(b) | $ | (4,631 | ) | $ | 21,777 | $ | (73,654 | ) | ||||
|
|
|
|
|
| |||||||
Collateralized Loan Obligations | Commercial Mortgage-Backed Securities | Warrants(a) | ||||||||||
Balance as of 10/31/16 | $ | – 0 | – | $ | 655,946 | $ | 55,217 | |||||
Accrued discounts/(premiums) | 91 | 160 | – 0 | – | ||||||||
Realized gain (loss) | 204 | (6,748 | ) | 13,291 | ||||||||
Change in unrealized appreciation/depreciation | 81 | 10,708 | (7,110 | ) | ||||||||
Purchases/Payups | 242,500 | – 0 | – | – 0 | – | |||||||
Sales/Paydowns | (172,105 | ) | (594,378 | ) | (32,059 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (16,225 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 04/30/17 | $ | 70,771 | $ | 65,688 | $ | 13,114 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 04/30/17(b) | $ | 81 | $ | 20,435 | $ | (7,110 | ) | |||||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Balance as of 10/31/16 | $ | 2,126,376 | ||||||||||
Accrued discounts/(premiums) | (90 | ) | ||||||||||
Realized gain (loss) | (636,021 | ) | ||||||||||
Change in unrealized appreciation/depreciation | 501,675 | |||||||||||
Purchases/Payups | 941,140 | |||||||||||
Sales/Paydowns | (3,129,083 | ) | ||||||||||
Transfers in to Level 3 | 1,083,646 | (c) | ||||||||||
Transfers out of Level 3 | (18,054 | ) | ||||||||||
|
| |||||||||||
Balance as of 04/30/17 | $ | 869,589 | ||||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 04/30/17(b) | $ | 434,166 | ||||||||||
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(b) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
(c) | An amount of $1,083,644 was transferred out of Level 2 into Level 3 as these securities were not rated by third party vendor during the reporting period. |
abfunds.com | AB HIGH YIELD PORTFOLIO | 69 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at April 30, 2017. Securities priced (i) by third party vendors or (ii) at cost, which approximate fair value, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/17 | Valuation Technique | Unobservable Input | Input | |||||||
Corporates Non-Investment Grade | $ | 1,744 | Discounted Cash Flow | Clean Debt Value Convertible Feature | 51.50%-76.0% / 63.8% 22.2%-2.2% / 12.2% | |||||
Common Stocks | $ | 10,037 | Market Approach | EBITDA* Projection EBITDA* Multiples | $33MM 4.8X-6.8X / 5.6X | |||||
Warrants | $ | 11,362 | Option Pricing Model | Exercise Price Expiration Date EV Volatility % | $6.64 / NA June, 2019 / NA 50% / NA |
* | Earnings before Interest, Taxes, Depreciation and Amortization. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that
70 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s
abfunds.com | AB HIGH YIELD PORTFOLIO | 71 |
NOTES TO FINANCIAL STATEMENTS (continued)
tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of first $2.5 billion, .50% of the next $2.5 billion and .45% in excess of $5 billion, of the Portfolio’s average daily net assets. Effective January 1, 2017, the advisory fee was reduced from .60% to .55% of the first $2.5 billion, .55% to .50% of the next $2.5 billion and .50% to .45% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding expenses associated with acquired fund fees and expenses other than the advisory
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NOTES TO FINANCIAL STATEMENTS (continued)
fees of any AB Mutual Funds in which the Portfolio may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs), on an annual basis (the “Expense Caps”) to .95%, 1.70%, .70%, 1.20%, .95%, .70% and .70% of daily average net assets for Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. Effective January 1, 2017, the Expense Caps were reduced from 1.05% to .95%, 1.80% to 1.70%, .80% to .70%, 1.30% to 1.20%, 1.05% to .95%, .80% to .70% and .80% to .70% of daily average net assets for Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. Any fees waived and expenses borne by the Adviser through October 31, 2014 are subject to repayment by the Portfolio until October 31, 2017; any fees waived and expenses borne by the Adviser from November 1, 2014 to July 15, 2015, are subject to repayment by the Portfolio until October 31, 2018; such waivers that are subject to repayment amounted to $189,698 and $288,388, respectively. In any case, no repayment will be made that would cause the Portfolio’s total annual operating expenses to exceed the net fee percentages set forth above. The Expense Caps may not be terminated by the Adviser before January 31, 2018. For the six months ended April 30, 2017, such reimbursements/waivers amounted to $267,855.
During the six months ended April 30, 2017, the Adviser reimbursed the Portfolio $92 for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended April 30, 2017, the Adviser voluntarily agreed to waive such fees amounting to $40,016.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $10,029 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $246 from the sale of Class A shares and received $0 and $0 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and C shares, respectively, for the six months ended April 30, 2017.
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The Portfolio 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. In connection with the investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver amounted to $3,124. A summary of the Portfolio’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||||
$ | 5,338 | $ | 33,152 | $ | 38,490 | $ | – 0 | – | $ | 6 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2017 amounted to $9,309, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to Class C shares, .50% of the Portfolio’s average daily net assets attributable to Class R shares and .25% of the Portfolio’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on the Advisor Class, Class I and Class Z shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $3,494, $0 and $0 for Class C, Class R and Class K shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 24,309,218 | $ | 21,163,308 | ||||
U.S. government securities | – 0 | – | 747,594 |
Investment Transactions
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 (excluding futures, foreign currency, written options and swap transactions) are as follows:
Gross unrealized appreciation | $ | 1,431,013 | ||
Gross unrealized depreciation | (1,015,368 | ) | ||
|
| |||
Net unrealized appreciation | $ | 415,645 | ||
|
|
1. Derivative Financial Instruments
The Portfolio 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 Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio 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 Portfolio 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 Portfolio 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, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio 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 Portfolio agrees to receive
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NOTES TO FINANCIAL STATEMENTS (continued)
from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio 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 Portfolio 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 April 30, 2017, the Portfolio held futures for hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended April 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
At April 30, 2017, Portfolio had the maximum payments for written put options amounted to $2,728,600. In certain circumstances maximum
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NOTES TO FINANCIAL STATEMENTS (continued)
payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
At April 30, 2017, the maximum payments for written put swaptions amounted to $4,980,000, with net unrealized appreciation of $1,332, and a term of less than one year, as reflected in the portfolio of investments.
During the six months ended April 30, 2017, the Portfolio held purchased options for hedging purposes. During the six months ended April 30, 2017, the Portfolio held written options for hedging purposes. During the six months ended April 30, 2017, the Portfolio held written swaptions for non-hedging purposes.
For the six months ended April 30, 2017, the Portfolio had the following transactions in written options:
Number of Contracts | Premiums Received | |||||||
Options written outstanding as of 10/31/16 | 101 | $ | 3,026 | |||||
Options written | 3,266,030 | 152,464 | ||||||
Options assigned | (1,376,000 | ) | (54,864 | ) | ||||
Options expired | (1,289,558 | ) | (81,118 | ) | ||||
Options bought back | (600,000 | ) | (10,281 | ) | ||||
Options exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Options written outstanding as of 4/30/17 | 573 | $ | 9,227 | |||||
|
|
|
| |||||
Notional Amount | Premiums Received | |||||||
Swaptions written outstanding as of 10/31/16 | $ | – 0 | – | $ | – 0 | – | ||
Swaptions written | 18,630,000 | 19,708 | ||||||
Swaptions assigned | (4,590,000 | ) | (8,033 | ) | ||||
Swaptions expired | (4,590,000 | ) | (1,607 | ) | ||||
Swaptions bought back | (4,470,000 | ) | (7,080 | ) | ||||
Swaptions exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Swaptions written outstanding as of 4/30/17 | $ | 4,980,000 | $ | 2,988 | ||||
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. 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 Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio 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 Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio 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 Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
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 Portfolio enters into a centrally cleared swap, the Portfolio 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 Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio 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 Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio 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 Portfolio 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 Portfolio anticipates purchasing at a later date.
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NOTES TO FINANCIAL STATEMENTS (continued)
Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) 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 Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2017, the Portfolio held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Portfolio 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 Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio 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 Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio 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 Portfolio for the same reference obligation with the same counterparty. As of April 30, 2017, the Portfolio had Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sales Contracts which may partially offset the Maximum Payout Amount in the amount of $2,156,000.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and
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NOTES TO FINANCIAL STATEMENTS (continued)
credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
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 April 30, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.
Total Return Swaps:
The Portfolio may enter into total return swaps in order take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio 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 Portfolio will receive a payment from or make a payment to the counterparty.
During the six months ended April 30, 2017, the Portfolio held total return swaps for non-hedging purposes.
The Portfolios typically enter into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or
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NOTES TO FINANCIAL STATEMENTS (continued)
termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.
During the six months ended April 30, 2017, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Location | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 105,697 | * | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 24,387 | * | ||||
Credit contracts | Receivable/Payable for variation margin on exchange-traded derivatives | 38,410 | * | Receivable/Payable for variation margin on exchange-traded derivatives | 88,109 | * | ||||||
Equity contracts | Receivable/Payable for variation margin on exchange-traded derivatives | 12,652 | * | Receivable/Payable for variation margin on exchange-traded derivatives | 3,819 | * |
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NOTES TO FINANCIAL STATEMENTS (continued)
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign exchange contracts | Unrealized appreciation on forward currency exchange contracts | $ | 38,095 |
| Unrealized depreciation on forward currency exchange contracts | $ | 97,687 |
| ||||
Credit contracts | Investments in securities, at value | 1,771 | ||||||||||
Equity contracts | Investments in securities, at value | 22,922 | ||||||||||
Credit contracts | Swaptions written, at value | 1,656 | ||||||||||
Equity contracts | Options written, at value | 5,347 | ||||||||||
Credit contracts | Unrealized appreciation on credit default swaps | 32,126 | Unrealized depreciation on credit default swaps | 135,273 | ||||||||
Equity contracts | Unrealized appreciation on total return swaps | 136,185 | Unrealized depreciation on total return swaps | 61,237 | ||||||||
|
|
|
| |||||||||
Total | $ | 387,858 | $ | 417,515 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
Derivative Type | Location of | 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 | $ | (161,860 | ) | $ | 17,955 | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (11,795 | ) | (25,499 | ) |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | $ | 65,696 | $ | (231,425 | ) | ||||
Foreign exchange contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (9,908 | ) | – 0 | – | |||||
Credit contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (43,387 | ) | (16,635 | ) | |||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (139,678 | ) | (21,812 | ) | |||||
Credit contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 6,696 | 1,332 | |||||||
Foreign exchange contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 2,048 | – 0 | – | ||||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 61,474 | 5,096 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of | 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 | $ | (31,942 | ) | $ | 270,713 | ||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (366,956 | ) | (51,463 | ) | |||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 269,265 | 67,437 | |||||||
|
|
|
| |||||||
Total | $ | (360,347 | ) | $ | 15,699 | |||||
|
|
|
|
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended April 30, 2017:
Futures: | ||||
Average original value of buy contracts | $ | 3,952,886 | ||
Average original value of sale contracts | $ | 1,219,342 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 2,924,336 | ||
Average principal amount of sale contracts | $ | 8,705,842 | ||
Purchased Options: | ||||
Average monthly cost | $ | 58,725 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 6,211,286 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 2,897,358 | ||
Average notional amount of sale contracts | $ | 2,914,769 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 15,502,091 | ||
Average notional amount of sale contracts | $ | 9,708,851 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 10,161,143 |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
86 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of April 30, 2017:
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co., LLC* | $ | 34,728 | $ | (5,347 | ) | $ | – 0 | – | $ | – 0 | – | $ | 29,381 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 34,728 | $ | (5,347 | ) | $ | – 0 | – | $ | – 0 | – | $ | 29,381 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Barclays Bank PLC | $ | 5,332 | $ | (5,332 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Citibank, NA | 38,559 | (38,559 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 37,771 | (20,363 | ) | – 0 | – | – 0 | – | 17,408 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 237,972 | (237,972 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 50,736 | (50,638 | ) | – 0 | – | – 0 | – | 98 | ||||||||||||
Morgan Stanley & Co. International PLC | 9,283 | – 0 | – | – 0 | – | – 0 | – | 9,283 | ||||||||||||
State Street Bank & Trust Co. | 11,331 | (11,331 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 390,984 | $ | (364,195 | ) | $ | – 0 | – | $ | – 0 | – | $ | 26,789 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged** | Security Collateral Pledged | Net Amount of Derivatives Liabilities | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Citigroup Global Markets, Inc.* | $ | 857 | $ | – 0 | – | $ | (857 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co., LLC* | 5,347 | (5,347 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 6,204 | $ | (5,347 | ) | $ | (857 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Bank of America, NA | $ | 3,644 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 3,644 | |||||||
Barclays Bank PLC | 26,799 | (5,332 | ) | – 0 | – | – 0 | – | 21,467 | ||||||||||||
Citibank, NA | 65,855 | (38,559 | ) | – 0 | – | – 0 | – | 27,296 | ||||||||||||
Credit Suisse International | 20,363 | (20,363 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 39,462 | – 0 | – | – 0 | – | – 0 | – | 39,462 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 256,081 | (237,972 | ) | – 0 | – | – 0 | – | 18,109 | ||||||||||||
JPMorgan Chase Bank, NA | 50,638 | (50,638 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 13,787 | (11,331 | ) | – 0 | – | – 0 | – | 2,456 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 476,629 | $ | (364,195 | ) | $ | – 0 | – | $ | – 0 | – | $ | 112,434 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
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NOTES TO FINANCIAL STATEMENTS (continued)
** | The actual collateral received/pledged is 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. Reverse Repurchase Agreements
The Portfolio may enter into reverse repurchase transactions (“RVP”) in accordance with the terms of a Master Repurchase Agreement (“MRA”), under which the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value comparable to the repurchase price. Under the MRA and other Master Agreements, the Portfolio is permitted to offset payables and/or receivables with collateral held and/or posted to the counterparty and create one single net payment due to or from the Portfolio in the event of a default. In the event of a default by a MRA counterparty, the Portfolio may be considered an unsecured creditor with respect to any excess collateral (collateral with a market value in excess of the repurchase price) held by and/or posted to the counterparty, and as such the return of such excess collateral may be delayed or denied. For the six months ended April 30, 2017, the Portfolio had no transactions in reverse repurchase agreements.
4. Loan Participations and Assignments
The Portfolio may invest in direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers, either in the form of participations at the time the loan is originated (“Participations”) or by buying an interest in the loan in the secondary market from a financial institution or institutional
88 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
investor (“Assignments”). A loan is often administered by a bank or other financial institution (the “Lender”) that acts as agent for all holders. The agent administers the term of the loan as specified in the loan agreement. When investing in Participations, the Portfolio generally has no right to enforce compliance with the terms of the loan agreement with the borrower. In addition, when investing in Participations, the Portfolio has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender and only upon receipt of payments by the Lender from the borrower. As a result, the Portfolio may be subject to the credit risk of both the borrower and the Lender. When the Portfolio purchases Assignments from Lenders, it will typically acquire direct rights against the borrower on the loan. These loans may include participations in “bridge loans”, which are loans taken out by borrowers for a short period (typically less than six months) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high-yield bonds issued for the purpose of acquisitions. The Portfolio may also participate in unfunded loan commitments, which are contractual obligations for investing in future Participations, and may receive a commitment fee based on the amount of the commitment. Under these arrangements, the Portfolio may receive a fixed rate commitment fee and, if and to the extent the borrower borrows under the facility, the Portfolio may receive an additional funding fee.
Unfunded loan commitments and funded loans are marked to market daily.
During the six months ended April 30, 2017, the Portfolio had no bridge loan commitments outstanding.
During the six months ended April 30, 2017, the Portfolio had no commitments outstanding and received no commitment fees or additional funding fees.
abfunds.com | AB HIGH YIELD PORTFOLIO | 89 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||||||||||
Six Months Ended | September 1, 2016 to October 31, 2016(a) | Year Ended August 31, 2016 | Six Months Ended | September 1, 2016 to | Year Ended | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Class A(b) | ||||||||||||||||||||||||||||||||
Shares sold | 517,550 | 39,040 | 106,432 | $ | 4,950,651 | $ | 368,413 | $ | 996,211 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,744 | 585 | 630 | 55,402 | 5,529 | 5,916 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares redeemed | (218,818 | ) | (20,179 | ) | (1,136 | ) | (2,102,564 | ) | (191,313 | ) | (10,687 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net increase | 304,476 | 19,446 | 105,926 | $ | 2,903,489 | $ | 182,629 | $ | 991,440 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Class C(b) | ||||||||||||||||||||||||||||||||
Shares sold | 24,995 | 18,904 | 19,881 | $ | 240,232 | $ | 179,153 | $ | 186,096 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 771 | 105 | 87 | 7,402 | 997 | 816 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares redeemed | (2,053 | ) | (106 | ) | – 0 | – | (19,702 | ) | (995 | ) | – 0 | – | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net increase | 23,713 | 18,903 | 19,968 | $ | 227,932 | $ | 179,155 | $ | 186,912 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Advisor Class(b) | ||||||||||||||||||||||||||||||||
Shares sold | 189,363 | 73,845 | 217,581 | $ | 1,806,822 | $ | 699,053 | $ | 2,039,971 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,337 | 1,480 | 1,146 | 51,373 | 13,990 | 10,763 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares redeemed | (130,930 | ) | (4,951 | ) | (209 | ) | (1,233,543 | ) | (46,563 | ) | (1,957 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net increase | 63,770 | 70,374 | 218,518 | $ | 624,652 | $ | 666,480 | $ | 2,048,777 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Class R(b) | ||||||||||||||||||||||||||||||||
Shares sold | 2,978 | 59 | 3,196 | $ | 28,917 | $ | 560 | $ | 29,918 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 73 | 14 | 14 | 706 | 137 | 130 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net increase | 3,051 | 73 | 3,210 | $ | 29,623 | $ | 697 | $ | 30,048 | |||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Class K(b) | ||||||||||||||||||||||||||||||||
Shares sold | 2 | – 0 | – | 1,000 | $ | 17 | $ | – 0 | – | $ | 9,364 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net increase | 2 | – 0 | – | 1,000 | $ | 17 | $ | – 0 | – | $ | 9,364 | |||||||||||||||||||||
|
90 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||||||||||
Six Months Ended | September 1, 2016 to October 31, 2016(a) | Year Ended August 31, 2016 | Six Months Ended | September 1, 2016 to | Year Ended | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Class I(b) | ||||||||||||||||||||||||||||||||
Shares sold | 10,335 | – 0 | – | 1,790,331 | $ | 99,274 | $ | – 0 | – | $ | 16,762,629 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 123 | – 0 | – | – 0 | – | 1,195 | – 0 | – | – 0 | – | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares redeemed | (534 | ) | – 0 | – | – 0 | – | (5,143 | ) | – 0 | – | – 0 | – | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net increase | 9,924 | – 0 | – | 1,790,331 | $ | 95,326 | $ | – 0 | – | $ | 16,762,629 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||||||||||
Shares sold | 30,255 | – 0 | – | 247,023 | $ | 289,924 | $ | – 0 | – | $ | 2,284,326 | |||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 142,841 | 51,603 | 1,887,844 | 1,367,100 | 487,381 | 17,643,285 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares issued in connection with the Reorganization | – 0 | – | – 0 | – | 7,289,875 | – 0 | – | – 0 | – | 68,233,326 | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Shares redeemed | (7,030,501 | ) | (342,633 | ) | (34,787,674 | ) | (68,012,536 | ) | (3,241,490 | ) | (329,611,824 | ) | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Net decrease | (6,857,405 | ) | (291,030 | ) | (25,362,932 | ) | $ | (66,355,512 | ) | $ | (2,754,109 | ) | $ | (241,450,887 | ) | |||||||||||||||||
|
(a) | The Portfolio changed its fiscal year end from August 31 to October 31. |
(b) | Inception date of July 26, 2016. |
At April 30, 2017, the Adviser owned 67% of the Portfolio’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Portfolio’s performance.
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject
abfunds.com | AB HIGH YIELD PORTFOLIO | 91 |
NOTES TO FINANCIAL STATEMENTS (continued)
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, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio 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 Portfolio’s investments. The Portfolio 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 Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk— Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
92 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s NAV.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of fund shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended April 30, 2017.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal period ended October 31, 2016, year ended August 31, 2016 and year ended August 31, 2015 were as follows:
October 2016 | August 2016 | August 2015 | ||||||||||
Distributions paid from: | ||||||||||||
Ordinary income | $ | 636,717 | $ | 17,740,058 | $ | 24,694,123 | ||||||
|
|
|
|
|
| |||||||
Total taxable distributions paid | $ | 636,717 | $ | 17,740,058 | $ | 24,694,123 | ||||||
|
|
|
|
|
|
abfunds.com | AB HIGH YIELD PORTFOLIO | 93 |
NOTES TO FINANCIAL STATEMENTS (continued)
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 211,079 | ||
Accumulated capital and other losses | (22,535,343 | )(a) | ||
Unrealized appreciation/(depreciation) | (1,332,781 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (23,657,045 | )(c) | |
|
|
(a) | As of October 31, 2016, the Portfolio had net capital loss carryforward of $22,535,343 |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and the realization for tax purposes of gains/losses on certain derivative instruments. |
(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 capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These postenactment capital losses must be utilized prior to the pre-enactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of October 31, 2016, the Portfolio had a net short-term capital loss of $6,348,256 and a net long-term capital loss carryforward of $3,720,194 which may be carried forward for an indefinite period. The utilization of some of these losses could potentially be subject to merger related limitations under the Internal Revenue Code. The fund also has a net pre-enactment short term capital loss carryforward of $12,466,893 which will expire in 2017.
NOTE I
Merger and Reorganization
At a meeting held May 3-5, 2016, the Board, on behalf of the Portfolio, and the Board of Trustees of the Accounting Survivor, approved the Reorganization Agreement providing for the tax-free acquisition by the Portfolio of the assets and liabilities of the Accounting Survivor. The acquisition was completed at the close of business July 26, 2016. The Portfolio’s fiscal year end changed to October 31, effective in 2016. Pursuant to the Reorganization Agreement, the assets and liabilities of the Accounting Survivor’s shares were transferred in exchange for the Portfolio’s Class Z shares, in a tax-free exchange as follows:
Shares outstanding before the Reorganization | Shares outstanding immediately after the Reorganization | Aggregate net assets before the Reorganization | Aggregate net assets immediately after the Reorganization | |||||||||||||
Accounting Survivor | 7,254,378 | – 0 | – | $ | 68,233,326 | + | $ | – 0 | – | |||||||
The Portfolio | 2,097,920 | 9,387,795 | $ | 19,642,348 | ++ | $ | 87,875,674 |
+ | Includes undistributed net investment income of $404,396 and unrealized depreciation on investments of $1,497,163, with a fair value of $60,408,577 and identified cost of $61,905,740. |
++ | Includes unrealized depreciation of $370,906. |
94 | AB HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
For financial reporting purposes, assets received and shares issued by the Portfolio were recorded at fair value; however, the cost basis of the investments received from the Accounting Survivor was carried forward to align ongoing reporting of the Portfolio’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
NOTE J
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
NOTE K
Recent Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2015-07 (the “ASU”) which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share practical expedient but do not utilize that practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Management has evaluated the implications of these changes and there will be no impact to the financial statements.
NOTE L
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
abfunds.com | AB HIGH YIELD PORTFOLIO | 95 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||
Six Months Ended April 30, 2017 (unaudited) | September 1, 2016 to October 31, | July 26, 2016(b) to August 31, | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(c)(d) | .22 | .08 | # | .05 | ||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .23 | .01 | .07 | † | ||||||||
Contributions from Affiliates | .00 | (e) | – 0 | – | – 0 | – | ||||||
|
| |||||||||||
Net increase in net asset value from operations | .45 | .09 | .12 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.22 | ) | (.07 | ) | (.04 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 9.69 | $ 9.46 | $ 9.44 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(f) | 4.96 | %* | 0.90 | %# | 1.33 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $4,166 | $1,186 | $1,000 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(g)(h)^ | .96 | % | 1.03 | % | 1.06 | % | ||||||
Expenses, before waivers/reimbursements(g)(h)^ | 1.87 | % | 3.25 | % | 2.71 | % | ||||||
Net investment income(d)^ | 4.59 | % | 4.81 | %# | 5.13 | % | ||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % |
See footnote summary on pages 103-104.
96 | AB HIGH YIELD PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||
Six Months Ended April 30, 2017 | September 1, 2016 to October 31, | July 26, 2016(b) to | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(c)(d) | .19 | .06 | # | .04 | ||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .24 | .01 | .08 | † | ||||||||
|
| |||||||||||
Net increase in net asset value from operations | .43 | .07 | .12 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.19 | ) | (.05 | ) | (.04 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 9.70 | $ 9.46 | $ 9.44 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(f) | 4.59 | %* | .78 | %# | 1.25 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $607 | $368 | $188 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(g)(h)^ | 1.72 | % | 1.78 | % | 1.81 | % | ||||||
Expenses, before waivers/reimbursements(g)(h)^ | 2.70 | % | 4.29 | % | 3.47 | % | ||||||
Net investment income(d)^ | 3.98 | % | 4.15 | %# | 4.36 | % | ||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % |
See footnote summary on pages 103-104.
abfunds.com | AB HIGH YIELD PORTFOLIO | 97 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||
Six Months Ended April 30, 2017 | September 1, 2016 to October 31, | July 26, 2016(b) to August 31, | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(c)(d) | .23 | .08 | # | .05 | ||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .25 | .01 | .08 | † | ||||||||
|
| |||||||||||
Net increase in net asset value from operations | .48 | .09 | .13 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.24 | ) | (.07 | ) | (.05 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 9.70 | $ 9.46 | $ 9.44 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(f) | 5.10 | %* | .94 | %‡# | 1.35 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $3,420 | $2,733 | $2,063 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(g)(h)^ | .72 | % | .78 | % | .81 | % | ||||||
Expenses, before waivers/reimbursements(g)(h)^ | 1.67 | % | 3.18 | % | 2.41 | % | ||||||
Net investment income(d)^ | 4.95 | % | 4.90 | %# | 5.30 | % | ||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % |
See footnote summary on pages 103-104.
98 | AB HIGH YIELD PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||
Six Months (unaudited) | September 1, 2016 to October 31, | July 26, 2016(b) to August 31, 2016 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(c)(d) | .21 | .07 | # | .04 | ||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .23 | .01 | .08 | † | ||||||||
|
| |||||||||||
Net increase in net asset value from operations | .44 | .08 | .12 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.21 | ) | (.06 | ) | (.04 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 9.69 | $ 9.46 | $ 9.44 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(f) | 4.85 | %* | .86 | %‡# | 1.30 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $61 | $31 | $30 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(g)(h)^ | 1.22 | % | 1.28 | % | 1.30 | % | ||||||
Expenses, before waivers/reimbursements(g)(h)^ | 2.09 | % | 3.14 | % | 2.70 | % | ||||||
Net investment income(d)^ | 4.48 | % | 4.48 | %# | 4.80 | % | ||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % |
See footnote summary on pages 103-104.
abfunds.com | AB HIGH YIELD PORTFOLIO | 99 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||
Six Months (unaudited) | September 1, 2016 to October 31, | July 26, 2016(b) to August 31, 2016 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(c)(d) | .22 | .08 | # | .05 | ||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .25 | .01 | .07† | |||||||||
|
| |||||||||||
Net increase in net asset value from operations | .47 | .09 | .12 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.23 | ) | (.07 | ) | (.04 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 9.70 | $ 9.46 | $ 9.44 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(f) | 4.98 | %* | .91 | %‡# | 1.33 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $10 | $9 | $9 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(g)(h)^ | .99 | % | 1.03 | % | 1.05 | % | ||||||
Expenses, before waivers/reimbursements(g)(h)^ | 1.75 | % | 2.67 | % | 2.38 | % | ||||||
Net investment income(d)^ | 4.73 | % | 4.74 | %# | 5.12 | % | ||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % |
See footnote summary on pages 103-104.
100 | AB HIGH YIELD PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||
Six Months (unaudited) | September 1, 2016 to October 31, | July 26, 2016(b) to August 31, 2016 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(c)(d) | .24 | .08 | # | .05 | ||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .24 | .01 | .08 | † | ||||||||
|
| |||||||||||
Net increase in net asset value from operations | .48 | .09 | .13 | |||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.24 | ) | (.07 | ) | (.05 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 9.70 | $ 9.46 | $ 9.44 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(f) | 5.10 | %* | .94 | %‡# | 1.35 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $17,456 | $16,936 | $16,899 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(g)(h)^ | .73 | % | .78 | % | .81 | % | ||||||
Expenses, before waivers/reimbursements(g)(h)^ | 1.46 | % | 2.39 | % | 2.06 | % | ||||||
Net investment income(d)^ | 4.97 | % | 4.97 | %# | 5.38 | % | ||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % |
See footnote summary on pages 103-104.
abfunds.com | AB HIGH YIELD PORTFOLIO | 101 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||||||||||||||||||
Six Months April 30, (unaudited) | September 1, 2016 to October 31, 2016(a) | Year Ended August 31, | ||||||||||||||||||||||||||
2016(i) | 2015(i) | 2014(i) | 2013(i) | 2012(i) | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, beginning of period | $ 9.45 | $ 9.43 | $ 9.87 | $ 10.85 | $ 10.33 | $ 10.26 | $ 9.66 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||||||
Net investment income(c) | .24 | (d) | .08 | (d)# | .60 | (d) | .67 | .72 | .75 | .76 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .24 | .01 | (.04 | ) | (.91 | )† | .53† | .18† | .53† | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .48 | .09 | .56 | (.24 | ) | 1.25 | .93 | 1.29 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||||||
Dividends from net investment income | (.24 | ) | (.07 | ) | (1.00 | ) | (.74 | ) | (.73 | ) | (.86 | ) | (.69 | ) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ 9.69 | $ 9.45 | $ 9.43 | $ 9.87 | $ 10.85 | $ 10.33 | $ 10.26 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||||||
Total investment return based on net asset value(f) | 5.11 | %* | .94 | %‡# | 6.19 | %* | (2.27 | )%* | 12.44 | % | 9.24 | % | 13.95 | % | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||
Net assets, end of period | $372 | $65,177 | $67,780 | $322,839 | $364,934 | $366,553 | $397,208 | |||||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(g)(h) | .73 | %^ | .78 | %^ | .25 | % | .13 | % | .11 | % | .09 | % | .07 | % | ||||||||||||||
Expenses, before waivers/reimbursements(g)(h) | 1.42 | %^ | 2.39 | %^ | .30 | % | .13 | % | .11 | % | .09 | % | .07 | % | ||||||||||||||
Net investment income | 4.99 | %^ | 4.96 | %(d)^# | 6.41 | %(d) | 6.45 | % | 6.68 | % | 7.15 | % | 7.87 | % | ||||||||||||||
Portfolio turnover rate | 30 | % | 9 | % | 44 | % | 51 | % | 54 | % | 63 | % | 57 | % |
See footnote summary on pages 103-104.
102 | AB HIGH YIELD PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | The Portfolio changed its fiscal year end from August 31 to October 31. |
(b) | Inception date. |
(c) | Based on average shares outstanding. |
(d) | Net of fees and expenses waived and reimbursed by the Adviser. |
(e) | Amount is less than $.005. |
(f) | 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. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. 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. |
(g) | The expense ratios presented below exclude interest expense: |
Six Months (unaudited) | September 1, 2016 to October 31, 2016(a) | Year Ended August 31, | ||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Class A | ||||||||||||||||||||||||||||
Net of waivers/reimbursements^ | .96 | % | N/A | 1.05 | % | |||||||||||||||||||||||
Before waivers/reimbursements^ | 1.86 | % | N/A | 2.70 | % | |||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
Net of waivers/reimbursements^ | 1.72 | % | N/A | 1.80 | % | |||||||||||||||||||||||
Before waivers/reimbursements^ | 2.69 | % | N/A | 3.46 | % | |||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Net of waivers/reimbursements^ | .72 | % | N/A | .80 | % | |||||||||||||||||||||||
Before waivers/reimbursements^ | 1.66 | % | N/A | 2.40 | % | |||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||
Net of waivers/reimbursements^ | 1.22 | % | N/A | 1.30 | % | |||||||||||||||||||||||
Before waivers/reimbursements^ | 2.09 | % | N/A | 2.70 | % | |||||||||||||||||||||||
Class K | ||||||||||||||||||||||||||||
Net of waivers/reimbursements^ | .99 | % | N/A | 1.05 | % | |||||||||||||||||||||||
Before waivers/reimbursements^ | 1.75 | % | N/A | 2.38 | % | |||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
Net of waivers/reimbursements^ | .73 | % | N/A | .80 | % | |||||||||||||||||||||||
Before waivers/reimbursements^ | 1.46 | % | N/A | 2.06 | % | |||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | .73 | %^ | N/A | .25 | % | N/A | N/A | .09 | % | N/A | ||||||||||||||||||
Before waivers/reimbursements | 1.42 | %^ | N/A | .29 | % | N/A | N/A | .09 | % | N/A |
(h) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the six months ended April 30, 2017 and year ended October 31, 2016, such waiver amounted to 0.01% and 0.02%, respectively, annualized for the Portfolio. |
abfunds.com | AB HIGH YIELD PORTFOLIO | 103 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(i) | On the date of Reorganization, the accounting and performance history of the Accounting Survivor was retained as that of the Portfolio (see Note A). As a result, the per share table has been adjusted for the prior periods presented to reflect the transaction. The conversion ratio used was 1.00489316, as the Accounting Survivor’s NAV was $9.4058 while the Portfolio’s NAV was $9.36 on the date of Reorganization. |
† | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Portfolio’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
^ | Annualized. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended April 30, 2017 and years ended August 31, 2016 and August 31, 2015 by 0.06%, 0.02% and 0.09%, respectively. |
‡ | The net asset value and total return include adjustments in accordance with accounting principles generally accepted in the United States of America for financial reporting purposes. As such, the net asset value and total return for shareholder transactions may differ from financial statements. |
# | For the year ended October 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total Return | ||
$ .003 | .20% | .03% |
See notes to financial statements.
104 | AB HIGH YIELD PORTFOLIO | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1) , Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Gershon M. Distenfeld(2) , Vice President Sherif M. Hamid(2) , Vice President Ivan Rudolph-Shabinsky(2), Vice President | Ashish C. Shah(2), Vice President Joseph J. Mantineo, Treasurer and Chief Financial Officer Emilie D. Wrapp, Secretary Stephen M. Woetzel, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent Brown Brothers Harriman & Co. 50 Post Office Square Boston, MA 02110
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 are made by the High Yield Investment Team. Messrs. Distenfeld, Hamid, Rudolph-Shabinksy and Shah are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
abfunds.com | AB HIGH YIELD PORTFOLIO | 105 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser, as proposed to be amended (the “Advisory Agreement”) to effect a fee reduction, in respect of AB High Yield Portfolio (the “Portfolio”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the proposed advisory fee, in which the Senior Officer concluded that the proposed contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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 proposed 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
106 | AB HIGH YIELD PORTFOLIO | abfunds.com |
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. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund, and that the proposed reduction in the advisory fee rate would likely impact the Adviser’s profitability analysis in future years. 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 noted that the Fund was not profitable to the Adviser in the periods reviewed.
abfunds.com | AB HIGH YIELD PORTFOLIO | 107 |
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. 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 and Other Expenses
The directors considered the proposed advisory fee rate payable by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective January 1, 2017) with a peer group median.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and
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any sub-advised funds, on the other. 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 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 light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund invests 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, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. 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 for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the proposed advisory fee for the Fund is for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs in which the Fund may invest.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the expense cap level by the Adviser effective January 1, 2017. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the proposed advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an
abfunds.com | AB HIGH YIELD PORTFOLIO | 109 |
independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB HIGH YIELD PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
HY-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB INCOME FUND
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 Income Fund (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 INCOME FUND | 1 |
SEMI-ANNUAL REPORT
June 14, 2017
This report provides management’s discussion of fund performance for AB Income Fund for the semi-annual reporting period ended April 30, 2017.
The investment objective of the Fund is to seek high current income consistent with preservation of capital.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB INCOME FUND | ||||||||
Class A Shares | 3.57% | 6.33% | ||||||
Class C Shares | 3.16% | 5.64% | ||||||
Advisor Class Shares1 | 3.69% | 6.73% | ||||||
Bloomberg Barclays US Aggregate Bond Index | -0.67% | 0.83% |
1 | Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund, or through other limited or special arrangements approved by the Adviser, such as purchases by shareholders of the Fund’s Predecessor Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays US Aggregate Bond Index, for the six- and 12-month periods ended April 30, 2017.
During both periods, all share classes of the Fund outperformed the benchmark, before sales charges. During the six-month period, sector allocation contributed relative to the benchmark, primarily because of exposures to agency risk-sharing transactions, high-yield corporates and collateralized mortgage obligations. An underweight to agency mortgages also added to performance; however, an underweight position in investment-grade corporates and overweight in Treasuries took back some of these gains. Security selection within high-yield and investment-grade corporates bolstered returns further. Currency investments were positive because of long positions in the Russian ruble and Brazilian real. An underweight in the offshore Chinese renminbi detracted. The Fund’s shorter-than-benchmark duration contributed, as interest rates rose through the period. Country selection did not have a significant impact on overall performance.
During the 12-month period, sector positioning contributed most to relative performance. Gains from an overweight position in high-yield corporates, as well as exposures to agency risk-sharing transactions and collateralized
2 | AB INCOME FUND | abfunds.com |
mortgage obligations, more than offset losses from an overweight in Treasuries. Although an underweight to investment-grade corporates detracted, beneficial security selection within the sector offset these losses. Currency allocation also contributed, primarily because of long positions in the Brazilian real and Russian ruble. A long position in the Swedish krona detracted. Country selection (a result of bottom-up security analysis combined with fundamental research) was positive, benefiting from an exposure to Brazil. Yield-curve positioning detracted in the period.
During both periods, the Fund utilized derivatives in the form of futures to manage and hedge duration risk and/or take active yield-curve positioning. Currency forwards and currency options, both written and purchased, were used to hedge foreign currency exposure and to take active currency risk. Purchased and written exchange-traded fund options and index options were used in an effort to add alpha through different strategies, including but not limited to relative value, put spreads, and call spreads. Written swaptions were used as hedging tools against other active equity-like risks in the Fund as well as to take active risk through high-yield exposure. Credit default swaps, both single name and index, were used to create synthetic exposure in investment grade and high-yield credit risk. Interest rate swaps were used to hedge duration risk. Total return swaps were used to create high-yield exposure. Variance swaps were used to add alpha to the Fund by capturing risk premiums that are similar to high-yield exposure elsewhere in the Fund.
MARKET REVIEW AND INVESTMENT STRATEGY
Bond markets rallied over the 12-month period, but were volatile in the latter half of the period. Political events had a significant impact on bond markets during both periods. In the US, Donald Trump’s presidential election victory and the promise of fiscal stimulus, a retreat from globalization and relaxed regulation were treated as positive developments by financial markets, though uncertainty regarding the specific details remained high. UK Prime Minister Theresa May surprised investors when she called for a snap parliamentary election three years ahead of schedule, in an effort to firm up the country’s mandate going into Brexit negotiations. The benign first-round outcome of the French presidential elections quelled some geopolitical uncertainty and renewed appetite for risk assets. Markets, especially in Europe, rallied on the news. The 10-year US Treasury yield rose almost half a percent to end higher at 2.28%. The 10-year German bund yield also rose through both periods, though only modestly in the latter, ending at 0.32%.
European central banks generally maintained an easing bias through the 12-month period, while the US Federal Reserve raised interest rates for the second and third time since the financial crisis in 2008. Accelerating trade and waning inflationary pressures contributed to a rally in emerging-market debt. Yields in developed markets had varying performance in both periods, generally rising in the US, Japan and Canada, and moving in different directions elsewhere, though longer maturities broadly rose. Developed-market treasuries, investment-grade credit securities and emerging-market
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local-currency government bonds rebounded over the 12-month period, but experienced volatility in the latter half. Global high yield rallied in both periods, during which sector performance was almost uniformly positive; energy and basics were the best performers in each period, benefiting from oil price increases. Consumer-related sectors generally lagged the rising markets, with pharmaceuticals one of the few sectors to fall in both periods.
INVESTMENT POLICIES
The Fund pursues its objective by investing, under normal circumstances, at least 80% of its net assets in income-producing securities. The Fund also normally invests at least 65% of its total assets in securities of US and foreign governments, their agencies or instrumentalities and repurchase agreements relating to US government securities.
The Fund normally invests at least 65% of its total assets in US dollar-denominated securities. The Fund may also invest up to 35% of its total assets in non-government fixed-income securities, including corporate debt securities, non-government mortgage-backed and other asset-backed securities, certificates of deposit and commercial paper. The Fund may invest up to 35% of its net assets in below investment-grade securities (commonly known as “junk bonds”). The Fund may invest no more than 25% of its total assets in securities of issuers in any one country other than the US. The Fund’s investments in foreign securities may include investments in securities of emerging-market countries or of issuers in emerging markets.
The Adviser selects securities for purchase or sale based on its assessment of the securities’ risks and return characteristics as well as the securities’ impact on the overall risks 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 in fixed-income securities with any maturity or duration.
The Fund utilizes derivatives, such as options, futures contracts, forwards and swaps to a significant extent. The Fund may, for example, use credit default, interest rate and total return swaps to establish exposure to the fixed-income markets or particular fixed-income securities. Derivatives may provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Fund’s exposure. The Fund may also enter into transactions such as reverse repurchase agreements that are similar to borrowings for investment purposes. The Fund’s use of derivatives and these borrowing transactions may create aggregate exposure that is substantially in excess of its net assets, effectively leveraging the Fund.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Aggregate Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. The index is not leveraged, whereas the Fund utilizes leverage. 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 bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events 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. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Securities Risk: Investments in fixed-income securities with lower ratings (often referred to as “junk bonds”) are subject to 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, negative perceptions of the junk bond market generally and less secondary market liquidity. These securities are often able to be “called” or repurchased by the issuer prior to their maturity date, forcing the Fund to reinvest the proceeds, possibly at a lower rate of return.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Fund may be subject to a heightened risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
abfunds.com | AB INCOME FUND | 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 the full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.
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.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
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DISCLOSURES AND RISKS (continued)
Mortgage-Backed and/or Other Asset-Backed Securities Risk: Investments in mortgage-backed 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.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional 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.
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 investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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 visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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DISCLOSURES AND RISKS (continued)
The Fund commenced operations on April 22, 2016. The Fund acquired the assets and liabilities of the AllianceBernstein Income Fund, Inc., a closed-end fund (the “Predecessor Fund”), effective at the close of business on April 21, 2016 (the “Reorganization”). The Fund has the same investment objective that the Predecessor Fund had and similar investment strategies and policies. In addition, the Fund has higher expenses (including transfer agency and shareholder servicing fees), and a different advisory fee arrangement than the Predecessor Fund had.
Performance information prior to April 22, 2016 shown in this report reflects the historical performance of the Predecessor Fund based on its NAV. Such performance information may not be representative of performance the Fund would have achieved as an open-end fund under its current investment strategies and policies and expense levels.
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HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS A SHARES | ||||||||
1 Year | 6.33% | 1.76% | ||||||
Since Inception1 | 6.64% | 2.28% | ||||||
CLASS C SHARES | ||||||||
1 Year | 5.64% | 4.64% | ||||||
Since Inception1 | 5.95% | 5.95% | ||||||
ADVISOR CLASS SHARES2 | ||||||||
1 Year | 6.73% | 6.73% | ||||||
5 Years | 4.90% | 4.90% | ||||||
10 Years | 6.91% | 6.91% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.25%, 2.03% and 0.86% for Class A, Class C and Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios exclusive of acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses and brokerage commissions and other transaction costs to 0.77%, 1.52% and 0.52% for Class A, Class C and Advisor Class shares, respectively. These waivers/reimbursements may not be terminated before April 22, 2018. Any fees waived and expense borne by the Adviser may be reimbursed by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne, provided that no reimbursement payment will be made that would cause the Fund’s total annual fund operating expenses to exceed the expense reimbursement. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
1 | Inception date: 4/21/2016. |
2 | Advisor Class shares are offered at NAV to eligible investors; their SEC returns include a redemption fee as noted above. With respect to Advisor Class shares, performance returns for the periods prior to April 22, 2016 are based on the NAV per share of the Predecessor Fund. Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund, or through other limited or special arrangements approved by the Adviser, such as purchases by shareholders of the Fund’s Predecessor Fund. |
abfunds.com | AB INCOME FUND | 9 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
Since Inception1 | 0.55% | |||
CLASS C SHARES | ||||
Since Inception1 | 3.46% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 5.71% | |||
5 Years | 4.93% | |||
10 Years | 6.90% |
1 | Inception date: 4/21/2016. |
2 | With respect to Advisor Class shares, performance returns for the periods prior to April 22, 2016 are based on the NAV per share of the Predecessor Fund. Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund, or through other limited or special arrangements approved by the Adviser, such as purchases by shareholders of the Fund’s Predecessor Fund. |
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EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,035.70 | $ | 5.60 | 1.11 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.29 | $ | 5.56 | 1.11 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,031.60 | $ | 9.37 | 1.86 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,015.57 | $ | 9.30 | 1.86 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,036.90 | $ | 4.39 | 0.87 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.48 | $ | 4.36 | 0.87 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB INCOME FUND | 11 |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,079.7
1 | All data are as of April 30, 2017. 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). “Other” security type weightings represent 0.5% or less in the following types: Bank Loans, Common Stocks, Governments–Sovereign Bonds, Investment Companies, Local Governments–Regional Bonds, Local Governments–US Municipal Bonds, Mortgage Pass-Throughs, Options Purchased–Calls, Options Purchased–Puts, Preferred Stocks, Quasi-Sovereigns and Warrants. |
12 | AB INCOME FUND | abfunds.com |
PORTFOLIO SUMMARY (continued)
April 30, 2017 (unaudited)
1 | All data are as of April 30, 2017. The Fund’s country 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). “Other” country weightings represent 0.3% or less in the following countries: Angola, Australia, Bahrain, Barbados, Colombia, Dominican Republic, Ecuador, Germany, Guatemala, Honduras, India, Italy, Ivory Coast, Jamaica, Kenya, Luxembourg, Netherlands, Nigeria, Norway, Peru, Switzerland and Zambia. |
abfunds.com | AB INCOME FUND | 13 |
PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – TREASURIES – 84.4% | ||||||||||||
Indonesia – 0.2% | ||||||||||||
Indonesia Treasury Bond | IDR | 29,100,000 | $ | 2,335,259 | ||||||||
|
| |||||||||||
Mexico – 1.2% | ||||||||||||
Mexican Bonos | MXN | 64,621 | 3,361,844 | |||||||||
Series M 10 | 172,402 | 9,384,594 | ||||||||||
|
| |||||||||||
12,746,438 | ||||||||||||
|
| |||||||||||
Russia – 0.7% | ||||||||||||
Russian Federal Bond – OFZ | RUB | 30,319 | 533,627 | |||||||||
Series 6212 | 149,874 | 2,531,250 | ||||||||||
Series 6217 | 289,562 | 5,059,079 | ||||||||||
|
| |||||||||||
8,123,956 | ||||||||||||
|
| |||||||||||
South Africa – 1.2% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 151,990 | 12,690,595 | |||||||||
|
| |||||||||||
United States – 81.1% | ||||||||||||
U.S. Treasury Bonds | U.S.$ | 70,188 | 72,556,845 | |||||||||
6.25%, 5/15/30(a) | 143,000 | 204,557,031 | ||||||||||
6.375%, 8/15/27(a) | 103,724 | 142,393,604 | ||||||||||
6.50%, 11/15/26 | 12,276 | 16,735,641 | ||||||||||
7.125%, 2/15/23 | 10,600 | 13,606,094 | ||||||||||
8.00%, 11/15/21(b) | 52,000 | 66,072,500 | ||||||||||
8.125%, 8/15/21 | 23,658 | 29,868,225 | ||||||||||
8.75%, 8/15/20 | 19,350 | 23,812,594 | ||||||||||
U.S. Treasury Notes | 41,636 | 41,818,157 | ||||||||||
2.125%, 8/31/20(a)(b) | 65,439 | 66,645,430 | ||||||||||
2.125%, 1/31/21-9/30/21 | 61,272 | 62,279,250 | ||||||||||
2.375%, 12/31/20 | 10,056 | 10,327,826 | ||||||||||
3.125%, 5/15/21(b) | 57,725 | 60,935,953 | ||||||||||
3.50%, 5/15/20(b) | 23,011 | 24,391,660 | ||||||||||
3.625%, 2/15/21(b)(c) | 36,605 | 39,281,740 | ||||||||||
|
| |||||||||||
875,282,550 | ||||||||||||
|
| |||||||||||
Total Governments – Treasuries | 911,178,798 | |||||||||||
|
|
14 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – 9.5% | ||||||||||||
Industrial – 7.0% | ||||||||||||
Basic – 0.7% | ||||||||||||
Anglo American Capital PLC | U.S.$ | 655 | $ | 674,892 | ||||||||
ArcelorMittal | 1,846 | 2,112,304 | ||||||||||
CF Industries, Inc. | 492 | 409,526 | ||||||||||
5.375%, 3/15/44 | 371 | 322,106 | ||||||||||
ERP Iron Ore, LLC | 255 | 255,154 | ||||||||||
Joseph T Ryerson & Son, Inc. | 1,175 | 1,325,788 | ||||||||||
Magnetation LLC/Mag Finance Corp. | 1,407 | 141 | ||||||||||
Novelis Corp. | 420 | 431,172 | ||||||||||
Sealed Air Corp. | 746 | 810,909 | ||||||||||
SPCM SA | 913 | 924,093 | ||||||||||
Teck Resources Ltd. | 151 | 174,955 | ||||||||||
Valvoline, Inc. | 381 | 404,328 | ||||||||||
|
| |||||||||||
7,845,368 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.2% | ||||||||||||
Apex Tool Group LLC | 975 | 904,732 | ||||||||||
Bombardier, Inc. | 800 | 889,600 | ||||||||||
|
| |||||||||||
1,794,332 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.6% | ||||||||||||
Altice Luxembourg SA | 817 | 866,780 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 1,722 | 1,803,847 | ||||||||||
iHeartCommunications, Inc. | 1,505 | 1,164,804 | ||||||||||
SFR Group SA | 766 | 792,986 | ||||||||||
Virgin Media Finance PLC | 2,246 | 2,037,975 | ||||||||||
|
| |||||||||||
6,666,392 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Communications - Telecommunications – 0.8% | ||||||||||||
Frontier Communications Corp. | U.S.$ | 919 | $ | 887,791 | ||||||||
10.50%, 9/15/22 | 510 | 512,744 | ||||||||||
Intelsat Jackson Holdings SA | 2,111 | 2,035,131 | ||||||||||
Sprint Corp. | 1,315 | 1,466,646 | ||||||||||
Uniti Group, Inc./CSL Capital LLC | 1,214 | 1,296,345 | ||||||||||
Windstream Services LLC | 1,000 | 943,610 | ||||||||||
7.75%, 10/01/21(a) | 1,070 | 1,075,157 | ||||||||||
|
| |||||||||||
8,217,424 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.6% | ||||||||||||
Adient Global Holdings Ltd. | 609 | 609,962 | ||||||||||
BCD Acquisition, Inc. | 966 | 1,040,247 | ||||||||||
Cooper-Standard Automotive, Inc. | 905 | 920,494 | ||||||||||
Exide Technologies | 178 | 88,550 | ||||||||||
Series AI | 2,508 | 1,247,613 | ||||||||||
11.00%, 4/30/20(g)(l) | 2,941 | 2,264,553 | ||||||||||
|
| |||||||||||
6,171,419 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.2% | ||||||||||||
Shea Homes LP/Shea Homes Funding Corp. | 697 | 707,469 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 561 | 563,558 | ||||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 1,008 | 1,076,615 | ||||||||||
|
| |||||||||||
2,347,642 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.1% | ||||||||||||
Stonegate Pub Co. Financing PLC | GBP | 496 | 645,631 | |||||||||
|
|
16 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Retailers – 0.1% | ||||||||||||
Neiman Marcus Group Ltd. LLC | U.S.$ | 852 | $ | 499,170 | ||||||||
PetSmart, Inc. | 133 | 121,420 | ||||||||||
|
| |||||||||||
620,590 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.3% | ||||||||||||
BI-LO LLC/BI-LO Finance Corp. | 780 | 399,625 | ||||||||||
CHS/Community Health Systems, Inc. | 1,646 | 1,361,802 | ||||||||||
Endo Dac/Endo Finance LLC/Endo Finco, Inc. | 1,734 | 1,514,016 | ||||||||||
Envision Healthcare Corp. | 1,322 | 1,391,220 | ||||||||||
HCA, Inc. | 313 | 316,277 | ||||||||||
5.25%, 6/15/26 | 548 | 586,524 | ||||||||||
Horizon Pharma, Inc./Horizon Pharma USA, Inc. | 566 | 590,225 | ||||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 1,190 | 1,085,613 | ||||||||||
5.625%, 10/15/23(d) | 118 | 111,252 | ||||||||||
Post Holdings, Inc. | 2,004 | 1,996,084 | ||||||||||
Tenet Healthcare Corp. | 396 | 423,067 | ||||||||||
8.125%, 4/01/22 | 859 | 872,598 | ||||||||||
Valeant Pharmaceuticals International, Inc. | EUR | 1,800 | 1,380,008 | |||||||||
6.125%, 4/15/25(d) | U.S.$ | 2,277 | 1,683,659 | |||||||||
6.50%, 3/15/22(d) | 740 | 757,242 | ||||||||||
|
| |||||||||||
14,469,212 | ||||||||||||
|
| |||||||||||
Energy – 1.0% | ||||||||||||
Berry Petroleum Co. LLC | 1,904 | – 0 | – | |||||||||
Chesapeake Energy Corp. | 1,345 | 1,357,132 | ||||||||||
Covey Park Energy LLC/FI | 409 | 409,000 | ||||||||||
Denbury Resources, Inc. | 332 | 227,828 | ||||||||||
5.50%, 5/01/22 | 1,049 | 782,292 |
abfunds.com | AB INCOME FUND | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | U.S.$ | 282 | $ | 267,195 | ||||||||
Golden Energy Offshore Services AS | NOK | 14,977 | 697,721 | |||||||||
Gulfport Energy Corp. | U.S.$ | 623 | 619,549 | |||||||||
Murphy Oil USA, Inc. | 67 | 68,414 | ||||||||||
Paragon Offshore PLC | 849 | 139,024 | ||||||||||
7.25%, 8/15/24(d)(i)(j) | 3,230 | 528,912 | ||||||||||
Rowan Cos., Inc. | 436 | 324,236 | ||||||||||
SandRidge Energy, Inc. | 1,259 | – 0 | – | |||||||||
SM Energy Co. | 731 | 741,292 | ||||||||||
Transocean, Inc. | 2,375 | 2,539,825 | ||||||||||
Vantage Drilling International | 3,068 | – 0 | – | |||||||||
10.00%, 12/31/20(f) | 91 | 88,270 | ||||||||||
10.00%, 12/31/20(h) | 77 | 74,690 | ||||||||||
Weatherford International Ltd. | 1,346 | 1,568,790 | ||||||||||
Whiting Petroleum Corp. | 165 | 166,579 | ||||||||||
WPX Energy, Inc. | 250 | 279,435 | ||||||||||
|
| |||||||||||
10,880,184 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.4% | ||||||||||||
American Tire Distributors, Inc. | 1,761 | 1,809,674 | ||||||||||
Laureate Education, Inc. | 2,096 | 2,153,829 | ||||||||||
|
| |||||||||||
3,963,503 | ||||||||||||
|
| |||||||||||
Services – 0.3% | ||||||||||||
APX Group, Inc. | 1,022 | 1,062,175 | ||||||||||
Carlson Travel, Inc. | 237 | 243,811 | ||||||||||
Gartner, Inc. | 419 | 433,799 | ||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | 968 | 1,056,979 | ||||||||||
Team Health Holdings, Inc. | 692 | 668,811 | ||||||||||
|
| |||||||||||
3,465,575 | ||||||||||||
|
|
18 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Technology – 0.2% | ||||||||||||
Avaya, Inc. | U.S.$ | 1,985 | $ | 1,662,437 | ||||||||
10.50%, 3/01/21(h)(i)(j) | 720 | 108,900 | ||||||||||
Symantec Corp. | 573 | 591,600 | ||||||||||
|
| |||||||||||
2,362,937 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.5% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 1,121 | 1,057,529 | ||||||||||
Hertz Corp. (The) | 1,478 | 1,272,794 | ||||||||||
United Rentals North America, Inc. | 1,302 | 1,337,180 | ||||||||||
XPO CNW, Inc. | 2,134 | 2,002,994 | ||||||||||
|
| |||||||||||
5,670,497 | ||||||||||||
|
| |||||||||||
75,120,706 | ||||||||||||
|
| |||||||||||
Financial Institutions – 2.2% | ||||||||||||
Banking – 2.0% | ||||||||||||
Barclays Bank PLC | 656 | 748,116 | ||||||||||
Citigroup, Inc. | 2,055 | 2,162,127 | ||||||||||
Credit Agricole SA | 771 | 825,209 | ||||||||||
8.125%, 12/23/25(d)(m) | 1,550 | 1,713,664 | ||||||||||
Credit Suisse Group AG | 640 | 667,149 | ||||||||||
7.50%, 12/11/23(d)(m) | 1,428 | 1,584,680 | ||||||||||
Intesa Sanpaolo SpA | 1,462 | 1,397,643 | ||||||||||
Lloyds Banking Group PLC | 1,108 | 1,197,582 | ||||||||||
Macquarie Bank Ltd./London | 200 | 202,850 | ||||||||||
Royal Bank of Scotland Group PLC | 1,819 | 1,960,682 | ||||||||||
Series U | 2,200 | 2,057,682 | ||||||||||
Societe Generale SA | 595 | 638,554 | ||||||||||
8.25%, 11/29/18(d)(m) | 1,824 | 1,936,285 |
abfunds.com | AB INCOME FUND | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Standard Chartered PLC | U.S.$ | 300 | $ | 252,006 | ||||||||
7.50%, 4/02/22(d)(m) | 1,278 | 1,363,307 | ||||||||||
7.75%, 4/02/23(d)(m) | 265 | 282,318 | ||||||||||
Suntrust Banks, Inc. | 838 | 839,902 | ||||||||||
UBS Group AG | 1,863 | 2,006,488 | ||||||||||
|
| |||||||||||
21,836,244 | ||||||||||||
|
| |||||||||||
Finance – 0.1% | ||||||||||||
Navient Corp. | 867 | 896,096 | ||||||||||
8.00%, 3/25/20 | 422 | 464,749 | ||||||||||
|
| |||||||||||
1,360,845 | ||||||||||||
|
| |||||||||||
Other Finance – 0.1% | ||||||||||||
Creditcorp | 1,199 | 1,031,140 | ||||||||||
|
| |||||||||||
24,228,229 | ||||||||||||
|
| |||||||||||
Utility – 0.3% | ||||||||||||
Electric – 0.3% | ||||||||||||
Dynegy, Inc. | 1,445 | 1,387,128 | ||||||||||
GenOn Energy, Inc. | 1,047 | 652,281 | ||||||||||
Talen Energy Supply LLC | 965 | 754,504 | ||||||||||
|
| |||||||||||
2,793,913 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.0% | ||||||||||||
NGL Energy Partners LP/NGL Energy Finance Corp. | 214 | 214,011 | ||||||||||
|
| |||||||||||
3,007,924 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 102,356,859 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 9.0% | ||||||||||||
Risk Share Floating Rate – 6.3% | ||||||||||||
Bellemeade Re II Ltd. | 2,179 | 2,194,334 |
20 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | U.S.$ | 3,250 | $ | 4,004,966 | ||||||||
Series 2013-DN2, Class M2 | 5,605 | 6,180,006 | ||||||||||
Series 2014-DN1, Class M3 | 4,455 | 5,129,649 | ||||||||||
Series 2014-DN2, Class M3 | 4,170 | 4,564,044 | ||||||||||
Series 2014-DN3, Class M3 | 5,065 | 5,485,524 | ||||||||||
Series 2014-DN4, Class M3 | 700 | 771,580 | ||||||||||
Series 2014-HQ2, Class M3 | 1,010 | 1,095,713 | ||||||||||
Series 2015-DN1, Class B | 456 | 591,333 | ||||||||||
Series 2015-DNA2, Class B | 1,498 | 1,691,138 | ||||||||||
Series 2015-DNA2, Class M2 | 3,767 | 3,856,203 | ||||||||||
Series 2015-HQA1, Class B | 1,589 | 1,797,286 | ||||||||||
Series 2017-DNA2, Class M2 | 1,168 | 1,191,798 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 1,606 | 1,805,118 | ||||||||||
Series 2014-C04, Class 1M2 | 6,100 | 6,959,558 |
abfunds.com | AB INCOME FUND | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2015-C.01, Class 1M2 | U.S.$ | 4,026 | $ | 4,387,778 | ||||||||
Series 2015-C02, Class 2M2 | 895 | 956,504 | ||||||||||
Series 2015-C03, Class 1M2 | 1,215 | 1,347,583 | ||||||||||
Series 2015-C03, Class 2M2 | 2,720 | 3,028,408 | ||||||||||
Series 2016-C05, Class 2B | 2,750 | 3,330,388 | ||||||||||
Series 2016-C07, Class 2B | 1,193 | 1,316,655 | ||||||||||
Series 2017-C02, Class 2M2 | 709 | 730,891 | ||||||||||
JP Morgan Madison Avenue Securities Trust | 1,876 | 2,013,969 | ||||||||||
Series 2015-CH1, Class M2 | 2,227 | 2,373,224 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 934 | 981,572 | ||||||||||
|
| |||||||||||
67,785,222 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 1.7% | ||||||||||||
Alternative Loan Trust | 182 | 158,772 | ||||||||||
Series 2006-19CB, Class A24 | 117 | 101,648 | ||||||||||
Series 2006-24CB, Class A15 | 1,766 | 1,467,199 | ||||||||||
Series 2006-41CB, Class 2A13 | 1,473 | 1,183,934 | ||||||||||
Series 2007-13, Class A2 | 2,189 | 1,869,996 |
22 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BCAP LLC Trust | U.S.$ | 800 | $ | 631,575 | ||||||||
BNPP Mortgage Securities LLC Trust | 1,219 | 891,188 | ||||||||||
Citigroup Mortgage Loan Trust | 2,994 | 2,695,808 | ||||||||||
Series 2007-AR4, Class 1A1A | 417 | 355,406 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 1,091 | 963,369 | ||||||||||
Series 2007-3, Class A30 | 1,130 | 939,276 | ||||||||||
Series 2007-HY4, Class 1A1 | 662 | 610,196 | ||||||||||
Credit Suisse Mortgage Trust | 180 | 134,349 | ||||||||||
Series 2010-9R, Class 1A5 | 938 | 922,693 | ||||||||||
CSMC Mortgage-Backed Trust | 876 | 730,440 | ||||||||||
Morgan Stanley Mortgage Loan Trust | 730 | 641,213 | ||||||||||
Nomura Resecuritization Trust | 1,911 | 1,615,764 | ||||||||||
Wells Fargo Mortgage Backed Securities Trust | 3,125 | 2,874,997 | ||||||||||
|
| |||||||||||
18,787,823 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.9% | ||||||||||||
Federal National Mortgage Association REMICs | 9,968 | 974,641 | ||||||||||
Government National Mortgage Association | 42,739 | 8,401,947 | ||||||||||
|
| |||||||||||
9,376,588 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Non-Agency Floating Rate – 0.1% | ||||||||||||
Citigroup Mortgage Loan Trust | U.S.$ | 670 | $ | 582,978 | ||||||||
First Horizon Alternative Mortgage Securities Trust | 687 | 322,241 | ||||||||||
Lehman XS Trust | 811 | 193,964 | ||||||||||
|
| |||||||||||
1,099,183 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 97,048,816 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 4.3% | ||||||||||||
Non-Agency Fixed Rate CMBS – 4.1% | ||||||||||||
Banc of America Commercial Mortgage Trust | 1,009 | 1,014,923 | ||||||||||
Citigroup Commercial Mortgage Trust | 6,525 | 6,140,270 | ||||||||||
Commercial Mortgage Trust | 3,219 | 2,817,398 | ||||||||||
Series 2014-LC17, Class D | 3,549 | 2,466,790 | ||||||||||
Series 2014-UBS5, Class D | 1,041 | 762,416 | ||||||||||
Series 2015-DC1, Class D | 2,730 | 2,251,998 | ||||||||||
Csail Commercial Mortgage Trust | 4,091 | 3,019,667 | ||||||||||
GS Mortgage Securities Trust | 2,652 | 2,563,586 | ||||||||||
Series 2013-GC13, Class D | 9,440 | 8,622,510 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 1,863 | 1,863,002 | ||||||||||
24 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
JPMBB Commercial Mortgage Securities Trust | U.S.$ | 1,300 | $ | 1,248,979 | ||||||||
LB-UBS Commercial Mortgage Trust | 1,750 | 1,780,860 | ||||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 603 | 477,730 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 3,781 | 3,060,623 | ||||||||||
WF-RBS Commercial Mortgage Trust Series 2012-C8, Class E | 4,000 | 3,845,714 | ||||||||||
Series 2014-C23, Class D | 2,699 | 2,138,765 | ||||||||||
|
| |||||||||||
44,075,231 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 0.2% | ||||||||||||
CGBAM Commercial Mortgage Trust | 1,613 | 1,614,370 | ||||||||||
CSMC Mortgage-Backed Trust | 755 | 757,836 | ||||||||||
|
| |||||||||||
2,372,206 | ||||||||||||
|
| |||||||||||
Agency CMBS – 0.0% | ||||||||||||
Government National Mortgage Association | 453 | 276 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 46,447,713 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT | ||||||||||||
Financial Institutions – 2.4% | ||||||||||||
Banking – 0.6% | ||||||||||||
BNP Paribas SA | 500 | 556,190 | ||||||||||
7.625%, 3/30/21(d)(m) | 810 | 883,491 |
abfunds.com | AB INCOME FUND | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Cooperatieve Rabobank UA | EUR | 1,000 | $ | 1,206,737 | ||||||||
JPMorgan Chase & Co. | U.S.$ | 2,998 | 3,378,207 | |||||||||
|
| |||||||||||
6,024,625 | ||||||||||||
|
| |||||||||||
Insurance – 1.8% | ||||||||||||
ACE Capital Trust II | 750 | 1,122,757 | ||||||||||
AIG Life Holdings, Inc. | 509 | 656,610 | ||||||||||
American International Group, Inc. | 2,525 | 3,252,023 | ||||||||||
Fairfax Financial Holdings Ltd. | 5,000 | 5,958,100 | ||||||||||
Great-West Life & Annuity Insurance | 2,707 | 2,677,440 | ||||||||||
MetLife, Inc. | 2,033 | 2,284,706 | ||||||||||
Pacific Life Insurance Co. | 750 | 1,178,587 | ||||||||||
Transatlantic Holdings, Inc. | 2,122 | 2,773,603 | ||||||||||
|
| |||||||||||
19,903,826 | ||||||||||||
|
| |||||||||||
25,928,451 | ||||||||||||
|
| |||||||||||
Industrial – 1.3% | ||||||||||||
Basic – 0.4% | ||||||||||||
Braskem Finance Ltd. | 1,204 | 1,282,260 | ||||||||||
GTL Trade Finance, Inc. | 2,711 | 2,748,954 | ||||||||||
7.25%, 4/16/44(d) | 274 | 271,945 | ||||||||||
Minsur SA | 285 | 305,662 | ||||||||||
|
| |||||||||||
4,608,821 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
General Electric Co. | 1,203 | 1,272,233 | ||||||||||
|
| |||||||||||
Communications - Media – 0.1% | ||||||||||||
Myriad International Holdings BV | 683 | 723,126 | ||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.2% | ||||||||||||
Qwest Corp. | 1,275 | 1,271,328 |
26 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 1,215 | $ | 1,225,692 | ||||||||
|
| |||||||||||
2,497,020 | ||||||||||||
|
| |||||||||||
Energy – 0.5% | ||||||||||||
Ecopetrol SA | 716 | 773,781 | ||||||||||
Hess Corp. | 1,598 | 1,901,444 | ||||||||||
Kinder Morgan, Inc./DE | 1,073 | 1,358,364 | ||||||||||
Nabors Industries, Inc. | 845 | 854,929 | ||||||||||
|
| |||||||||||
4,888,518 | ||||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
Hewlett Packard Enterprise Co. | 336 | 349,259 | ||||||||||
|
| |||||||||||
14,338,977 | ||||||||||||
|
| |||||||||||
Utility – 0.4% | ||||||||||||
Electric – 0.4% | ||||||||||||
ComEd Financing III | 3,462 | 3,635,550 | ||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 43,902,978 | |||||||||||
|
| |||||||||||
AGENCIES – 3.5% | ||||||||||||
Agency Debentures – 3.5% | ||||||||||||
Federal Home Loan Banks | 8,695 | 11,594,782 | ||||||||||
Federal Home Loan Mortgage Corp. | 15,000 | 21,141,000 | ||||||||||
Residual Funding Corp. Principal Strip | 5,277 | 4,992,095 | ||||||||||
|
| |||||||||||
Total Agencies | 37,727,877 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 3.5% | ||||||||||||
Argentina – 1.5% | ||||||||||||
Argentine Bonos del Tesoro | ARS | 50,378 | 3,621,226 | |||||||||
16.00%, 10/17/23 | 75,139 | 5,236,508 | ||||||||||
18.20%, 10/03/21 | 86,600 | 6,130,502 | ||||||||||
21.20%, 9/19/18 | 12,095 | 802,148 | ||||||||||
|
| |||||||||||
15,790,384 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Brazil – 1.5% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 53,450 | $ | 16,791,562 | ||||||||
|
| |||||||||||
Turkey – 0.5% | ||||||||||||
Turkey Government Bond | TRY | 4,234 | 1,213,446 | |||||||||
11.00%, 2/24/27 | 12,976 | 3,880,053 | ||||||||||
|
| |||||||||||
5,093,499 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 37,675,445 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 3.1% | ||||||||||||
Angola – 0.2% | ||||||||||||
Angolan Government International Bond | U.S.$ | 2,615 | 2,739,212 | |||||||||
|
| |||||||||||
Argentina – 0.9% | ||||||||||||
Argentine Republic Government International Bond | 7,843 | 8,344,563 | ||||||||||
7.50%, 4/22/26 | 870 | 957,870 | ||||||||||
|
| |||||||||||
9,302,433 | ||||||||||||
|
| |||||||||||
Bahrain – 0.1% | ||||||||||||
Bahrain Government International Bond | 873 | 906,829 | ||||||||||
|
| |||||||||||
Dominican Republic – 0.3% | ||||||||||||
Dominican Republic International Bond | 1,213 | 1,269,101 | ||||||||||
7.45%, 4/30/44(d) | 1,873 | 2,121,173 | ||||||||||
|
| |||||||||||
3,390,274 | ||||||||||||
|
| |||||||||||
Ecuador – 0.1% | ||||||||||||
Ecuador Government International Bond | 734 | 746,845 | ||||||||||
|
| |||||||||||
Egypt – 0.3% | ||||||||||||
Egypt Government International Bond | 2,666 | 2,775,972 | ||||||||||
|
| |||||||||||
Honduras – 0.2% | ||||||||||||
Honduras Government International Bond | 1,795 | 1,862,313 | ||||||||||
|
|
28 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Ivory Coast – 0.2% | ||||||||||||
Ivory Coast Government International Bond | U.S.$ | 2,440 | $ | 2,452,200 | ||||||||
|
| |||||||||||
Kenya – 0.1% | ||||||||||||
Kenya Government International Bond | 1,252 | 1,295,820 | ||||||||||
|
| |||||||||||
Nigeria – 0.0% | ||||||||||||
Nigeria Government International Bond | 426 | 461,678 | ||||||||||
|
| |||||||||||
Turkey – 0.6% | ||||||||||||
Turkey Government International Bond | 4,597 | 4,372,785 | ||||||||||
6.00%, 3/25/27 | 1,761 | 1,884,270 | ||||||||||
|
| |||||||||||
6,257,055 | ||||||||||||
|
| |||||||||||
Zambia – 0.1% | ||||||||||||
Zambia Government International Bond | 1,553 | 1,632,591 | ||||||||||
|
| |||||||||||
Total Emerging Markets – Sovereigns | 33,823,222 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 2.7% | ||||||||||||
Industrial – 2.5% | ||||||||||||
Basic – 0.5% | ||||||||||||
Elementia SAB de CV | 1,039 | 1,058,481 | ||||||||||
Petra Diamonds US Treasury PLC | 461 | 481,639 | ||||||||||
Suzano Austria GmbH | 1,883 | 1,930,075 | ||||||||||
Vedanta Resources PLC | 1,474 | 1,492,425 | ||||||||||
|
| |||||||||||
4,962,620 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.4% | ||||||||||||
Odebrecht Finance Ltd. | 6,760 | 3,042,000 | ||||||||||
5.25%, 6/27/29(d) | 2,103 | 918,748 | ||||||||||
|
| |||||||||||
3,960,748 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.4% | ||||||||||||
Columbus Cable Barbados Ltd. | 1,932 | 2,069,655 |
abfunds.com | AB INCOME FUND | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Digicel Ltd. | U.S.$ | 700 | $ | 665,000 | ||||||||
6.75%, 3/01/23(d) | 385 | 364,788 | ||||||||||
MTN Mauritius Investment Ltd. | 1,500 | 1,528,125 | ||||||||||
|
| |||||||||||
4,627,568 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||||
Servicios Corporativos Javer SAB de CV | 884 | 914,480 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.4% | ||||||||||||
Central American Bottling Corp. | 718 | 761,152 | ||||||||||
Marfrig Holdings Europe BV | 2,420 | 2,556,101 | ||||||||||
Tonon Luxembourg SA | 2,354 | 258,980 | ||||||||||
Virgolino de Oliveira Finance SA | 4,738 | 373,117 | ||||||||||
10.875%, 1/13/20(h)(i)(j) | 750 | 202,500 | ||||||||||
11.75%, 2/09/22(h)(i)(j) | 1,690 | 133,087 | ||||||||||
|
| |||||||||||
4,284,937 | ||||||||||||
|
| |||||||||||
Energy – 0.5% | ||||||||||||
Petrobras Global Finance BV | 5,000 | 5,136,750 | ||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
IHS Netherlands Holdco BV | 500 | 519,375 | ||||||||||
|
| |||||||||||
Transportation - Airlines – 0.1% | ||||||||||||
TAM Capital 3, Inc. | 1,503 | 1,549,969 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg Sarl | 1,022 | 1,059,814 | ||||||||||
|
| |||||||||||
27,016,261 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.2% | ||||||||||||
Banking – 0.2% | ||||||||||||
Akbank TAS | 530 | 559,966 | ||||||||||
Banco do Brasil SA/Cayman | 1,431 | 1,508,274 | ||||||||||
|
| |||||||||||
2,068,240 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 29,084,501 | |||||||||||
|
|
30 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
ASSET-BACKED SECURITIES – 2.2% | ||||||||||||
Autos - Fixed Rate – 1.7% | ||||||||||||
CPS Auto Receivables Trust | U.S.$ | 2,500 | $ | 2,712,470 | ||||||||
CPS Auto Trust | 3,500 | 3,640,660 | ||||||||||
Exeter Automobile Receivables Trust | 1,220 | 1,305,580 | ||||||||||
Series 2016-3A, Class D | 1,090 | 1,111,221 | ||||||||||
Series 2017-1A, Class D | 2,000 | 2,010,849 | ||||||||||
Flagship Credit Auto Trust | 4,200 | 4,556,950 | ||||||||||
Series 2017-1, Class E | 1,000 | 1,003,877 | ||||||||||
Hertz Vehicle Financing LLC | 2,169 | 2,166,741 | ||||||||||
|
| |||||||||||
18,508,348 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 0.4% | ||||||||||||
Atlas Ltd. | 1,438 | 1,426,818 | ||||||||||
Marlette Funding Trust | 1,000 | 1,010,345 | ||||||||||
Sofi Consumer Loan Program LLC | 2,205 | 2,213,054 | ||||||||||
|
| |||||||||||
4,650,217 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.1% | ||||||||||||
Morgan Stanley Mortgage Loan Trust | 1,016 | 710,832 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 23,869,397 | |||||||||||
|
|
abfunds.com | AB INCOME FUND | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
WHOLE LOAN TRUSTS – 1.4% | ||||||||||||
Performing Asset – 1.4% | ||||||||||||
Alpha Credit Debt Fund LLC | MXN | 32,620 | $ | 1,732,779 | ||||||||
15.00%, 1/15/18(e)(f) | U.S.$ | 413 | 413,352 | |||||||||
AlphaCredit Capital, SA de CV | MXN | 9,019 | 479,076 | |||||||||
Deutsche Bank Mexico SA | 38,926 | 1,323,366 | ||||||||||
8.00%, 10/31/34(e)(f) | 24,344 | 827,617 | ||||||||||
Flexpath Wh I LLC | U.S.$ | 897 | 726,438 | |||||||||
Recife Funding Ltd. | 2,884 | 2,431,466 | ||||||||||
Sheridan Auto Loan Holdings I LLC | 2,510 | 1,995,276 | ||||||||||
Sheridan Consumer Finance Trust | 5,210 | 4,863,876 | ||||||||||
|
| |||||||||||
Total Whole Loan Trusts | 14,793,246 | |||||||||||
|
| |||||||||||
INFLATION-LINKED SECURITIES – 0.8% | ||||||||||||
Brazil – 0.2% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | �� | 2,000 | 2,063,913 | ||||||||
|
| |||||||||||
Mexico – 0.6% | ||||||||||||
Mexican Udibonos | MXN | 120,975 | 6,538,648 | |||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 8,602,561 | |||||||||||
|
| |||||||||||
COLLATERALIZED LOAN OBLIGATIONS – 0.7% | ||||||||||||
Cayman Islands – 0.5% | ||||||||||||
Apid 2017-26a D | U.S.$ | 550 | 542,456 |
32 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BlueMountain CLO Ltd. | U.S.$ | 2,000 | $ | 2,013,358 | ||||||||
OZLM VII Ltd. | 1,000 | 1,000,083 | ||||||||||
Venture XXVII CLO Ltd. | 1,591 | 1,591,438 | ||||||||||
|
| |||||||||||
5,147,335 | ||||||||||||
|
| |||||||||||
United States – 0.2% | ||||||||||||
CIFC Funding Ltd. | 250 | 242,867 | ||||||||||
OZLM VIII Ltd. | 1,908 | 1,861,489 | ||||||||||
|
| |||||||||||
2,104,356 | ||||||||||||
|
| |||||||||||
Total Collateralized Loan Obligations | 7,251,691 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.6% | ||||||||||||
United States – 0.6% | ||||||||||||
State of Illinois | 3,330 | 3,486,243 | ||||||||||
Texas Transportation Commission State Highway Fund | 2,560 | 3,031,066 | ||||||||||
|
| |||||||||||
Total Local Governments – US Municipal Bonds | 6,517,309 | |||||||||||
|
| |||||||||||
QUASI-SOVEREIGNS – 0.5% | ||||||||||||
Quasi-Sovereign Bonds – 0.5% | ||||||||||||
Indonesia – 0.5% | ||||||||||||
Majapahit Holding BV | 4,738 | 6,105,624 | ||||||||||
|
|
abfunds.com | AB INCOME FUND | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
COMMON STOCKS – 0.5% | ||||||||||||
Consumer Discretionary – 0.1% | ||||||||||||
Media – 0.1% | ||||||||||||
Ion Media Networks, Inc. – Class A(e)(f)(j) | 2,512 | $ | 869,654 | |||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.1% | ||||||||||||
Vantage Drilling International(f)(j) | 5,303 | 874,995 | ||||||||||
SandRidge Energy, Inc.(j) | 2,859 | 52,663 | ||||||||||
Berry Petroleum Co. LLC(f) | 74,583 | 857,704 | ||||||||||
|
| |||||||||||
1,785,362 | ||||||||||||
|
| |||||||||||
Financials – 0.1% | ||||||||||||
Diversified Financial Services – 0.1% | ||||||||||||
Holdco, Inc. | 1,836,868 | 1,175,596 | ||||||||||
|
| |||||||||||
Industrials – 0.2% | ||||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Exide Corp.(e)(j)(l) | 45,970 | 34,478 | ||||||||||
|
| |||||||||||
Energy Other – 0.2% | ||||||||||||
Tervita Corp.(e)(f) | 245,313 | 1,774,635 | ||||||||||
|
| |||||||||||
1,809,113 | ||||||||||||
|
| |||||||||||
Total Common Stocks | 5,639,725 | |||||||||||
|
| |||||||||||
PREFERRED STOCKS – 0.3% | ||||||||||||
Financial Institutions – 0.2% | ||||||||||||
Banking – 0.1% | ||||||||||||
Morgan Stanley | 44,425 | 1,171,869 | ||||||||||
|
| |||||||||||
Services – 0.1% | ||||||||||||
Holdco, Inc. | 11,056 | 1,105,600 | ||||||||||
|
| |||||||||||
2,277,469 | ||||||||||||
|
| |||||||||||
Industrial – 0.1% | ||||||||||||
Energy – 0.1% | ||||||||||||
Berry Petroleum Co. LLC | 62,301 | 841,064 | ||||||||||
|
| |||||||||||
Total Preferred Stocks | 3,118,533 | |||||||||||
|
|
34 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.2% | ||||||||||||
Egypt – 0.2% | ||||||||||||
Citigroup Global Markets Holdings, Inc./United States | EGP | 49,911 | $ | 2,424,973 | ||||||||
|
| |||||||||||
Total Governments – Sovereign Bonds | 2,424,973 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – REGIONAL BONDS – 0.2% | ||||||||||||
Argentina – 0.2% | ||||||||||||
Provincia de Buenos Aires/Argentina | U.S.$ | 1,057 | 1,091,352 | |||||||||
9.125%, 3/16/24(d) | 363 | 411,098 | ||||||||||
Provincia de Cordoba | 493 | 520,115 | ||||||||||
|
| |||||||||||
Total Local Governments – Regional Bonds | 2,022,565 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 0.1% | ||||||||||||
Funds and Investment Trusts – 0.1% | ||||||||||||
OCL Opportunities Fund II(e)(f)(s) | 6,916 | 1,145,933 | ||||||||||
|
| |||||||||||
Contracts | ||||||||||||
OPTIONS PURCHASED – PUTS – 0.1% | ||||||||||||
Options on Forward Contracts – 0.1% | ||||||||||||
USD/ZAR | 15,175,000 | 284,319 | ||||||||||
USD/RUB | 4,675,000 | 71,158 | ||||||||||
USD/RUB 1 | 4,675,000 | 71,158 | ||||||||||
USD/TRY | 4,650,000 | 163,257 | ||||||||||
|
| |||||||||||
589,892 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Contracts | U.S. $ Value | ||||||||||
| ||||||||||||
Options on Funds and Investment | ||||||||||||
iShares MSCI Emerging Markets ETF | 4,720 | $ | 16,520 | |||||||||
iShares MSCI Emerging Markets ETF 1 | 266,200 | 24,526 | ||||||||||
iShares MSCI Emerging Markets ETF 2 | 1,213,700 | 38,731 | ||||||||||
iShares MSCI Emerging Markets ETF 3 | 266,200 | 24,526 | ||||||||||
|
| |||||||||||
104,303 | ||||||||||||
|
| |||||||||||
Options on Indices – 0.0% | ||||||||||||
S&P 500 Index | 13,500 | 1,254 | ||||||||||
S&P 500 Index 1 | 27,900,000 | 17,661 | ||||||||||
S&P 500 Index 2 | 49,300,000 | 31,207 | ||||||||||
|
| |||||||||||
50,122 | ||||||||||||
|
| |||||||||||
Total Options Purchased – Puts | 744,317 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
BANK LOANS – 0.1% | ||||||||||||
Industrial – 0.1% | ||||||||||||
Basic – 0.1% | ||||||||||||
Foresight Energy LLC | U.S.$ | 468 | 451,283 | |||||||||
Magnetation LLC | 1,536 | – 0 | – | |||||||||
|
| |||||||||||
451,283 | ||||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
Avaya Inc. | 191 | 196,408 | ||||||||||
|
| |||||||||||
Total Bank Loans | 647,691 | |||||||||||
|
|
36 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Contracts | U.S. $ Value | ||||||||||
| ||||||||||||
OPTIONS PURCHASED – | ||||||||||||
Options on Forward Contracts – 0.0% | ||||||||||||
EUR/JPY | 9,750,000 | $ | 120,661 | |||||||||
EUR/JPY | 40,270,000 | 2,457 | ||||||||||
|
| |||||||||||
Total Options Purchased – Calls | 123,118 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
MORTGAGE PASS-THROUGHS – 0.0% | ||||||||||||
Agency Fixed Rate 30-Year – 0.0% | ||||||||||||
Federal National Mortgage Association | U.S.$ | 14 | 15,712 | |||||||||
Series 1999 | 18 | 21,459 | ||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 37,171 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
WARRANTS – 0.0% | ||||||||||||
Flexpath Capital, Inc., , | 12 | – 0 | – | |||||||||
Flexpath Capital, Inc., , | 17,195 | – 0 | – | |||||||||
SandRidge Energy, Inc., A-CW22, | 2,475 | 2,475 | ||||||||||
SandRidge Energy, Inc., B-CW22, | 1,042 | 584 | ||||||||||
|
| |||||||||||
Total Warrants | 3,059 | |||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 2.2% | ||||||||||||
Investment Companies – 2.2% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.57%(r)(x) | 24,268,859 | 24,268,859 | ||||||||||
|
| |||||||||||
Total Investments – 134.0% | 1,446,561,981 | |||||||||||
Other assets less liabilities – (34.0)% | (366,881,597 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 1,079,680,384 | ||||||||||
|
|
abfunds.com | AB INCOME FUND | 37 |
PORTFOLIO OF INVESTMENTS (continued)
FUTURES (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at April 30, 2017 | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Purchased Contracts |
| |||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 531 | June 2017 | $ | 114,771,452 | $ | 115,019,579 | $ | 248,127 | ||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 2,619 | June 2017 | 308,183,650 | 310,105,969 | 1,922,319 | |||||||||||||||
Sold Contracts | ||||||||||||||||||||
Euro Buxl 30 Yr Bond Futures | 51 | June 2017 | 9,288,544 | 9,397,563 | (109,019 | ) | ||||||||||||||
Euro-BOBL Futures | 371 | June 2017 | 53,041,603 | 53,288,607 | (247,004 | ) | ||||||||||||||
Euro-Bund Futures | 136 | June 2017 | 24,102,430 | �� | 23,966,859 | 135,571 | ||||||||||||||
Long Gilt Futures | 120 | June 2017 | 19,609,714 | 19,936,225 | (326,511 | ) | ||||||||||||||
U.S. Long Bond (CBT) Futures | 1,228 | June 2017 | 183,663,269 | 187,845,625 | (4,182,356 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | (2,558,873 | ) | ||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Australia and New Zealand Banking Group Ltd. | CNY | 194,424 | USD | 28,194 | 5/25/17 | $ | 62,072 | |||||||||||||
Australia and New Zealand Banking Group Ltd. | AUD | 35,782 | USD | 27,019 | 7/10/17 | 257,890 | ||||||||||||||
Australia and New Zealand Banking Group Ltd. | NZD | 3,623 | USD | 2,488 | 7/10/17 | 5,147 | ||||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 537 | AUD | 716 | 7/10/17 | (1,490 | ) | |||||||||||||
Bank of America, NA | USD | 8,343 | CHF | 8,325 | 6/14/17 | 46,062 | ||||||||||||||
Bank of America, NA | MXN | 92,764 | USD | 4,897 | 6/16/17 | 5,356 | ||||||||||||||
Bank of America, NA | CAD | 7,096 | USD | 5,269 | 6/22/17 | 66,149 | ||||||||||||||
Bank of America, NA | RUB | 90,040 | USD | 1,588 | 6/22/17 | 24,109 | ||||||||||||||
Bank of America, NA | AUD | 2,977 | USD | 2,238 | 7/10/17 | 11,702 | ||||||||||||||
Bank of America, NA | ZAR | 96,856 | USD | 7,053 | 7/10/17 | (111,482 | ) | |||||||||||||
Barclays Bank PLC | NOK | 11,586 | USD | 1,386 | 5/11/17 | 36,696 | ||||||||||||||
Barclays Bank PLC | KRW | 15,609,004 | USD | 13,761 | 5/18/17 | 38,785 | ||||||||||||||
Barclays Bank PLC | USD | 5,378 | GBP | 4,195 | 5/18/17 | 57,392 | ||||||||||||||
BNP Paribas SA | JPY | 555,341 | USD | 4,849 | 5/11/17 | (133,994 | ) | |||||||||||||
BNP Paribas SA | GBP | 3,862 | USD | 4,727 | 5/18/17 | (277,037 | ) | |||||||||||||
BNP Paribas SA | USD | 9,188 | TRY | 33,110 | 6/08/17 | 35,851 | ||||||||||||||
BNP Paribas SA | USD | 5,061 | CHF | 5,088 | 6/14/17 | 66,210 | ||||||||||||||
BNP Paribas SA | USD | 9,066 | MXN | 173,162 | 6/16/17 | 65,379 | ||||||||||||||
Citibank, NA | BRL | 30,136 | USD | 9,612 | 5/03/17 | 117,834 | ||||||||||||||
Citibank, NA | USD | 9,422 | BRL | 30,136 | 5/03/17 | 72,282 | ||||||||||||||
Citibank, NA | SEK | 42,754 | USD | 4,766 | 5/11/17 | (63,087 | ) | |||||||||||||
Citibank, NA | GBP | 4,708 | USD | 5,751 | 5/18/17 | (350,077 | ) | |||||||||||||
Citibank, NA | TRY | 16,292 | EUR | 4,051 | 6/08/17 | (118,588 | ) |
38 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Citibank, NA | TWD | 140,509 | USD | 4,597 | 6/13/17 | $ | (61,676 | ) | ||||||||||||||||
Citibank, NA | CHF | 13,389 | USD | 13,383 | 6/14/17 | (107,563 | ) | |||||||||||||||||
Citibank, NA | USD | 23,611 | INR | 1,547,300 | 6/15/17 | 348,676 | ||||||||||||||||||
Citibank, NA | CAD | 3,983 | USD | 2,977 | 6/22/17 | 57,528 | ||||||||||||||||||
Citibank, NA | NZD | 36,101 | USD | 25,119 | 7/10/17 | 374,536 | ||||||||||||||||||
Credit Suisse International | NOK | 39,910 | USD | 4,663 | 5/11/17 | 14,001 | ||||||||||||||||||
Credit Suisse International | NOK | 40,267 | USD | 4,685 | 5/11/17 | (5,578 | ) | |||||||||||||||||
Credit Suisse International | RUB | 143,770 | USD | 2,439 | 6/20/17 | (59,716 | ) | |||||||||||||||||
Deutsche Bank AG | BRL | 15,944 | USD | 5,061 | 5/03/17 | 37,549 | ||||||||||||||||||
Deutsche Bank AG | USD | 4,985 | BRL | 15,944 | 5/03/17 | 38,243 | ||||||||||||||||||
Deutsche Bank AG | SEK | 98,360 | USD | 10,927 | 5/11/17 | (182,590 | ) | |||||||||||||||||
Deutsche Bank AG | GBP | 496 | USD | 603 | 5/18/17 | (39,491 | ) | |||||||||||||||||
Deutsche Bank AG | RUB | 142,426 | USD | 2,416 | 6/20/17 | (59,157 | ) | |||||||||||||||||
Deutsche Bank AG | TRY | 3,543 | USD | 964 | 7/26/17 | (9,251 | ) | |||||||||||||||||
Goldman Sachs Bank USA | TRY | 11,617 | USD | 3,113 | 6/08/17 | (122,972 | ) | |||||||||||||||||
HSBC Bank USA | SEK | 40,241 | USD | 4,496 | 5/11/17 | (48,824 | ) | |||||||||||||||||
HSBC Bank USA | ZAR | 61,049 | USD | 4,833 | 5/24/17 | 281,107 | ||||||||||||||||||
HSBC Bank USA | USD | 12,885 | TRY | 48,917 | 6/08/17 | 741,804 | ||||||||||||||||||
HSBC Bank USA | CNY | 18,156 | USD | 2,617 | 6/12/17 | (4,865 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | JPY | 1,362,692 | USD | 12,383 | 5/11/17 | 154,631 | ||||||||||||||||||
JPMorgan Chase Bank, NA | NOK | 97,244 | USD | 11,300 | 5/11/17 | (27,206 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 10,233 | MYR | 45,296 | 5/15/17 | 206,266 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 4,468 | GBP | 3,633 | 5/18/17 | 239,176 | ||||||||||||||||||
JPMorgan Chase Bank, NA | IDR | 429,950 | USD | 32 | 5/19/17 | (397 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | ZAR | 74,918 | USD | 5,591 | 5/24/17 | 5,713 | ||||||||||||||||||
JPMorgan Chase Bank, NA | MXN | 561,410 | USD | 29,901 | 6/16/17 | 296,588 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 16,769 | MXN | 324,295 | 6/16/17 | 332,253 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 10,267 | MYR | 45,223 | 6/22/17 | 158,040 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 9,387 | EUR | 8,606 | 7/13/17 | 21,750 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 964 | TRY | 3,530 | 7/26/17 | 5,806 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 2,068 | ZAR | 27,253 | 7/26/17 | (57,374 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | ZAR | 27,253 | USD | 2,068 | 7/26/17 | 57,376 | ||||||||||||||||||
Nomura Global Financial Products, Inc. | USD | 28,217 | CNY | 194,370 | 5/25/17 | (92,334 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | BRL | 46,080 | USD | 14,407 | 5/03/17 | (110,526 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 14,585 | BRL | 46,080 | 5/03/17 | (66,856 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | JPY | 1,272,426 | USD | 11,423 | 5/11/17 | 4,805 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 7,008 | JPY | 774,189 | 5/11/17 | (60,427 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | BRL | 46,080 | USD | 14,470 | 6/02/17 | 61,068 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 2,616 | CNY | 18,080 | 6/12/17 | (4,768 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 7,685 | COP | 22,244,553 | 6/14/17 | (171,963 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 2,257 | INR | 146,908 | 6/15/17 | 17,490 | ||||||||||||||||||
Standard Chartered Bank | USD | 4,466 | IDR | 59,983,303 | 5/19/17 | 27,909 | ||||||||||||||||||
State Street Bank & Trust Co. | GBP | 157 | USD | 201 | 5/18/17 | (2,560 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 17,326 | USD | 18,448 | 7/13/17 | (493,779 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 454 | EUR | 423 | 7/13/17 | 8,736 | ||||||||||||||||||
UBS AG | IDR | 132,630 | USD | 10 | 5/19/17 | (90 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 1,614,249 | |||||||||||||||||||||||
|
|
abfunds.com | AB INCOME FUND | 39 |
PORTFOLIO OF INVESTMENTS (continued)
PUT OPTIONS WRITTEN (see Note D)
Description | Contracts | Exercise Price | Expiration Month | Premiums Received | U.S. $ Value | |||||||||||||||
iShares MSCI Emerging Markets ETF(u) | 4,720 | $ | 36.50 | May 2017 | $ | 65,875 | $ | (14,160 | ) | |||||||||||
iShares MSCI Emerging Markets ETF(t) | 1,213,700 | 36.50 | May 2017 | 182,055 | (26,785 | ) | ||||||||||||||
iShares MSCI Emerging Markets ETF(t) | 266,200 | 57.00 | May 2017 | 49,247 | (7,112 | ) | ||||||||||||||
iShares MSCI Emerging Markets ETF(t) | 266,200 | 57.00 | May 2017 | 45,254 | (7,112 | ) | ||||||||||||||
S&P 500 Index(t) | 13,500 | 2,175.00 | April 2017 | 67,500 | (250 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||
$ | 409,931 | $ | (55,419 | ) | ||||||||||||||||
|
|
|
|
CREDIT DEFAULT SWAPTIONS WRITTEN (see Note D)
Description | Counterparty | Buy/Sell Protection | Strike Rate | Expiration Month | Notional Amount (000) | Premiums Received | Market Value | |||||||||||||||||||||
Call – CDX-NAHY Series 28, 5 Year Index RTR | | Goldman Sachs International | | Sell | 107.00 | % | May 2017 | $ | 5,175 | $ | 20,312 | $ | (32,878 | ) | ||||||||||||||
Put – CDX-NAHY Series 28, 5 Year Index RTP | | Goldman Sachs International | | Sell | 106.50 | May 2017 | 5,175 | 34,155 | (7,983 | ) | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
$ | 54,467 | $ | (40,861 | ) | ||||||||||||||||||||||||
|
|
|
|
CURRENCY OPTIONS WRITTEN (see Note D)
Description | Exercise Price | Expiration Date | Contracts (000) | Premiums Received | U.S. $ Value | |||||||||||||
Call – AUD vs. CAD | AUD | 1.033 | 4/26/17 | AUD | 6,400 | $ | 15,711 | $ | (1,998 | ) | ||||||||
Call – AUD vs. CAD | 1.033 | 4/26/17 | 12,800 | 28,691 | (4,217 | ) | ||||||||||||
Call – AUD vs. CAD | 1.013 | 5/17/17 | 13,455 | 32,544 | (106,514 | ) | ||||||||||||
Call – AUD vs. NZD | 1.15 | 9/14/17 | 12,240 | 43,141 | (19,916 | ) | ||||||||||||
Call – EUR vs. NOK | EUR | 9.10 | 5/04/17 | EUR | 8,290 | 44,563 | (254,727 | ) | ||||||||||
Call – USD vs. BRL | USD | 3.335 | 5/31/17 | USD | 5,350 | 36,808 | (36,808 | ) | ||||||||||
Call – USD vs. CAD | 1.387 | 5/30/17 | 5,350 | 18,966 | (16,585 | ) | ||||||||||||
Call – USD vs. CNH | 7.082 | 6/13/17 | 9,275 | 36,172 | (4,062 | ) | ||||||||||||
Call – USD vs. KRW | 1,178.10 | 5/18/17 | 10,300 | 73,645 | (21,208 | ) | ||||||||||||
Call – USD vs. RUB | 62.20 | 6/19/17 | 4,675 | 50,859 | (13,015 | ) | ||||||||||||
Call – USD vs. RUB | 62.20 | 6/19/17 | 4,675 | 51,191 | (13,015 | ) | ||||||||||||
Call – USD vs. TRY | 4.16 | 4/27/17 | 8,885 | 121,911 | (711 | ) | ||||||||||||
Call – USD vs. TRY | 4.05 | 6/15/17 | 4,650 | 63,938 | (3,227 | ) | ||||||||||||
Call – USD vs. TRY | 3.86 | 7/25/17 | 5,275 | 55,440 | (42,089 | ) | ||||||||||||
Call – USD vs. TRY | 4.10 | 9/21/17 | 4,775 | 87,382 | (38,148 | ) | ||||||||||||
Call – USD vs. TRY | 4.30 | 12/20/17 | 4,850 | 118,825 | (57,516 | ) | ||||||||||||
Call – USD vs. ZAR | 13.505 | 5/02/17 | 4,950 | 39,105 | (13,608 | ) | ||||||||||||
Call – USD vs. ZAR | 14.75 | 7/06/17 | 15,175 | 231,874 | (93,736 | ) | ||||||||||||
Call – USD vs. ZAR | 14.05 | 7/24/17 | 10,550 | 134,934 | (194,975 | ) |
40 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Description | Exercise Price | Expiration Date | Contracts (000) | Premiums Received | U.S. $ Value | |||||||||||||||
Put – CAD vs. JPY | CAD | 76.00 | 9/27/17 | CAD | 13,270 | $ | 82,913 | $ | (84,789 | ) | ||||||||||
Put – EUR vs. CHF | EUR | 1.044 | 5/04/07 | EUR | 8,300 | 44,914 | (561 | ) | ||||||||||||
Put – EUR vs. CHF | 1.04 | 5/05/17 | 8,360 | 54,279 | (692 | ) | ||||||||||||||
Put – EUR vs. GBP | 0.846 | 5/22/17 | 8,950 | 58,960 | (104,687 | ) | ||||||||||||||
Put – EUR vs. JPY | 115.00 | 5/18/17 | 8,875 | 61,738 | (7,647 | ) | ||||||||||||||
Put – EUR vs. JPY | 112.00 | 5/22/17 | 9,750 | 78,163 | (5,512 | ) | ||||||||||||||
Put – USD vs. TRY | USD | 3.60 | 5/12/17 | USD | 4,650 | 20,181 | (71,173 | ) | ||||||||||||
|
|
|
| |||||||||||||||||
$ | 1,686,848 | $ | (1,211,136 | ) | ||||||||||||||||
|
|
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Clearing Broker/(Exchange) & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Buy Contracts | ||||||||||||||||||||
Citigroup Global Markets, Inc./(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 27, 5 Year Index, 12/20/21* | (5.00 | )% | 3.01 | % | $ | 29,691 | $ | (2,593,132 | ) | $ | (397,147 | ) | ||||||||
Sale Contracts | ||||||||||||||||||||
Citigroup Global Markets, Inc./(INTRCONX) | ||||||||||||||||||||
CDX-NAHY Series 28, 5 Year Index, 6/20/22* | 5.00 | 3.28 | 15,332 | 1,255,167 | 277,115 | |||||||||||||||
|
|
|
| |||||||||||||||||
$ | (1,337,965 | ) | $ | (120,032 | ) | |||||||||||||||
|
|
|
|
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
Citigroup Global Markets, Inc./(CME Group) | GBP 66,130 | 2/23/19 | 0.606% | 6 Month LIBOR | $ | (87,431 | ) | |||||||||
Citigroup Global Markets, Inc./(CME Group) | 69,410 | 2/27/19 | 3 Month LIBOR | 1.544% | 47,521 | |||||||||||
Citigroup Global Markets, Inc./(CME Group) | 30,755 | 2/10/25 | 2.034% | 3 Month LIBOR | 209,025 | |||||||||||
Citigroup Global Markets, Inc./(CME Group) | 6,010 | 6/09/25 | 2.491% | 3 Month LIBOR | (191,023 | ) |
abfunds.com | AB INCOME FUND | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||
Citigroup Global Markets, Inc./(CME Group) | GBP 10,000 | 1/11/27 | 2.285% | 3 Month LIBOR | $ | (79,326 | ) | |||||||||||
Citigroup Global Markets, Inc./(LCH Group) | 46,860 | 4/02/24 | 2.851% | 3 Month LIBOR | (2,408,486 | ) | ||||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 11,920 | 4/26/27 | 2.287% | 3 Month LIBOR | (9,201 | ) | ||||||||||||
|
| |||||||||||||||||
$ | (2,518,921 | ) | ||||||||||||||||
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | % | 9.75 | % | USD 5,000 | $ | (939,833 | ) | $ | (132,457 | ) | $ | (807,376 | ) | ||||||||||
Credit Suisse International | ||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | 9.75 | 4,000 | (751,867 | ) | 49,545 | (801,412 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 660 | (73,392 | ) | (9,204 | ) | (64,188 | ) | |||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | 9.75 | 5,000 | (939,833 | ) | (747,134 | ) | (192,699 | ) | |||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | 9.75 | 6,500 | (1,221,783) | (1,022,022) | (199,761 | ) | |||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | 9.75 | 5,000 | (939,833 | ) | (132,457 | ) | (807,376 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 333 | (37,030 | ) | (23,424 | ) | (13,606 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 5,000 | (556,000 | ) | (417,717 | ) | (138,283 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 5,000 | (556,000 | ) | (413,218 | ) | (142,782 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 2,000 | (222,400 | ) | (27,885 | ) | (194,515 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 2,000 | (222,401 | ) | (27,886 | ) | (194,515 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 4,400 | (489,280 | ) | (51,202 | ) | (438,078 | ) | |||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 547 | (60,826 | ) | (40,926 | ) | (19,900 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (7,010,478 | ) | $ | (2,995,987 | ) | $ | (4,014,491 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
42 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
VARIANCE SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Volatility Strike Price | Notional Amount (000) | Market Value | Upfront Premiums (Paid) Received | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Sale Contracts | ||||||||||||||||||||
Barclays Bank PLC | 13.00 | % | USD – 0 | –** | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | |||||||
Deutsche Bank AG | 8.45 | 2 | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Goldman Sachs International Powershares QQQ Trust, Series 1 5/05/17* | 9.65 | 1 | (9,967 | ) | – 0 | – | (9,967 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | (9,967 | ) | $ | – 0 | – | $ | (9,967 | ) | ||||||||||||
|
|
|
|
|
|
* | Termination date |
** | Notional amount less than $500. |
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Interest Rate | Maturity | U.S. $ Value at April 30, 2017 | |||||||||
Barclays Capital, Inc. | (2.00 | )%* | 4/20/18 | $ | 764,295 | |||||||
Barclays Capital, Inc. | (1.50 | )%* | 3/02/18 | 1,387,321 | ||||||||
Barclays Capital, Inc. | (1.00 | )%* | 3/07/18 | 1,119,147 | ||||||||
Credit Suisse Securities (USA) LLC+ | (0.50 | )%* | — | 1,129,482 | ||||||||
Credit Suisse Securities (USA) LLC | (0.50 | )%* | 3/28/18 | 1,846,877 | ||||||||
HSBC Bank USA | 0.92 | % | 2/23/19 | 238,896,316 | ||||||||
JP Morgan Chase Bank | 0.70 | % | 2/01/18 | 95,757,427 | ||||||||
JP Morgan Chase Bank | 0.94 | % | 2/23/18 | 16,629,600 | ||||||||
JP Morgan Chase Bank | 0.95 | % | 7/11/17 | 41,122,776 | ||||||||
|
| |||||||||||
$ | 398,653,241 | |||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on April 30, 2017 |
* | Interest payment due from counterparty. |
abfunds.com | AB INCOME FUND | 43 |
PORTFOLIO OF INVESTMENTS (continued)
The type of underlying collateral and the remaining maturity of open reverse repurchase agreements in relation to the reverse repurchase agreements on the statements of assets and liabilities is as follows:
Remaining Contracted Maturity of the Agreements
Reverse Repurchase Agreements
Overnight and Continuous | Up to 30 Days | 31-90 Days | Greater than 90 Days | Total | ||||||||||||||||
Corporates – Non-Investment Grade | $ | 1,129,482 | $ | – 0 | – | $ | – 0 | – | $ | 5,117,640 | $ | 6,247,122 | ||||||||
Governments – Treasuries | — | — | 41,122,776 | 351,283,343 | 392,406,119 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,129,482 | $ | – 0 | – | $ | 41,122,776 | $ | 356,400,983 | $ | 398,653,241 | |||||||||
|
|
|
|
|
|
|
|
|
|
(a) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. |
(b) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(c) | Position, or a portion thereof, has been segregated to collateralize margin requirements for open futures contracts. |
(d) | 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 April 30, 2017, the aggregate market value of these securities amounted to $197,051,408 or 18.3% of net assets. |
(e) | Fair valued by the Adviser. |
(f) | Illiquid security. |
(g) | Pay-In-Kind Payments (PIK). The issuer may pay cash interest and/or interest in additional debt securities. Rates shown are the rates in effect at April 30, 2017. |
(h) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.90% of net assets as of April 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Avaya, Inc. | 1/19/17 | $ | 1,540,283 | $ | 1,662,437 | 0.15 | % | |||||||||
Avaya, Inc. | 2/01/17 | 200,525 | 108,900 | 0.01 | % | |||||||||||
Bellemeade Re II Ltd. Series 2016-1A, Class M2A | 4/29/16 | 2,179,211 | 2,194,334 | 0.20 | % | |||||||||||
Creditcorp | 6/28/13 | 1,195,724 | 1,031,140 | 0.10 | % | |||||||||||
Exide Technologies | 11/10/16 | 99,080 | 88,550 | 0.01 | % | |||||||||||
Golden Energy Offshore Services AS | 11/16/15 | 2,067,659 | 697,721 | 0.06 | % | |||||||||||
JP Morgan Madison Avenue Securities Trust Series 2014-CH1, Class M2 | 11/06/15 | 1,852,342 | 2,013,969 | 0.19 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | 2/19/15 | 861,787 | 141 | 0.00 | % |
44 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Tonon Luxembourg SA | 7/24/15 | $ | 2,348,017 | $ | 258,980 | 0.02 | % | |||||||||
Vantage Drilling International | 6/17/16 | 72,328 | 74,690 | 0.01 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | 3,510,948 | 373,117 | 0.03 | % | |||||||||||
Virgolino de Oliveira Finance SA | 6/09/14 | 745,965 | 202,500 | 0.02 | % | |||||||||||
Virgolino de Oliveira Finance SA | 2/03/14 | 916,307 | 133,087 | 0.01 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/06/16 | 947,595 | 981,572 | 0.09 | % |
(i) | Defaulted. |
(j) | Non-income producing security. |
(k) | Convertible security. |
(l) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Exide Corp. | 4/30/15 | $ | 87,194 | $ | 34,478 | 0.00 | % | |||||||||
Exide Technologies Series AI | 4/30/15 | 2,805,977 | 2,264,553 | 0.21 | % |
(m) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(n) | Floating Rate Security. Stated interest/floor rate was in effect at April 30, 2017. |
(o) | IO – Interest Only. |
(p) | Inverse interest only security. |
(q) | Variable rate coupon, rate shown as of April 30, 2017. |
(r) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
(s) | The company invests on a global basis in multiple asset classes including (but not limited to) private equity debt securities, property-related assets and private equity securities including warrants and preferred stock. |
(t) | One contract relates to 1 share. |
(u) | One contract relates to 100 shares. |
(v) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at April 30, 2017. |
(w) | Defaulted matured security. |
(x) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
abfunds.com | AB INCOME FUND | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Currency Abbreviations:
ARS – Argentine Peso AUD – Australian Dollar BRL – Brazilian Real CAD – Canadian Dollar CHF – Swiss Franc CNY – Chinese Yuan Renminbi COP – Colombian Peso EGP – Egyptian Pound EUR – Euro GBP – Great British Pound IDR – Indonesian Rupiah INR – Indian Rupee | JPY – Japanese Yen KRW – South Korean Won MXN – Mexican Peso MYR – Malaysian Ringgit NOK – Norwegian Krone NZD – New Zealand Dollar RUB – Russian Ruble SEK – Swedish Krona TRY – Turkish Lira TWD – New Taiwan Dollar USD – United States Dollar ZAR – South African Rand |
Glossary:
ABS – Asset-Backed Securities
ARMs – Adjustable Rate Mortgages
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
CDOR – Canadian Dealer Offered Rate
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAHY – North American High Yield Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
CME – Chicago Mercantile Exchange
ETF – Exchange Traded Fund
INTRCONX – Inter-Continental Exchange
LCH – London Clearing House
LIBOR – London Interbank Offered Rates
MSCI – Morgan Stanley Capital International
REMICs – Real Estate Mortgage Investment Conduits
RTP – Right To Pay
RTR – Right To Receive
See notes to financial statements.
46 | AB INCOME FUND | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $1,410,107,310) | $ | 1,422,293,122 | ||
Affiliated issuers (cost $24,268,859) | 24,268,859 | |||
Cash | 556,731 | |||
Cash collateral due from broker | 3,875,709 | |||
Foreign currencies, at value (cost $1,338,859) | 1,275,993 | |||
Receivable for capital stock sold | 18,928,440 | |||
Interest receivable | 18,309,559 | |||
Receivable for investment securities sold and foreign currency transactions | 4,526,720 | |||
Unrealized appreciation on forward currency exchange contracts | 4,459,967 | |||
Receivable for newly entered credit default swaps | 1,062,298 | |||
Receivable for terminated credit default swaps | 361,184 | |||
Due from custodian | 240,774 | |||
Receivable for terminated total return swaps | 159,417 | |||
Upfront premiums paid on credit default swaps | 49,545 | |||
Affiliated dividends receivable | 3,781 | |||
|
| |||
Total assets | 1,500,372,099 | |||
|
| |||
Liabilities | ||||
Options written, at value (premiums received $2,096,779) | 1,266,555 | |||
Swaptions written, at value (premiums received $54,467) | 40,861 | |||
Payable for reverse repurchase agreements | 398,653,241 | |||
Payable for investment securities purchased and foreign currency transactions | 4,378,190 | |||
Unrealized depreciation on credit default swaps | 4,014,491 | |||
Upfront premiums received on credit default swaps | 3,045,532 | |||
Unrealized depreciation on forward currency exchange contracts | 2,845,718 | |||
Payable for capital stock repurchased | 2,589,404 | |||
Payable for terminated credit default swaps | 1,082,152 | |||
Cash collateral due to broker | 780,000 | |||
Dividends payable | 684,245 | |||
Payable for newly entered credit default swaps | 364,068 | |||
Payable for variation margin on exchange-traded derivatives | 250,065 | |||
Advisory fee payable | 219,810 | |||
Payable for terminated total return swaps | 81,261 | |||
Transfer Agent fee payable | 46,039 | |||
Administrative fee payable | 23,773 | |||
Unrealized depreciation on variance swaps | 9,967 | |||
Distribution fee payable | 9,356 | |||
Accrued expenses | 306,987 | |||
|
| |||
Total liabilities | 420,691,715 | |||
|
| |||
Net Assets | $ | 1,079,680,384 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 132,498 | ||
Additional paid-in capital | 1,108,503,860 | |||
Distributions in excess of net investment income | (1,324,194 | ) | ||
Accumulated net realized loss on investment and foreign currency transactions | (33,006,152 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 5,374,372 | |||
|
| |||
$ | 1,079,680,384 | |||
|
|
See notes to financial statements.
abfunds.com | AB INCOME FUND | 47 |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 24,714,174 | 3,036,588 | $ | 8.14 | * | ||||||
|
|
|
|
|
|
| ||||||
C | $ | 10,312,418 | 1,265,084 | $ | 8.15 | |||||||
|
|
|
|
|
|
| ||||||
Advisor | $ | 1,044,653,792 | 128,196,148 | $ | 8.15 | |||||||
|
|
|
|
|
|
|
* | The maximum offering price per share for Class A shares was $8.50 which reflects a sales charge of 4.25%. |
See notes to financial statements.
48 | AB INCOME FUND | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $5,946) | $ | 29,068,611 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 694,088 | |||||||
Affiliated issuers | 21,820 | $ | 29,784,519 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 2,370,710 | |||||||
Distribution fee—Class A | 8,809 | |||||||
Distribution fee—Class C | 14,978 | |||||||
Transfer agency—Class A | 4,143 | |||||||
Transfer agency—Class C | 1,779 | |||||||
Transfer agency—Advisor Class | 522,331 | |||||||
Custodian | 133,215 | |||||||
Registration fees | 84,399 | |||||||
Audit and tax | 68,046 | |||||||
Printing | 57,448 | |||||||
Administrative | 32,040 | |||||||
Directors’ fees | 12,957 | |||||||
Legal | 12,871 | |||||||
Miscellaneous | 60,773 | |||||||
|
| |||||||
Total expenses before interest expense | 3,384,499 | |||||||
Interest expense | 1,365,296 | |||||||
|
| |||||||
Total expenses | 4,749,795 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (767,032 | ) | ||||||
|
| |||||||
Net expenses | 3,982,763 | |||||||
|
| |||||||
Net investment income | 25,801,756 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain on: | ||||||||
Investment transactions | 5,284,288 | |||||||
Futures | 28,461,977 | |||||||
Options written | 1,927,296 | |||||||
Swaptions written | 908,387 | |||||||
Swaps | 6,577,755 | |||||||
Foreign currency transactions | 53,420 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (21,646,966 | ) | ||||||
Futures | (14,940,196 | ) | ||||||
Options written | 830,224 | |||||||
Swaptions written | 13,606 | |||||||
Swaps | 981,541 | |||||||
Foreign currency denominated assets and liabilities | 467,984 | |||||||
|
| |||||||
Net gain on transactions | 8,919,316 | |||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 346 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 34,721,418 | ||||||
|
|
See notes to financial statements.
abfunds.com | AB INCOME FUND | 49 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | For the Period January 1, 2016 to October 31, 2016(a) | Year Ended December 31, 2015 | ||||||||||
Increase (Decrease) in Net Assets from Operations | ||||||||||||
Net investment income | $ | 25,801,756 | $ | 53,457,885 | $ | 82,910,856 | ||||||
Net realized gain (loss) on investment and foreign currency transactions | 43,213,123 | (13,956,269 | ) | 24,568,704 | ||||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (34,293,807 | ) | 64,944,521 | (109,308,486 | ) | |||||||
Contributions from Affiliates (see Note B) | 346 | – 0 | – | – 0 | – | |||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in net assets from operations | 34,721,418 | 104,446,137 | (1,828,926 | ) | ||||||||
Dividends and Distributions to Shareholders from | ||||||||||||
Net investment income | ||||||||||||
Class A | (184,041 | ) | (15,961 | ) | – 0 | – | ||||||
Class C | (66,471 | ) | (5,811 | ) | – 0 | – | ||||||
Advisor Class | (26,171,096 | ) | (53,017,830 | ) | (101,719,576 | ) | ||||||
Net realized gain on investment transactions | ||||||||||||
Advisor Class | – 0 | – | – 0 | – | (9,712,602 | ) | ||||||
Capital Stock Transactions | ||||||||||||
Net increase (decrease) | 152,366,268 | (828,348,508 | ) | – 0 | – |
See notes to financial statements.
50 | AB INCOME FUND | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS (continued)
Six Months Ended April 30, 2017 (unaudited) | For the Period January 1, 2016 to October 31, 2016(a) | Year Ended December 31, 2015 | ||||||||||
Common Stock (see Note E) | ||||||||||||
Repurchase of Shares (12,172,242 shares) | $ | – 0 | – | $ | – 0 | – | (92,499,158 | ) | ||||
|
|
|
|
|
| |||||||
Total increase (decrease) | 160,666,078 | (776,941,973 | ) | (205,760,262 | ) | |||||||
Net Assets | ||||||||||||
Beginning of period | 919,014,306 | 1,695,956,279 | 1,901,716,541 | |||||||||
|
|
|
|
|
| |||||||
End of period (including distributions in excess of net investment income of ($1,324,194), ($704,342) and ($3,296,673), respectively) | $ | 1,079,680,384 | $ | 919,014,306 | $ | 1,695,956,279 | ||||||
|
|
|
|
|
|
(a) | AllianceBernstein Income Fund’s (the “Predecessor Fund”) fiscal year end was December 31 and the Fund’s fiscal year end is October 31. |
See notes to financial statements.
abfunds.com | AB INCOME FUND | 51 |
STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 2017 (unaudited)
Cash flows from operating activities | ||||||||
Net increase in net assets from operations | $ | 34,721,418 | ||||||
Reconciliation of net increase in net assets from operations to net decrease in cash from operating activities: | ||||||||
Purchases of long-term investments | $ | (361,221,573 | ) | |||||
Purchases of short-term investments | (257,043,687 | ) | ||||||
Proceeds from disposition of long-term investments | 284,869,631 | |||||||
Proceeds from disposition of short-term investments | 241,782,232 | |||||||
Net realized gain on investment transactions and foreign currency transactions | (43,213,123 | ) | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 34,293,807 | |||||||
Net accretion of bond discount and amortization of bond premium | 5,975,725 | |||||||
Inflation index adjustment | (290,404 | ) | ||||||
Decrease in receivable for investments sold | 8,694,863 | |||||||
Increase in interest receivable | (2,417,886 | ) | ||||||
Decrease in affiliated dividends receivable | 1,676 | |||||||
Decrease in investments in Underlying Portfolios paid in advance | 76,479 | |||||||
Decrease in cash collateral due from broker | 499,876 | |||||||
Decrease in payable for investments purchased | (10,990,406 | ) | ||||||
Increase in cash collateral due to broker | 780,000 | |||||||
Increase in advisory fee payable | 5,367 | |||||||
Increase in administrative fee payable | 1,053 | |||||||
Increase in Transfer Agent fee payable | 6,687 | |||||||
Increase in distribution fee payable | 8,165 | |||||||
Increase in accrued expenses | 5,485 | |||||||
Proceeds from options written, net | 4,035,482 | |||||||
Proceeds from swaptions written, net | 962,854 | |||||||
Proceeds on swaps, net | 7,944,928 | |||||||
Proceeds for exchange-traded derivatives settlements | 14,885,321 | |||||||
|
| |||||||
Total adjustments | (70,347,448 | ) | ||||||
|
| |||||||
Net decrease in cash from operating activities | $ | (35,626,030 | ) | |||||
|
| |||||||
Cash flows from financing activities | ||||||||
Repurchase of Shares | 121,638,467 | |||||||
Cash dividends paid (net of dividend reinvestments)* | (14,106,857 | ) | ||||||
Repayment of reverse repurchase agreements | (71,594,914 | ) | ||||||
|
| |||||||
Net increase in cash from financing activities | 35,936,696 | |||||||
Effect of exchange rate on cash | 89,877 | |||||||
|
|
See notes to financial statements.
52 | AB INCOME FUND | abfunds.com |
STATEMENT OF CASH FLOWS (continued)
Net increase in cash | $ | 400,543 | ||||||
Net change in cash | ||||||||
Cash at beginning of period | 1,432,181 | |||||||
|
| |||||||
Cash at end of period | $ | 1,832,724 | ||||||
|
| |||||||
* Reinvestment of dividends | $ | 12,437,243 | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Interest expense paid during the period | $ | 1,219,620 |
In accordance with U.S. GAAP, the Fund has included a Statement of Cash Flows as a result of its significant investments in reverse repurchase agreements throughout the period.
See notes to financial statements.
abfunds.com | AB INCOME FUND | 53 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Income Fund, Inc. (the “Fund”), a diversified portfolio. The fund acquired the assets and liabilities of the AllianceBernstein Income Fund, Inc., a closed-end fund (the “Predecessor Fund”) that was effective at the close of business April 21, 2016 (the “Reorganization”). The Reorganization was approved by the Predecessor Fund’s Board of Directors (the “Board”) and shareholders pursuant to an Agreement and Plan of Acquisition and Dissolution (the “Reorganization Agreement”), see Note I for additional information. The Predecessor Fund was the accounting survivor in the Reorganization and as such, the financial statements and the Advisor Class shares financial highlights reflect the financial information of the Predecessor Fund through April 21, 2016. The Fund has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class 1 and Class 2 shares. Class B, Class K, Class R, Class I, Class Z, Class 1 and Class 2 shares are not currently offered. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class shares are sold without any initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All ten classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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.
54 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Company’s Board of Directors (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 between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the 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) |
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NOTES TO FINANCIAL STATEMENTS (continued)
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. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
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NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
Bank loan prices are provided by third party pricing services and consist of a composite of the quotes received by the vendor into a consensus price. Certain bank loans are classified as Level 3, as significant input used in the fair value measurement of these instruments is the market quotes that are received by the vendor and these inputs are not observable.
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 April 30, 2017:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Governments – Treasuries | $ | – 0 | – | $ | 911,178,798 | $ | – 0 | – | $ | 911,178,798 | ||||||
Corporates – Non-Investment Grade | – 0 | – | 95,200,894 | 7,155,965 | (a) | 102,356,859 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 97,048,816 | – 0 | – | 97,048,816 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 276 | 46,447,437 | 46,447,713 | |||||||||||
Corporates – Investment Grade | – 0 | – | 43,902,978 | – 0 | – | 43,902,978 | ||||||||||
Agencies | – 0 | – | 37,727,877 | – 0 | – | 37,727,877 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Emerging Markets – Treasuries | $ | – 0 | – | $ | 37,675,445 | $ | – 0 | – | $ | 37,675,445 | ||||||
Emerging Markets – Sovereigns | – 0 | – | 33,823,222 | – 0 | – | 33,823,222 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 28,825,521 | 258,980 | 29,084,501 | |||||||||||
Asset-Backed Securities | – 0 | – | 19,219,180 | 4,650,217 | 23,869,397 | |||||||||||
Whole Loan Trusts | – 0 | – | – 0 | – | 14,793,246 | 14,793,246 | ||||||||||
Inflation-Linked Securities | – 0 | – | 8,602,561 | – 0 | – | 8,602,561 | ||||||||||
Collateralized Loan Obligations | – 0 | – | 542,456 | 6,709,235 | 7,251,691 | |||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 6,517,309 | – 0 | – | 6,517,309 | ||||||||||
Quasi-Sovereigns | – 0 | – | 6,105,624 | – 0 | – | 6,105,624 | ||||||||||
Common Stocks | 927,658 | 1,774,635 | 2,937,432 | 5,639,725 | ||||||||||||
Preferred Stocks | 1,171,869 | – 0 | – | 1,946,664 | 3,118,533 | |||||||||||
Governments – Sovereign Bonds | – 0 | – | 2,424,973 | – 0 | – | 2,424,973 | ||||||||||
Local Governments – Regional Bonds | – 0 | – | 2,022,565 | – 0 | – | 2,022,565 | ||||||||||
Options Purchased – Puts | – 0 | – | 744,317 | – 0 | – | 744,317 | ||||||||||
Bank Loans | – 0 | – | 647,691 | – 0 | –(a) | 647,691 | ||||||||||
Options Purchased – Calls | – 0 | – | 123,118 | – 0 | – | 123,118 | ||||||||||
Mortgage Pass-Throughs | – 0 | – | 37,171 | – 0 | – | 37,171 | ||||||||||
Warrants | 3,059 | – 0 | – | – 0 | –(a) | 3,059 | ||||||||||
Short-Term Investments | 24,268,859 | – 0 | – | – 0 | – | 24,268,859 | ||||||||||
Investments valued at NAV(b) | – 0 | – | – 0 | – | – 0 | – | 1,145,933 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 26,371,445 | 1,334,145,427 | 84,899,176 | 1,446,561,981 | ||||||||||||
Other Financial Instruments(c): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 2,306,017 | – 0 | – | – 0 | – | 2,306,017 | (d) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 4,459,967 | – 0 | – | 4,459,967 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 277,115 | – 0 | – | 277,115 | (d) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 256,546 | – 0 | – | 256,546 | (d) | |||||||||
Liabilities: | ||||||||||||||||
Futures | (4,864,890 | ) | – 0 | – | – 0 | – | (4,864,890 | )(d) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (2,845,718 | ) | – 0 | – | (2,845,718 | ) | ||||||||
Put Options Written | – 0 | – | (55,419 | ) | – 0 | – | (55,419 | ) | ||||||||
Credit Default Swaptions Written | – 0 | – | (40,861 | ) | – 0 | – | (40,861 | ) | ||||||||
Currency Options Written | – 0 | – | (1,211,136 | ) | – 0 | – | (1,211,136 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (397,147 | ) | – 0 | – | (397,147 | )(d) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (2,775,467 | ) | – 0 | – | (2,775,467 | )(d) |
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NOTES TO FINANCIAL STATEMENTS (continued)
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Credit Default Swaps | $ | – 0 | – | $ | (4,014,491 | ) | $ | – 0 | – | $ | (4,014,491 | ) | ||||
Variance Swaps | – 0 | – | (9,967 | ) | – 0 | – | (9,967 | ) | ||||||||
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| |||||||||
Total(e) | $ | 23,812,572 | $ | 1,327,788,849 | $ | 84,899,176 | $ | 1,437,646,530 | ||||||||
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(a) | The Fund held securities with zero market value at period end. |
(b) In May 2015, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2015-07 (the “ASU”) which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods, with application of the amendments noted above retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented herein. Accordingly, the total investments with a fair value of $1,145,933 have not been categorized in the fair value hierarchy.
(c) | 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 options written and swaptions written which are valued at market value. |
(d) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
(e) | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Fund recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Corporates - Non- Investment Grade(a) | Collateralized Mortgage Obligations | Commercial Mortgage-Backed Securities | ||||||||||
Balance as of 10/31/16 | $ | 4,215,547 | $ | 3,977,389 | $ | 48,863,351 | ||||||
Accrued discounts/ | 195,303 | – 0 | – | 66,094 | ||||||||
Realized gain (loss) | – 0 | – | – 0 | – | (514,189 | ) | ||||||
Change in unrealized appreciation/depreciation | (457,479 | ) | (4,057 | ) | 1,126,758 | |||||||
Purchases/Payups | 1,373,543 | – 0 | – | 755,000 | ||||||||
Sales/Paydowns | – 0 | – | (927,470 | ) | (3,849,577 | ) | ||||||
Reclassification | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | 1,829,051 | – 0 | – | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | (3,045,862 | ) | – 0 | – | ||||||
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| |||||||
Balance as of 4/30/17 | $ | 7,155,965 | $ | – 0 | – | $ | 46,447,437 | |||||
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| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | (457,479 | ) | $ | – 0 | – | $ | 457,050 | ||||
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NOTES TO FINANCIAL STATEMENTS (continued)
Emerging Markets - Corporate Bonds | Asset-Backed Securities | Whole Loan Trusts | ||||||||||
Balance as of 10/31/16 | $ | 447,328 | $ | 3,522,021 | $ | 20,704,736 | ||||||
Accrued discounts/(premiums) | (1,022 | ) | 10 | 30,353 | ||||||||
Realized gain (loss) | – 0 | – | – 0 | – | (1,099,008 | ) | ||||||
Change in unrealized appreciation/depreciation | (187,326 | ) | 25,628 | (802,995 | ) | |||||||
Purchases/Payups | – 0 | – | 3,204,558 | (12,881 | ) | |||||||
Sales/Paydowns | – 0 | – | (125,000 | ) | (4,026,959 | ) | ||||||
Reclassification | – 0 | – | (1,977,000 | ) | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
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| |||||||
Balance as of 4/30/17 | $ | 258,980 | $ | 4,650,217 | $ | 14,793,246 | ||||||
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| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | (187,326 | ) | $ | 25,628 | $ | (802,995 | ) | ||||
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Collateralized Loan Obligations | Common Stocks | Preferred Stocks | ||||||||||
Balance as of 10/31/16 | $ | – 0 | – | $ | 1,428,957 | $ | – 0 | – | ||||
Accrued discounts/(premiums) | 2,483 | – 0 | – | – 0 | – | |||||||
Realized gain (loss) | – 0 | – | (205,316 | ) | – 0 | – | ||||||
Change in unrealized appreciation/depreciation | 65,326 | (286,155 | ) | 218,054 | ||||||||
Purchases/Payups | 4,664,426 | 2,070,592 | 1,728,610 | |||||||||
Sales/Paydowns | – 0 | – | (70,646 | ) | – 0 | – | ||||||
Reclassification | 1,977,000 | – 0 | – | – 0 | – | |||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
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| |||||||
Balance as of 4/30/17 | $ | 6,709,235 | $ | 2,937,432 | $ | 1,946,664 | ||||||
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| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | 65,326 | $ | (197,847 | ) | $ | 218,054 | |||||
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Bank Loans(a) | Warrants(a) | Total | ||||||||||
Balance as of 10/31/16 | $ | 227,922 | $ | – 0 | – | $ | 83,387,251 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | 293,221 | |||||||
Realized gain (loss) | – 0 | – | – 0 | – | (1,818,513 | ) | ||||||
Change in unrealized appreciation/depreciation | (11,035 | ) | – 0 | – | (313,281 | ) | ||||||
Purchases/Payups | 34,481 | – 0 | – | 13,818,329 | ||||||||
Sales/Paydowns | (251,368 | ) | – 0 | – | (9,251,020 | ) | ||||||
Reclassification | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | 1,829,051 | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (3,045,862 | ) | ||||||
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Balance as of 4/30/17 | $ | – 0 | – | $ | – 0 | – | $ | 84,899,176 | (c) | |||
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| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | – 0 | – | $ | – 0 | – | $ | (879,589 | ) | |||
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NOTES TO FINANCIAL STATEMENTS (continued)
(a) | The Fund held securities with zero market value at period end. |
(b) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
(c) | There were de minimis transfers under 1% of net assets during the reporting period. |
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at April 30, 2017. Securities priced i) by third party vendors, ii) at cost, or iii) using prior transaction prices, which approximates fair value, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/17 | Valuation Technique | Unobservable Input | Input | |||||||
Corporates – Non-Investment Grade | $ | – 0 | – | Qualitative Assessment | $– 0 – | |||||
$ | 1,336,163 | Discounted Cashflow | Clean Debt Value Convertible | 55.6% 5.70% | ||||||
Whole Loan Trusts | $ | 2,431,466 | Market-Approach | Underlying NAV of the collateral | $84.32 | |||||
$ | 532,734 | Recovery Analysis | Cumulative Loss | 35.00% | ||||||
$ | 1,462,542 | Recovery Analysis | Cumulative Loss | 30.00% | ||||||
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| |||||||||
$ | 4,426,742 | |||||||||
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| |||||||||
Common Stocks | $ | 364,271 | Market-Approach | EBITDA* Projection | $242.0MM | |||||
EBITDA* Multiples | 8.6X | |||||||||
Bank Loans | $ | – 0 | – | Termed as Escrow | $– 0 – | |||||
Warrants | $ | – 0 | – | Qualitative Assessment | $– 0 – |
* | Earnings before Interest, Taxes, Depreciation and Amortization. |
Generally, a change in the assumptions used in any input in isolation may be accompanied by a change in another input. Significant changes in any of the unobservable inputs may significantly impact the fair value measurement. Significant increases (decreases) in cumulative loss in isolation would be expected to result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in appraisal value and EBITDA projections/multiples in insolation would be expected to result in a significant higher (lower) fair value measurement.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Fund. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments.
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NOTES TO FINANCIAL STATEMENTS (continued)
The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end
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NOTES TO FINANCIAL STATEMENTS (continued)
exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. 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. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
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.
5. 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.
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each fund or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these
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NOTES TO FINANCIAL STATEMENTS (continued)
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.
8. Repurchase Agreements
It is the Fund’s policy that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Fund may be delayed or limited.
9. Redemption Fees
The Fund imposed a .75% fee on redemption and exchanges of Advisor Class shares. This fee is retained by the Fund and is included in the financials statements as a component of additional paid-in capital. The fee was effective until July 22, 2016.
10. Change of Fiscal Year End
The Predecessor Fund’s fiscal year end was December 31 and the Fund’s fiscal year end is October 31. Accordingly, the statement of operations, statement of changes in net assets, statement of cash flows and the Advisor Class financial highlights reflect the ten months from January 1, 2016 to October 31, 2016. The financial highlights for Class A and Class C reflect the period from April 21, 2016 (inception date) to October 31, 2016.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion of the Fund’s average daily net assets, .40% of the excess over $2.5 billion up to $5 billion and .35% in excess of $5 billion, of the Fund’s average daily net assets. Effective January 29, 2017, the fee was reduced from .60% to .45 of the first $2.5 billion of the Fund’s average daily net assets, from .55% to .40% of the excess over $2.5 billion up to $5 billion and from .50% to .35% in excess of $5 billion, of the Fund’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding expenses associated with securities sold short, acquired fund fees and expenses other than the advisory fees of any AB Mutual Funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transactions cost), on an annual basis (the “Expense Caps”) to .77%,
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NOTES TO FINANCIAL STATEMENTS (continued)
1.52% and .52% of daily average net assets for Class A, Class C, and Advisor Class shares, respectively. Effective January 29, 2017, the Expense Caps were reduced from .88% to .77%, 1.63% to 1.52%, and .63% to .52% of daily average net assets for Class A, Class C, and Advisor Class shares, respectively. Any fees waived and expenses borne by the Adviser through October 31, 2016 are subject to repayment by the Fund until October 31, 2019; such waivers that are subject to repayment amount to $990,111. In any case, no repayment will be made that would cause the Fund’s total annual operating expenses to exceed the net fee percentage set forth above. The Expense Caps may not be terminated by the Adviser before April 22, 2018. The Predecessor Fund did not have an Expense Cap. For the six months ended April 30, 2017, such reimbursement/waivers amounted to $756,973. Prior to April 21, 2016, the Predecessor Fund paid the Adviser a monthly advisory fee in an amount equal to the sum of 1/12th of .30 of 1% of the Predecessor Fund’s average weekly net assets up to $250 million, 1/12th of .25 of 1% of the Predecessor Fund’s average weekly net assets in excess of $250 million, and 4.75% of the Predecessor Fund’s daily gross income (i.e., income other than gains from the sale of securities and foreign currency transactions or gains realized from options, futures and swap, less interest on money borrowed by the Predecessor Fund) accrued by the Predecessor Fund during the month. However, such monthly advisory fee could not have exceeded in the aggregate 1/12th of .80% of the Predecessor Fund’s average weekly net assets during the month (approximately .80% on an annual basis).
During the six months ended April 30, 2017 the Adviser reimbursed the Fund $346 for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Fund may reimburse the Adviser for certain legal and accounting services provided to the Fund by the Adviser. For the six months ended April 30, 2017, the reimbursement for such services amounted to $32,040.
The Fund compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Fund. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Prior to the Reorganization Computershare Trust Company, N.A. was the Transfer Agent. Such compensation retained by ABIS amounted to $203,673 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales
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charges of $8,846 from the sale of Class A shares and received $598 in contingent deferred sales charges imposed upon redemptions by shareholders of Class C shares for the six months ended April 30, 2017.
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. In connection with the investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive 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 April 30, 2017, such waiver amounted to $10,059. A summary of the Fund’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||
$ 12,471 | $ | 252,616 | $ | 240,818 | $ | 24,269 | $ | 22 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2017 amounted to $50,020, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Fund’s average daily net assets attributable to Class A shares and 1% of the Fund’s average daily net assets attributable to Class C shares. There are no distribution and servicing fees on the Advisor Class shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amount of $67,277 for Class C shares. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor
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NOTES TO FINANCIAL STATEMENTS (continued)
beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 178,964,709 | $ | 96,037,820 | ||||
U.S. government securities | 182,256,864 | 178,416,389 |
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 (excluding futures, foreign currency, written options and swap transactions) are as follows:
Gross unrealized appreciation | $ | 48,279,762 | ||
Gross unrealized depreciation | (36,093,950 | ) | ||
|
| |||
Net unrealized appreciation | $ | 12,185,812 | ||
|
|
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, as described below under “Currency Transactions”.
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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 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 April 30, 2017, the Fund held futures for hedging and non-hedging purposes.
• | Forward Currency Exchange Contracts |
The Fund may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Fund. Risks may arise from the potential inability
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NOTES TO FINANCIAL STATEMENTS (continued)
of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended April 30, 2017, the Fund held forward currency exchange contracts for hedging and non-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Fund may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Fund may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Fund on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Fund. In writing an option, the Fund bears the market risk of an unfavorable change in the price
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of the security or currency underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or buying a security or currency at a price different from the current market value.
At April 30, 2017, Portfolio had the maximum payments for written put options amounted to $3,188,172,666. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
The Fund may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
At April 30, 2017, the maximum payments for written put swaptions amounted to $5,175,000, with net unrealized appreciation of $26,172, and a term of less than one year, as reflected in the portfolio of investments.
During the six months ended April 30, 2017, the Fund held purchased and written options for hedging and non-hedging purposes.
During the six months ended April 30, 2017, the Fund held written swaptions for hedging and non-hedging purposes.
For the six months ended April 30, 2017, the Fund had the following transactions in written options:
Number of Contracts | Premiums Received | |||||||
Options written outstanding as of 10/31/16 | – 0 | – | $ | – 0 | – | |||
Options written | 661,368,820 | 6,297,783 | ||||||
Options assigned | (112,735,000 | ) | (1,684,555 | ) | ||||
Options expired | (303,974,600 | ) | (2,114,157 | ) | ||||
Options bought back | (28,819,900 | ) | (402,292 | ) | ||||
Options exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Options written outstanding as of 4/30/17 | 215,839,320 | $ | 2,096,779 | |||||
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Notional Amount | Premiums Received | |||||||
Swaptions written outstanding as of 10/31/16 | $ | – 0 | – | $ | – 0 | – | ||
Swaptions written | 300,100,000 | 1,066,226 | ||||||
Swaptions assigned | (8,885,000 | ) | (37,761 | ) | ||||
Swaptions expired | (40,445,000 | ) | (165,003 | ) | ||||
Swaptions bought back | (240,420,000 | ) | (808,995 | ) | ||||
Swaptions exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Swaptions written outstanding as of 4/30/17 | $ | 10,350,000 | $ | 54,467 | ||||
|
|
|
|
• | 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, including by 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 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 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
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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 April 30, 2017, 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 reference obligation with the same counterparty. As of April 30, 2017, the Fund did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sales Contracts outstanding.
Credit default swaps may involve greater risks than if a Fund had invested in the referenced obligation directly. Credit default swaps are
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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 April 30, 2017, the Fund held credit default swaps for non-hedging purposes.
Total Return Swaps:
The Fund may enter into total return swaps in order 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 April 30, 2017, the Fund held total return swaps for non-hedging purposes.
Variance Swaps:
The Fund may enter into variance swaps to hedge equity market risk or adjust exposure to the equity markets. Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on underlying asset(s) or index(es). Actual “variance” as used here is defined as the sum of the square of the returns on the reference asset(s) or index(es) (which in effect is a measure of its “volatility”) over the length of the contract term. So the parties to a variance swap can be said to exchange actual volatility for a contractually stated rate of volatility.
During the six months ended April 30, 2017, the Fund held variance swaps for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract
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NOTES TO FINANCIAL STATEMENTS (continued)
counterparties in order to, among other things, reduce its credit risk to 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 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements 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 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 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. For additional details, please refer to netting arrangements by counterparty tables below.
During the six months ended April 30, 2017, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Assets and Liabilities Location | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 2,562,563 | * | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 7,640,357 | * | ||||
Credit contracts | Receivable/Payable for variation margin on exchange-traded derivatives | 277,115 | * | Receivable/Payable for variation margin on exchange-traded derivatives | 397,147 | * |
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Asset Derivatives | Liability Derivatives | |||||||||||
Derivative | Statement of Assets and Liabilities Location | Fair Value | Statement of | Fair Value | ||||||||
Foreign exchange contracts | Unrealized appreciation on forward currency exchange contracts | $ | 4,459,967 |
| Unrealized depreciation on forward currency exchange contracts | $ | 2,845,718 |
| ||||
Foreign exchange contracts | Investments in securities, at value |
| 713,010 |
| ||||||||
Equity contracts | Investments in securities, at value | 154,425 | ||||||||||
Foreign exchange contracts | Options written, at value |
| 1,211,136 |
| ||||||||
Credit contracts | Swaptions written, at value | 40,861 | ||||||||||
Equity contracts | Options written, at value | 55,419 | ||||||||||
Credit contracts | Unrealized depreciation on credit default swaps | 4,014,491 | ||||||||||
Equity contracts | Unrealized depreciation on variance swaps | 9,967 | ||||||||||
|
|
|
| |||||||||
Total | $ | 8,167,080 | $ | 16,215,096 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) Within Statement of Operations | 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 | $ | 28,433,235 | $ | (14,940,196 | ) | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | 28,742 | – 0 | – |
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Derivative Type | Location of Gain or (Loss) Within Statement of Operations | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | $ | 1,048,671 | $ | 431,527 | |||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (207,724 | ) | – 0 | – | |||||
Foreign exchange contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (814,482 | ) | 240,369 | ||||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (791,935 | ) | (827,557 | ) | |||||
Foreign exchange contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 1,573,527 | 475,712 | |||||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 353,769 | 354,512 | |||||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 717,381 |
78 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) Within Statement of Operations | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Credit contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | $ | 191,006 | $ | 13,606 | |||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (592,344 | ) | 3,497,944 | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 1,252,713 | (2,506,436 | ) | ||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 5,917,386 | (9,967 | ) | ||||||
|
|
|
| |||||||
Total | $ | 37,109,945 | $ | (13,270,486 | ) | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2017:
Futures: | ||||
Average original value of buy contracts | $ | 379,365,307 | ||
Average original value of sale contracts | $ | 321,846,552 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 160,661,327 | ||
Average principal amount of sale contracts | $ | 246,934,380 | ||
Purchased Options: | ||||
Average monthly cost | $ | 1,041,170 | ||
Interest Rate Swaps: | ||||
Average notional amount | $ | 24,849,438 | (a) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 195,575,732 | ||
Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 39,552,429 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 42,241,831 | ||
Average notional amount of sale contracts | $ | 34,552,637 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 6,667,429 | (b) |
abfunds.com | AB INCOME FUND | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
Variance Swaps: | ||||
Average notional amount | $ | 1,153,653 |
(a) | Positions were open for less than one month during the period. |
(b) | Positions were open for four 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 derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of April 30, 2017:
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co., LLC** | $ | 16,520 | $ | (16,520 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 16,520 | $ | (16,520 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: |
| |||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 325,109 | $ | (1,490 | ) | $ | –0 | – | $ | – 0 | – | $ | 323,619 | |||||||
Bank of America, NA | 468,904 | (111,482 | ) | – 0 | – | – 0 | – | 357,422 | ||||||||||||
Barclays Bank PLC | 132,873 | (132,873 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 167,440 | (167,440 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 1,037,569 | (715,215 | ) | – 0 | – | – 0 | – | 322,354 | ||||||||||||
Credit Suisse International | 85,159 | (85,159 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 189,392 | (189,392 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 1,022,911 | (53,689 | ) | (780,000 | ) | – 0 | – | 189,222 |
80 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
JPMorgan Chase Bank, NA | $ | 1,761,517 | $ | (84,977 | ) | $ | – 0 | – | $ | –0 | – | $ | 1,676,540 | |||||||
Royal Bank of Scotland PLC | 83,363 | (83,363 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank | 27,909 | – 0 | – | – 0 | – | – 0 | – | 27,909 | ||||||||||||
State Street Bank & Trust Co. | 8,736 | (8,736 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 5,310,882 | $ | (1,633,816 | ) | $ | (780,000 | ) | $ | – 0 | – | $ | 2,897,066 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Citigroup Global Markets, Inc.** | $ | 43,529 | $ | – 0 | – | $ | (43,529 | ) | $ | – 0 | – | $ | –0 | – | ||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co., LLC** | 220,696 | (16,520 | ) | (204,176 | ) | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 264,225 | $ | (16,520 | ) | $ | (247,705 | ) | $ | – 0 | – | $ | –0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OTC Derivatives: |
| |||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 1,490 | $ | (1,490 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Bank of America, NA | 111,482 | (111,482 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Barclays Bank PLC | 939,833 | (132,873 | ) | – 0 | – | (806,960 | ) | – 0 | – |
abfunds.com | AB INCOME FUND | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
BNP Paribas SA | $ | 411,031 | $ | (167,440 | ) | $ | – 0 | – | $ | (243,591 | ) | $ | – 0 | – | ||||||
Citibank, NA | 715,215 | (715,215 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 890,553 | (85,159 | ) | – 0 | – | (794,971 | ) | 10,423 | ||||||||||||
Deutsche Bank AG | 317,524 | (189,392 | ) | – 0 | – | (41,247 | ) | 86,885 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 5,358,360 | – 0 | – | – 0 | – | (5,358,360 | ) | – 0 | – | |||||||||||
HSBC Bank USA | 53,689 | (53,689 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 84,977 | (84,977 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services LLC | 60,826 | – 0 | – | – 0 | – | – 0 | – | 60,826 | ||||||||||||
Nomura Global Financial Products, Inc. | 92,334 | – 0 | – | – 0 | – | – 0 | – | 92,334 | ||||||||||||
Royal Bank of Scotland PLC | 414,540 | (83,363 | ) | – 0 | – | – 0 | – | 331,177 | ||||||||||||
State Street Bank & Trust Co. | 496,339 | (8,736 | ) | – 0 | – | – 0 | – | 487,603 | ||||||||||||
UBS AG | 90 | – 0 | – | – 0 | – | – 0 | – | 90 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 9,948,283 | $ | (1,633,816 | ) | $ | – 0 | – | $ | (7,245,129 | ) | $ | 1,069,338 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged is more than the amount reported due to over-collateralization. |
** | Cash and securities have been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
^ | 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. |
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NOTES TO FINANCIAL STATEMENTS (continued)
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).
3. Dollar Rolls
The Fund may enter into dollar rolls. Dollar rolls involve sales by the Fund of securities for delivery in the current month and the Fund’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. During the six months ended April 30, 2017, the Fund had no transactions in dollar rolls.
4. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase transactions (“RVP”) in accordance with the terms of a Master Repurchase Agreement (“MRA”), under which the Fund sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Fund enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value comparable to the repurchase price. Under the MRA and other Master Agreements, the Fund is permitted to offset payables and/or receivables with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund in the event of a default. In the event of a default by a MRA counterparty, the Fund may be considered an unsecured creditor with respect to any excess collateral (collateral with a market value in excess of the repurchase price) held by and/or posted to the counterparty, and as
abfunds.com | AB INCOME FUND | 83 |
NOTES TO FINANCIAL STATEMENTS (continued)
such the return of such excess collateral may be delayed or denied. For the six months ended April 30, 2017, the average amount of reverse repurchase agreements outstanding was $259,735,132 and the daily weighted average interest rate was 1.03%. At April 30, 2017, the Fund had reverse repurchase agreements outstanding in the amount of $398,653,241 as reported on the statement of assets and liabilities.
The following table presents the Fund’s RVP liabilities by counterparty net of the related collateral pledged by the Fund as of April 30, 2017:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged†* | Net Amount of RVP Liabilities | |||||||||
Barclays Capital, Inc. | $ | 3,270,763 | $ | (3,270,763 | ) | $ | 0 | |||||
Credit Suisse Securities (USA) LLC | 2,976,359 | (2,976,359 | ) | 0 | ||||||||
HSBC Bank USA | 238,896,316 | (238,896,316 | ) | 0 | ||||||||
JP Morgan Chase Bank | 153,509,803 | (153,509,803 | ) | 0 | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 398,653,241 | $ | (398,653,241 | ) | $ | 0 | |||||
|
|
|
|
|
|
† | Including accrued interest. |
* | The actual collateral pledged may be more than the amount reported due to overcollateralization. |
5. Loan Participations and Assignments
The Fund may invest in direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers, either in the form of participations at the time the loan is originated (“Participations”) or by buying an interest in the loan in the secondary market from a financial institution or institutional investor (“Assignments”). A loan is often administered by a bank or other financial institution (the “Lender”) that acts as agent for all holders. The agent administers the term of the loan as specified in the loan agreement. When investing in Participations, the Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. In addition, when investing in Participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender and only upon receipt of payments by the Lender from the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the Lender. When the Fund purchases Assignments from Lenders, it will typically acquire direct rights against the borrower on the loan. These loans may include participations in “bridge loans”, which are loans taken out by borrowers for a short period (typically less than six months) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high-yield bonds issued for the purpose of acquisitions. The Fund may also participate in unfunded loan commitments, which are contractual obligations for investing in future Participations, may receive a commitment fee based on the amount of the commitment. Under these arrangements, the Fund may receive a fixed rate commitment fee and, if and to the extent the borrower borrows under the facility, the Fund may receive an additional funding fee.
84 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Unfunded loan commitments and funded loans are marked to market daily.
During the six months ended April 30, 2017, the Fund had no commitments outstanding and received no commitment fees or additional funding fees.
NOTE E
Common Stock
During the years ended December 31, 2015 and December 31, 2014 the Predecessor Fund did not issue any shares in connection with the Fund’s dividend reinvestment plan.
On June 25, 2014, the Predecessor Fund announced a share repurchase program for the Predecessor Fund’s discretionary repurchase of up to 15% of its then outstanding shares of common stock (valued at up to approximately $306 million as of June 24, 2014 based on Predecessor Fund total net assets of approximately $2.04 billion) in open market transactions over a one-year period. This share repurchase program is intended to benefit long-term Predecessor Fund stockholders by the repurchase of Predecessor Fund shares at a discount to their net asset value. During the years ended December 31, 2015 and December 31, 2014, the Predecessor Fund repurchased 12,172,242 and 14,903,847 shares, respectively, at an average discount of 10.45% and 10.09%, respectively, from net asset value. The share repurchase program expired on June 25, 2015.
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | For the Period January 1, 2016 to October 31, 2016(a) | Six Months Ended (unaudited) | For the Period January 1, 2016 to October 31, 2016(a) | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A(b) | ||||||||||||||||||||||||
Shares sold | 3,137,070 | 299,970 | $ | 25,239,710 | $ | 2,441,972 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 15,902 | 1,566 | 127,799 | 12,705 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (376,686 | ) | (41,234 | ) | (3,039,480 | ) | (334,002 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,776,286 | 260,302 | $ | 22,328,029 | $ | 2,120,675 | ||||||||||||||||||
|
abfunds.com | AB INCOME FUND | 85 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | For the Period January 1, 2016 to October 31, 2016(a) | Six Months Ended (unaudited) | For the Period January 1, 2016 to October 31, 2016(a) | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class C(b) | ||||||||||||||||||||||||
Shares sold | 1,137,196 | 139,491 | $ | 9,158,073 | $ | 1,134,187 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 5,714 | 533 | 45,991 | 4,327 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (17,815 | ) | (35 | ) | (143,625 | ) | (285 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,125,095 | 139,989 | $ | 9,060,439 | $ | 1,138,229 | ||||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 27,531,722 | 1,526,459 | $ | 221,098,499 | $ | 12,542,792 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 1,531,882 | 1,556,770 | 12,263,453 | 12,608,123 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (14,083,726 | ) | (105,702,567 | ) | (112,384,152 | ) | (856,758,327 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 14,979,878 | (102,619,338 | ) | $ | 120,977,800 | $ | (831,607,412 | ) | ||||||||||||||||
|
(a) | The Predecessor Fund’s fiscal year end was December 31 and the Fund’s fiscal year end is October 31. |
(b) | Inception date of April 21, 2016. |
NOTE G
Risks Involved in Investing in the Fund
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Fund’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Fund’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (often referred to as “junk bonds”) are subject to 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, negative perceptions of the junk bond market generally and less secondary market liquidity.
86 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
These securities are often able to be “called” or repurchased by the issuer prior to their maturity date, forcing the Fund to reinvest the proceeds, possibly at a lower rate of return.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
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.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your
abfunds.com | AB INCOME FUND | 87 |
NOTES TO FINANCIAL STATEMENTS (continued)
investment in the Fund. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of fund shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Mortgage-Backed and/or Other Asset-Backed Securities Risk—Investments in mortgage-backed 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.
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.
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.
88 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $280 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 April 30, 2017.
NOTE I
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal period ended October 31, 2016 and years ended December 31, 2015 and December 31, 2014 were as follows:
2016 | 2015 | 2014 | ||||||||||
Distributions paid from: | ||||||||||||
Ordinary income | $ | 53,039,602 | $ | 107,568,721 | $ | 107,988,728 | ||||||
Net long-term capital gains | – 0 | – | 3,863,457 | – 0 | – | |||||||
|
|
|
|
|
| |||||||
Total taxable distributions | $ | 53,039,602 | $ | 111,432,178 | $ | 107,988,728 | ||||||
|
|
|
|
|
|
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 1,654,845 | ||
Accumulated capital and other losses | (63,442,858 | )(a) | ||
Unrealized appreciation/(depreciation) | 28,372,985 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (33,415,028 | )(c) | |
|
|
(a) | As of October 31, 2016, the cumulative deferred loss on straddles was $50,419,217. As of October 31, 2016, the Fund had a net capital loss carryforward of $13,023,641. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and partnership investments, the realization for tax purposes of gains/losses on certain derivative instruments, and the tax treatment of passive foreign investment companies (PFICs). |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/ (deficit) are attributable primarily to dividends payable and the tax treatment of defaulted securities. |
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 incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of October 31, 2016, the Fund had a net long-term capital loss carryforward of $13,023,641, which may be carried forward for an indefinite period.
abfunds.com | AB INCOME FUND | 89 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE J
Reorganization
At a meeting held on August 6, 2015 the Board, on behalf of the Fund, and the Board of Directors of the Predecessor Fund, approved the Reorganization Agreement providing for the tax-free acquisition by the Fund of the assets and liabilities of the Predecessor Fund, and the Predecessor Fund shareholders approved the Reorganization Agreement at a Special Meeting of Shareholders held on March 1, 2016. The acquisition was completed at the close of business April 21, 2016. Pursuant to the Reorganization Agreement, the assets and liabilities of the Predecessor Fund’s shares were transferred in exchange for the Fund’s Advisor Class shares, in a tax-free exchange as follows:
Shares outstanding before the Reorganization | Shares outstanding immediately after the Reorganization | Aggregate net assets before the Reorganization | Aggregate net assets immediately after the Reorganization | |||||||||||||
Predecessor Fund* | 215,833,695 | – 0 | – | $ | 1,725,148,833 | + | $ | – 0 | – | |||||||
The Fund | – 0 | – | 215,833,695 | $ | – 0 | – | $ | 1,725,148,833 |
* | Represents the accounting survivor. |
+ | Includes distributions in excess of net investment income of ($20,163,122) and unrealized appreciation on investments of $61,667,545, with a fair value of $2,379,923,538 and identified cost of $2,318,255,993. |
For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Predecessor Fund was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
NOTE K
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE L
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE M
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.
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FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||
Six Months (unaudited) | April 21 2016 | |||||||
|
| |||||||
Net asset value, beginning of period | $ 8.08 | $ 7.99 | ||||||
|
| |||||||
Income From Investment Operations | ||||||||
Net investment income(b)(c) | .20 | .17 | † | |||||
Net realized and unrealized gain on investment and foreign currency transactions | .07 | .08 | ||||||
Contributions from Affiliates | .00 | (d) | .00 | |||||
|
| |||||||
Net increase in net asset value from operations | .27 | .25 | ||||||
|
| |||||||
Less: Dividends | ||||||||
Dividends from net investment income | (.21 | ) | (.16 | ) | ||||
|
| |||||||
Net asset value, end of period | $ 8.14 | $ 8.08 | ||||||
|
| |||||||
Total Return | ||||||||
Total investment return based on net asset value(e) | 3.57 | % | 3.14 | %† | ||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (000’s omitted) | $24,714 | $2,104 | ||||||
Ratio to average net assets of: | ||||||||
Expenses, net of waivers/reimbursements(f)^ | 1.11 | % | 1.16 | % | ||||
Expenses, before waivers/reimbursements(f)^ | 1.27 | % | 1.37 | % | ||||
Net investment income(c)^ | 5.14 | % | 4.06 | %† | ||||
Portfolio turnover rate | 21 | % | 14 | % |
See footnote summary on pages 94-95.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||
Six Months Ended April 30, 2017 (unaudited) | April 21, 2016(a) to October 31, 2016 | |||||||
|
| |||||||
Net asset value, beginning of period | $ 8.09 | $ 7.99 | ||||||
|
| |||||||
Income From Investment Operations | ||||||||
Net investment income(b)(c) | .17 | .14 | † | |||||
Net realized and unrealized gain on investment and foreign currency transactions | .07 | .09 | ||||||
Contributions from Affiliates | .00 | (d) | .00 | |||||
|
| |||||||
Net increase in net asset value from operations | .24 | .23 | ||||||
|
| |||||||
Less: Dividends | ||||||||
Dividends from net investment income | (.18 | ) | (.13 | ) | ||||
|
| |||||||
Net asset value, end of period | $ 8.15 | $ 8.09 | ||||||
|
| |||||||
Total Return | ||||||||
Total investment return based on net asset value(e) | 3.16 | % | 2.85 | %† | ||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (000’s omitted) | $10,312 | $1,133 | ||||||
Ratio to average net assets of: | ||||||||
Expenses, net of waivers/reimbursements(f)^ | 1.86 | % | 1.90 | % | ||||
Expenses, before waivers/reimbursements(f)^ | 2.02 | % | 2.15 | % | ||||
Net investment income(c)^ | 4.34 | % | 3.34 | %† | ||||
Portfolio turnover rate | 21 | % | 14 | % |
See footnote summary on pages 94-95.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||||||
Six Months (unaudited) | January 1, October 31, 2016(g) | Year Ended December 31, | ||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net asset value, beginning of period | $ 8.09 | $ 7.86 | $ 8.34 | $ 8.13 | $ 8.89 | $ 8.93 | $ 8.75 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||||||
Net investment income(b) | .22 | (c) | .29 | (c)† | .38 | .42 | .40 | .40 | .44 | |||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .07 | .22 | (.41 | ) | .19 | (.71 | ) | .57 | .31 | |||||||||||||||||||
Contributions from Affiliates | .00 | (d) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (d) | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .29 | .51 | (.03 | ) | .61 | (.31 | ) | .97 | .75 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.28 | ) | (.46 | ) | (.45 | ) | (.41 | ) | (.48 | ) | (.57 | ) | ||||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | (.05 | ) | – 0 | – | (.04 | ) | (.53 | ) | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||||||
Total dividends and distributions | (.23 | ) | (.28 | ) | (.51 | ) | (.45 | ) | (.45 | ) | (1.01 | ) | (.57 | ) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Redemption fee | – 0 | – | .00 | (d) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||||
Anti-Dilutive Effect of Share Repurchase Program | – 0 | – | – 0 | – | .06 | .05 | – 0 | – | – 0 | – | – 0 | – | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ 8.15 | $ 8.09 | $ 7.86 | $ 8.34 | $ 8.13 | $ 8.89 | $ 8.93 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Market value, end of period | N/A | N/A | $ 7.67 | $ 7.47 | $ 7.13 | $ 8.10 | $ 8.07 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Discount, end of period | N/A | N/A | (2.42 | )% | (10.43 | )% | (12.30 | )% | (8.89 | )% | (9.63 | )% | ||||||||||||||||
Total Return | ||||||||||||||||||||||||||||
Total investment return based on: | ||||||||||||||||||||||||||||
Market value | N/A | N/A | 9.71 | %(h) | 11.28 | %(h) | (6.50 | )%(h) | 13.80 | %(h) | 9.36 | %(h) | ||||||||||||||||
Net asset value | 3.69 | %(e) | 6.66 | %(e)† | .70 | %(h) | 8.96 | %(h) | (2.86 | )%(h) | 12.15 | %(h) | 9.67 | %(h) | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||
Net assets, end of period | $1,045 | $916 | $1,696 | $1,902 | $1,976 | $2,159 | $2,168 | |||||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(f) | .87 | %^ | .88 | %^ | .75 | % | .67 | % | .63 | % | .64 | % | .64 | % | ||||||||||||||
Expenses, before waivers/reimbursements(f) | 1.04 | %^ | .96 | %^ | .75 | % | .67 | % | .63 | % | .64 | % | .64 | % | ||||||||||||||
Net investment income | 5.67 | %(c)^ | 4.29 | %(c)^† | 4.57 | % | 5.02 | % | 4.74 | % | 4.34 | % | 5.00 | % | ||||||||||||||
Portfolio turnover rate | 21 | % | 14 | % | 34 | % | 32 | % | 107 | % | 58 | % | 67 | % |
(a) | Inception date. |
(b) | Based on average shares outstanding. |
(c) | Net of fees and expenses waived by the Adviser. |
(d) | Amount is less than $.005. |
See notes to financial statements.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(e) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. 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. |
(f) | The expense ratios, excluding interest expense are: |
Six Months (unaudited) | January 1, 2016 to October 31, 2016(g) | Year Ended December 31, | ||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | .79 | %^ | .88 | %^ | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||
Before waivers/reimbursements | .95 | %^ | 1.09 | %^ | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | 1.54 | %^ | 1.63 | %^ | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||
Before waivers/reimbursements | 1.70 | %^ | 1.87 | %^ | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | .57 | %^ | .61 | %^ | .61 | % | .61 | % | .57 | % | .55 | % | .58 | % | ||||||||||||||
Before waivers/reimbursements | .74 | %^ | .69 | %^ | .61 | % | .61 | % | .57 | % | .55 | % | .58 | % |
(g) | The Predecessor Fund’s fiscal year end was December 31 and the Fund’s fiscal year end is October 31. |
(h) | Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. Total investment return calculated for a period of less than one year is not annualized. |
† | For the period ended October 31, 2016, the amount includes a non-recurring refund for overbilling of prior years’ custody out-of-pocket fees as follows: |
Net Investment | Net Investment | Total Return | ||||
$ .003 | .04% | .03% |
^ | Annualized. |
See notes to financial statements.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Paul J. DeNoon(2), Vice President Gershon M. Distenfeld(2), Douglas J. Peebles(2), Vice President Ashish Shah(2), Vice President | Matthew Sheridan(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller |
Custodian and Accounting Agent State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 a team of investment professionals consisting of Messrs. DeNoon, Distenfeld, Peebles, Shah and Sheridan. |
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser, as proposed to be amended (the “Advisory Agreement”) to effect a fee reduction, in respect of AB Income Fund (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the proposed advisory fee, in which the Senior Officer concluded that the proposed contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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 proposed advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors
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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. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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
Because the Fund commenced operations on April 21, 2016, the directors were unable to consider historical information about the profitability of the Fund for calendar years 2014 and 2015. However, the Adviser agreed to provide the directors with profitability information in connection with future proposed continuances of the Advisory Agreement.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s future profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
At the Meeting, the directors reviewed information prepared by the Adviser showing performance of the Class A Shares against a broad-based
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securities market index for the period from inception (April 21, 2016) through July 31, 2016. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the proposed advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective January 29, 2017) with a peer group median.
The Adviser informed the directors that there were no institutional products managed by it that have a substantially similar investment style.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to 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 may use ETFs when they are the most cost-effective way to obtain desired exposures or to “equitize” cash inflows pending purchases of underlying securities, that the proposed advisory fee would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs in which the Fund may invest.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. Information regarding the Class A expense ratio of the Fund included the pro forma expense ratio to reflect a reduction in the expense cap by the Adviser effective January 29, 2017. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
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Economies of Scale
The directors noted that the proposed advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. [Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
IF-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB INTERMEDIATE BOND PORTFOLIO
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 Intermediate Bond Portfolio (the “Portfolio”). Please review the discussion of Portfolio performance, the market conditions during the reporting period and the Portfolio’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
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SEMI-ANNUAL REPORT
June 12, 2017
This report provides management’s discussion of fund performance for AB Intermediate Bond Portfolio for the semi-annual reporting period ended April 30, 2017.
The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB INTERMEDIATE BOND PORTFOLIO1 | ||||||||
Class A Shares | 0.10% | 2.52% | ||||||
Class B Shares2 | -0.28% | 1.76% | ||||||
Class C Shares | -0.27% | 1.76% | ||||||
Advisor Class Shares3 | 0.22% | 2.86% | ||||||
Class R Shares3 | -0.03% | 2.27% | ||||||
Class K Shares3 | 0.10% | 2.52% | ||||||
Class I Shares3 | 0.31% | 2.88% | ||||||
Class Z Shares3 | 0.13% | 2.77% | ||||||
Bloomberg Barclays US Aggregate Bond Index | -0.67% | 0.83% |
1 | Includes the impact of a non-recurring refund for overbilling of prior years’ custody out of pocket fees, which enhanced performance for the six- and 12-month periods ended April 30, 2017, by 0.02% and 0.02%, respectively. |
2 | Effective January 31, 2009, Class B shares are no longer available for purchase to new investors. Please see Note A for additional information. |
3 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
INVESTMENT RESULTS
The table above shows the Portfolio’s performance compared with its benchmark, the Bloomberg Barclays US Aggregate Bond Index, for the six- and 12-month periods ended April 30, 2017.
During both periods, all share classes of the Fund outperformed the benchmark, before sales charges. During the six-month period, sector allocation contributed to performance, because of an overweight to collateralized mortgage obligations and an underweight in Treasuries, relative to the benchmark. Security selection in the banking sector and collateralized
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mortgage obligations contributed, offsetting losses from selections in asset-backed securities, specifically car loans. The Portfolio’s shorter-than-benchmark duration also contributed, though positioning along the intermediate part of the yield curve detracted. Currency investments were positive.
During the 12-month period, security selection contributed, particularly within banking and energy, while selections in agency mortgage-backed securities detracted. Sector positioning contributed, because of an underweight to Treasuries and an overweight in collateralized mortgage obligations. Currency allocation was positive. The Fund’s shorter-than-benchmark duration also contributed as yields rose in the period, though positioning along the intermediate part of the curve detracted.
During both periods, the Portfolio utilized derivatives including currency forwards and options to hedge currency risk and actively manage currency positions. Credit default swaps were utilized for hedging and investment purposes, which had an immaterial impact on absolute performance during both periods. Treasury futures, interest rate swaps and interest rate swaptions were utilized to manage duration, country exposure and yield-curve positioning. Equity options were utilized to hedge market risk.
MARKET REVIEW AND INVESTMENT STRATEGY
Bond markets rallied over the 12-month period, but were volatile in the latter half of the period. Political events had a significant impact on bond markets during both periods. In the US, Donald Trump’s presidential election victory and the promise of fiscal stimulus, a retreat from globalization and relaxed regulation were treated as positive developments by financial markets, though uncertainty regarding the specific details remained high. UK Prime Minister Theresa May surprised investors when she called for a snap parliamentary election three years ahead of schedule, in an effort to firm up the country’s mandate going into Brexit negotiations. The benign first-round outcome of the French presidential elections quelled some geopolitical uncertainty and renewed appetite for risk assets. Markets, especially in Europe, rallied on the news. The 10-year US Treasury yield rose almost half a percent to end higher at 2.28%. The 10-year German bund yield also rose through both periods, though only modestly in the latter, ending at 0.32%.
European central banks generally maintained an easing bias through the 12-month period, while the US Federal Reserve raised interest rates for the second and third time since the financial crisis in 2008. Accelerating trade and waning inflationary pressures contributed to a rally in emerging-market debt. Yields in developed markets had varying performance in both periods, generally rising in the US, Japan and Canada, and moving in different directions elsewhere, though longer maturities broadly rose. Developed-market treasuries, investment-grade credit securities and emerging-market
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local-currency government bonds rebounded over the 12-month period, but experienced volatility in the latter half. Global high yield rallied in both periods, during which sector performance was almost uniformly positive; energy and basics were the best performers in each period, benefiting from oil price increases. Consumer-related sectors generally lagged the rising markets, with pharmaceuticals one of the few sectors to fall in both periods.
INVESTMENT POLICIES
The Portfolio invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Portfolio expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term and relatively attractive yields that do not involve undue risk of loss of capital. The Portfolio expects to invest in fixed-income securities with a dollar-weighted average maturity of between three to 10 years and an average duration of three to six years. The Portfolio may invest up to 25% of its net assets in below investment-grade bonds. The Portfolio may use leverage for investment purposes.
The Portfolio may invest without limit in US dollar-denominated foreign fixed-income securities and may invest up to 25% 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 Portfolio. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio’s other holdings.
The Portfolio may invest in mortgage-related and other asset-backed securities, loan participations, inflation-indexed securities, structured securities, variable, floating, and inverse floating-rate instruments and preferred stock, and may use other investment techniques. The Portfolio intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Portfolio may invest, without limit, in derivatives, such as options, futures contracts, forwards or swaps.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Aggregate Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade 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, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a
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DISCLOSURES AND RISKS (continued)
fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign (Non-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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Prepayment Risk: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
Leverage Risk: To the extent the Portfolio 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 Portfolio’s investments.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the
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DISCLOSURES AND RISKS (continued)
Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Portfolio’s prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown 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 visiting www.abfunds.com.
All fees and expenses related to the operation of the Portfolio have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Portfolio’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares; the applicable contingent deferred sales charge for Class B shares (3% year 1, 2% year 2, 1% year 3); a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS A SHARES | 1.88% | |||||||||||
1 Year | 2.52% | -1.82% | ||||||||||
5 Years | 2.92% | 2.04% | ||||||||||
10 Years | 4.39% | 3.93% | ||||||||||
CLASS B SHARES | 1.20% | |||||||||||
1 Year | 1.76% | -1.24% | ||||||||||
5 Years | 2.18% | 2.18% | ||||||||||
10 Years2 | 3.95% | 3.95% | ||||||||||
CLASS C SHARES | 1.22% | |||||||||||
1 Year | 1.76% | 0.77% | ||||||||||
5 Years | 2.19% | 2.19% | ||||||||||
10 Years | 3.66% | 3.66% | ||||||||||
ADVISOR CLASS SHARES3 | 2.22% | |||||||||||
1 Year | 2.86% | 2.86% | ||||||||||
5 Years | 3.22% | 3.22% | ||||||||||
10 Years | 4.70% | 4.70% | ||||||||||
CLASS R SHARES3 | 1.61% | |||||||||||
1 Year | 2.27% | 2.27% | ||||||||||
5 Years | 2.69% | 2.69% | ||||||||||
10 Years | 4.17% | 4.17% | ||||||||||
CLASS K SHARES3 | 1.91% | |||||||||||
1 Year | 2.52% | 2.52% | ||||||||||
5 Years | 2.95% | 2.95% | ||||||||||
10 Years | 4.43% | 4.43% | ||||||||||
CLASS I SHARES3 | 2.24% | |||||||||||
1 Year | 2.88% | 2.88% | ||||||||||
5 Years | 3.22% | 3.22% | ||||||||||
10 Years | 4.71% | 4.71% | ||||||||||
CLASS Z SHARES3 | 2.34% | |||||||||||
1 Year | 2.77% | 2.77% | ||||||||||
Since Inception4 | 3.22% | 3.22% |
The Portfolio’s prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.03%, 1.81%, 1.78%, 0.78%, 1.38%, 1.09%, 0.76% and 0.66% for Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios exclusive of interest expense to 0.77%, 1.52%, 1.52%, 0.52%, 1.02%, 0.77%, 0.52% and 0.52% for Class A,
(footnotes continued on next page)
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HISTORICAL PERFORMANCE (continued)
Class B, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. These waivers/reimbursements may not be terminated before January 31, 2018 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended April 30, 2017. |
2 | Assumes conversion of Class B shares into Class A shares after six years. |
3 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
4 | Inception date: 4/25/2014. |
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HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
1 Year | -2.14% | |||
5 Years | 2.04% | |||
10 Years | 3.88% | |||
CLASS B SHARES | ||||
1 Year | -1.45% | |||
5 Years | 2.20% | |||
10 Years1 | 3.91% | |||
CLASS C SHARES | ||||
1 Year | 0.45% | |||
5 Years | 2.21% | |||
10 Years | 3.61% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 2.55% | |||
5 Years | 3.22% | |||
10 Years | 4.65% | |||
CLASS R SHARES2 | ||||
1 Year | 1.95% | |||
5 Years | 2.71% | |||
10 Years | 4.12% | |||
CLASS K SHARES2 | ||||
1 Year | 2.20% | |||
5 Years | 2.96% | |||
10 Years | 4.38% | |||
CLASS I SHARES2 | ||||
1 Year | 2.56% | |||
5 Years | 3.22% | |||
10 Years | 4.64% | |||
CLASS Z SHARES2 | ||||
1 Year | 2.55% | |||
Since Inception3 | 2.97% |
1 | Assumes conversion of Class B shares into Class A shares after six years. |
2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Portfolio. |
3 | Inception date: 4/25/2014. |
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EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, 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.
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EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,001.00 | $ | 4.02 | 0.81 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.78 | $ | 4.06 | 0.81 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 997.20 | $ | 7.73 | 1.56 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.06 | $ | 7.80 | 1.56 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 997.30 | $ | 7.73 | 1.56 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.06 | $ | 7.80 | 1.56 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,002.20 | $ | 2.78 | 0.56 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.02 | $ | 2.81 | 0.56 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 999.70 | $ | 5.26 | 1.06 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.54 | $ | 5.31 | 1.06 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,001.00 | $ | 4.02 | 0.81 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.78 | $ | 4.06 | 0.81 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,003.10 | $ | 2.78 | 0.56 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.02 | $ | 2.81 | 0.56 | % | ||||||||
Class Z | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,001.30 | $ | 2.78 | 0.56 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.02 | $ | 2.81 | 0.56 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
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PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $354.7
TOP TEN SECTORS (including derivatives)1
Governments–Treasuries2 | 27.4 | % | ||
Corporates–Investment Grade3 | 24.3 | |||
Mortgage Pass-Throughs | 15.9 | |||
Asset-Backed Securities | 13.1 | |||
Commercial Mortgage-Backed Securities3 | 12.7 | |||
Inflation-Linked Securities | 7.3 | |||
Collateralized Mortgage Obligations | 7.1 | |||
Corporates–Non Investment Grade3 | 3.9 | |||
Emerging Markets–Treasuries | 0.9 | |||
Interest Rate Swaps4 | -20.5 |
SECTOR BREAKDOWN (excluding derivatives)5
Corporates–Investment Grade | 21.9 | % | Emerging Markets–Treasuries | 0.8 | % | |||||||||
Mortgage Pass-Throughs | 14.6 | Emerging Markets–Corporate Bonds | 0.6 | |||||||||||
Asset-Backed Securities | 12.0 | Local Governments–US Municipal Bonds | 0.4 | |||||||||||
Governments–Treasuries | 11.7 | Quasi-Sovereigns | 0.3 | |||||||||||
Commercial Mortgage-Backed Securities | 9.0 | Common Stocks | 0.2 | |||||||||||
Inflation-Linked Securities | 6.7 | Other | 0.2 | |||||||||||
Collateralized Mortgage Obligations | 6.5 | Short-Term | 11.3 | |||||||||||
Corporates–Non-Investment Grade | 3.8 | 100.0 | % |
1 | All data are as of April 30, 2017. The Portfolio’s sectors include derivative exposure and are expressed as approximate percentages of the Portfolio’s total net assets, based on the Adviser’s internal classification. The percentages will vary over time. |
2 | Includes Treasury Futures. |
3 | Includes Credit Default Swaps. |
4 | Represents the exposure of the Portfolio’s fixed-rate payments on the Interest Rate Swaps. Interest Rate Swaps involve the exchange by a fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating-rate payments for fixed-rate payments). |
5 | All data are as of April 30, 2017. The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio 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). “Other” represents the following categories: Emerging Markets–Sovereigns and Governments–Sovereign Bonds. |
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PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – INVESTMENT GRADE – 23.9% | ||||||||||||
Industrial – 14.6% | ||||||||||||
Basic – 1.2% | ||||||||||||
Barrick Gold Corp. | U.S.$ | 66 | $ | 71,617 | ||||||||
Eastman Chemical Co. | 220 | 226,686 | ||||||||||
Glencore Funding LLC | 516 | 529,736 | ||||||||||
International Paper Co. | 172 | 187,815 | ||||||||||
Minsur SA | 335 | 359,288 | ||||||||||
Mosaic Co. (The) | 244 | 252,225 | ||||||||||
Sociedad Quimica y Minera de Chile SA | 1,607 | 1,572,851 | ||||||||||
Vale Overseas Ltd. | 495 | 535,590 | ||||||||||
Yamana Gold, Inc. | 339 | 342,390 | ||||||||||
|
| |||||||||||
4,078,198 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.2% | ||||||||||||
Embraer Netherlands Finance BV | 540 | 559,533 | ||||||||||
General Electric Co. | 187 | 197,762 | ||||||||||
|
| |||||||||||
757,295 | ||||||||||||
|
| |||||||||||
Communications - Media – 1.3% | ||||||||||||
21st Century Fox America, Inc. | 142 | 174,832 | ||||||||||
CBS Corp. | 710 | 780,510 | ||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 740 | 791,652 | ||||||||||
Cox Communications, Inc. | 233 | 224,743 | ||||||||||
TCI Communications, Inc. | 670 | 898,463 | ||||||||||
Time Warner Cable LLC | 230 | 212,069 | ||||||||||
5.00%, 2/01/20 | 740 | 789,225 |
14 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Time Warner, Inc. | U.S.$ | 600 | $ | 645,240 | ||||||||
Viacom, Inc. | 240 | 257,342 | ||||||||||
|
| |||||||||||
4,774,076 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 2.3% | ||||||||||||
AT&T, Inc. | 1,610 | 1,566,900 | ||||||||||
3.80%, 3/15/22 | 252 | 261,518 | ||||||||||
4.125%, 2/17/26 | 1,161 | 1,182,571 | ||||||||||
4.60%, 2/15/21 | 565 | 601,951 | ||||||||||
Rogers Communications, Inc. | CAD | 130 | 104,201 | |||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 400 | 403,520 | |||||||||
Telefonica Emisiones SAU | 520 | 573,290 | ||||||||||
Verizon Communications, Inc. | 988 | 905,976 | ||||||||||
3.50%, 11/01/24 | 2,015 | 2,015,625 | ||||||||||
5.50%, 3/16/47 | 485 | 513,508 | ||||||||||
|
| |||||||||||
8,129,060 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.9% | ||||||||||||
Ford Motor Credit Co. LLC | 603 | 599,792 | ||||||||||
5.875%, 8/02/21 | 1,291 | 1,437,955 | ||||||||||
General Motors Co. | 340 | 346,803 | ||||||||||
General Motors Financial Co., Inc. | 560 | 568,579 | ||||||||||
3.25%, 5/15/18 | 43 | 43,558 | ||||||||||
4.00%, 1/15/25 | 106 | 106,810 | ||||||||||
4.30%, 7/13/25 | 135 | 137,389 | ||||||||||
|
| |||||||||||
3,240,886 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.3% | ||||||||||||
CVS Health Corp. | 589 | 612,301 | ||||||||||
Walgreens Boots Alliance, Inc. | 590 | 606,077 | ||||||||||
|
| |||||||||||
1,218,378 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 2.3% | ||||||||||||
AbbVie, Inc. | 1,057 | 1,067,633 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
AstraZeneca PLC | U.S.$ | 235 | $ | 309,128 | ||||||||
Bayer US Finance LLC | 321 | 325,870 | ||||||||||
Becton Dickinson and Co. | 180 | 181,237 | ||||||||||
Biogen, Inc. | 683 | 716,009 | ||||||||||
Bunge Ltd. Finance Corp. | 6 | 6,776 | ||||||||||
Celgene Corp. | 1,310 | 1,356,453 | ||||||||||
Grupo Bimbo SAB de CV | 538 | 543,025 | ||||||||||
Laboratory Corp. of America Holdings | 265 | 264,974 | ||||||||||
Mylan NV | 225 | 222,631 | ||||||||||
PepsiCo, Inc. | 440 | 473,818 | ||||||||||
Reynolds American, Inc. | 202 | 239,602 | ||||||||||
Sigma Alimentos SA de CV | 570 | 562,305 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 680 | 656,696 | ||||||||||
3.15%, 10/01/26 | 452 | 419,664 | ||||||||||
Tyson Foods, Inc. | 164 | 165,547 | ||||||||||
3.95%, 8/15/24 | 541 | 555,558 | ||||||||||
|
| |||||||||||
8,066,926 | ||||||||||||
|
| |||||||||||
Energy – 3.7% | ||||||||||||
Cenovus Energy, Inc. | 42 | 41,302 | ||||||||||
5.70%, 10/15/19 | 169 | 181,372 | ||||||||||
Ecopetrol SA | 245 | 224,371 | ||||||||||
Encana Corp. | 415 | 426,479 | ||||||||||
Energy Transfer Partners LP/old | 411 | 432,438 | ||||||||||
7.50%, 7/01/38 | 772 | 935,703 | ||||||||||
Enterprise Products Operating LLC | 735 | 745,194 | ||||||||||
5.20%, 9/01/20 | 235 | 256,383 |
16 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Halliburton Co. | U.S.$ | 825 | $ | 881,595 | ||||||||
Hess Corp. | 648 | 645,214 | ||||||||||
Kinder Morgan Energy Partners LP | 849 | 884,106 | ||||||||||
MPLX LP | 350 | 354,428 | ||||||||||
4.50%, 7/15/23 | 672 | 709,081 | ||||||||||
Nabors Industries, Inc. | 721 | 729,472 | ||||||||||
Noble Energy, Inc. | 463 | 473,130 | ||||||||||
8.25%, 3/01/19 | 1,232 | 1,366,436 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 594 | 584,953 | ||||||||||
Regency Energy Partners LP/Regency Energy Finance Corp. | 135 | 140,455 | ||||||||||
5.75%, 9/01/20 | 420 | 454,469 | ||||||||||
Sabine Pass Liquefaction LLC | 482 | 509,045 | ||||||||||
TransCanada PipeLines Ltd. | 831 | 769,506 | ||||||||||
Valero Energy Corp. | 770 | 849,364 | ||||||||||
Williams Partners LP | 403 | 421,881 | ||||||||||
|
| |||||||||||
13,016,377 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.2% | ||||||||||||
Alfa SAB de CV | 530 | 562,463 | ||||||||||
|
| |||||||||||
Services – 0.4% | ||||||||||||
eBay, Inc. | 232 | 242,454 | ||||||||||
S&P Global, Inc. | 584 | 624,956 | ||||||||||
Total System Services, Inc. | 344 | 345,231 | ||||||||||
3.75%, 6/01/23 | 350 | 357,448 | ||||||||||
|
| |||||||||||
1,570,089 | ||||||||||||
|
| |||||||||||
Technology – 1.6% | ||||||||||||
Agilent Technologies, Inc. | 217 | 234,141 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | U.S.$ | 181 | $ | 183,644 | ||||||||
3.875%, 1/15/27(a) | 395 | 400,649 | ||||||||||
Dell International LLC/EMC Corp. | 865 | 934,062 | ||||||||||
6.02%, 6/15/26(a) | 145 | 159,484 | ||||||||||
Fidelity National Information Services, Inc. | 241 | 247,085 | ||||||||||
5.00%, 10/15/25 | 3 | 3,308 | ||||||||||
HP, Inc. | 266 | 287,088 | ||||||||||
KLA-Tencor Corp. | 614 | 659,430 | ||||||||||
Lam Research Corp. | 269 | 271,515 | ||||||||||
Micron Technology, Inc. | 224 | 250,582 | ||||||||||
Motorola Solutions, Inc. | 400 | 400,200 | ||||||||||
7.50%, 5/15/25 | 228 | 271,774 | ||||||||||
Oracle Corp. | 510 | 507,715 | ||||||||||
Seagate HDD Cayman | 336 | 327,802 | ||||||||||
Western Digital Corp. | 508 | 555,503 | ||||||||||
|
| |||||||||||
5,693,982 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.2% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 545 | 553,175 | ||||||||||
AerCap Aviation Solutions BV | 320 | 321,142 | ||||||||||
|
| |||||||||||
874,317 | ||||||||||||
|
| |||||||||||
51,982,047 | ||||||||||||
|
| |||||||||||
Financial Institutions – 8.3% | ||||||||||||
Banking – 6.6% | ||||||||||||
ABN AMRO Bank NV | 200 | 209,486 | ||||||||||
Banco Santander SA | 400 | 403,820 | ||||||||||
Bank of America Corp. | 900 | 897,651 | ||||||||||
3.824%, 1/20/28 | 905 | 912,222 | ||||||||||
Series L | 1,053 | 1,063,593 |
18 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Barclays Bank PLC Series E | EUR | 333 | $ | 453,653 | ||||||
Barclays PLC | U.S.$ | 389 | 383,173 | |||||||
3.684%, 1/10/23 | 735 | 746,826 | ||||||||
BNP Paribas SA | 347 | 351,119 | ||||||||
Series E | EUR | 345 | 377,710 | |||||||
BPCE SA | U.S.$ | 230 | 249,230 | |||||||
Citigroup, Inc. | 1,000 | 1,007,670 | ||||||||
Compass Bank | 1,339 | 1,421,951 | ||||||||
Cooperatieve Rabobank UA | 1,373 | 1,428,249 | ||||||||
Credit Agricole SA/London | 387 | 392,015 | ||||||||
Credit Suisse Group Funding Guernsey Ltd. | 600 | 613,260 | ||||||||
Goldman Sachs Group, Inc. (The) | 710 | 699,847 | ||||||||
3.75%, 5/22/25 | 254 | 258,902 | ||||||||
3.85%, 7/08/24 | 905 | 934,241 | ||||||||
Series D | 1,282 | 1,420,405 | ||||||||
ING Groep NV | 437 | 447,488 | ||||||||
JPMorgan Chase & Co. | 593 | 602,411 | ||||||||
Lloyds Banking Group PLC | 920 | 917,277 | ||||||||
4.65%, 3/24/26 | 366 | 380,336 | ||||||||
Mitsubishi UFJ Financial Group, Inc. | 234 | 243,283 | ||||||||
Morgan Stanley | 478 | 516,288 | ||||||||
Series G | 590 | 645,124 | ||||||||
Nationwide Building Society | 950 | 940,481 | ||||||||
Santander Issuances SAU | EUR | 300 | 348,515 | |||||||
5.179%, 11/19/25 | U.S.$ | 600 | 628,620 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Santander UK PLC | U.S.$ | 500 | $ | 526,705 | ||||||||
Sumitomo Mitsui Banking Corp. | 515 | 514,815 | ||||||||||
UBS AG/Stamford CT | 620 | 725,617 | ||||||||||
UBS Group Funding Jersey Ltd. | 436 | 448,674 | ||||||||||
US Bancorp | 380 | 393,862 | ||||||||||
Wells Fargo & Co. | 712 | 720,053 | ||||||||||
|
| |||||||||||
23,224,572 | ||||||||||||
|
| |||||||||||
Finance – 0.1% | ||||||||||||
International Lease Finance Corp. | 245 | 260,896 | ||||||||||
|
| |||||||||||
Insurance – 1.1% | ||||||||||||
American International Group, Inc. | 940 | 1,210,654 | ||||||||||
Guardian Life Insurance Co. of America (The) | 542 | 767,201 | ||||||||||
Hartford Financial Services Group, Inc. (The) | 110 | 119,562 | ||||||||||
Lincoln National Corp. | 111 | 126,069 | ||||||||||
MetLife Capital Trust IV | 699 | 891,344 | ||||||||||
Nationwide Mutual Insurance Co. | 246 | 401,192 | ||||||||||
ZFS Finance USA Trust V | 538 | 538,113 | ||||||||||
|
| |||||||||||
4,054,135 | ||||||||||||
|
| |||||||||||
REITS – 0.5% | ||||||||||||
American Tower Corp. | 1,185 | 1,279,658 | ||||||||||
Trust F/1401 | 565 | 573,471 | ||||||||||
|
| |||||||||||
1,853,129 | ||||||||||||
|
| |||||||||||
29,392,732 | ||||||||||||
|
| |||||||||||
Utility – 1.0% | ||||||||||||
Electric – 1.0% | ||||||||||||
CMS Energy Corp. | 440 | 482,535 |
20 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Dominion Resources, Inc./VA | U.S.$ | 750 | $ | 781,035 | ||||||||
Entergy Corp. | 582 | 615,092 | ||||||||||
Exelon Corp. | 260 | 280,561 | ||||||||||
Exelon Corp. | 320 | 348,918 | ||||||||||
Israel Electric Corp., Ltd. | 580 | 626,400 | ||||||||||
TECO Finance, Inc. | 380 | 405,137 | ||||||||||
|
| |||||||||||
3,539,678 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 84,914,457 | |||||||||||
|
| |||||||||||
MORTGAGE PASS-THROUGHS – 15.9% | ||||||||||||
Agency ARMs – 0.0% | ||||||||||||
Federal Home Loan Mortgage Corp. | 30 | 31,549 | ||||||||||
|
| |||||||||||
Agency Fixed Rate 15-Year – 1.8% | ||||||||||||
Federal National Mortgage Association | 2,446 | 2,466,388 | ||||||||||
Series 2016 | 3,939 | 3,967,445 | ||||||||||
|
| |||||||||||
6,433,833 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate 30-Year – 14.1% | ||||||||||||
Federal Home Loan Mortgage Corp. Gold | 1,792 | 1,898,727 | ||||||||||
Series 2005 | 272 | 304,214 | ||||||||||
Series 2007 | 37 | 41,072 | ||||||||||
Series 2017 | 1,450 | 1,535,162 | ||||||||||
Federal National Mortgage Association | 5,282 | 5,436,132 | ||||||||||
3.50%, 5/01/47, TBA | 6,340 | 6,519,799 | ||||||||||
4.00%, 12/01/40-10/01/43 | 2,939 | 3,116,337 | ||||||||||
4.00%, 5/01/47, TBA | 6,590 | 6,941,123 | ||||||||||
4.50%, 5/25/47, TBA | 13,172 | 14,174,307 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.50%, 1/01/35 | U.S.$ | 716 | $ | 800,262 | ||||||||
Series 2003 | 265 | 295,249 | ||||||||||
Series 2004 | 151 | 168,905 | ||||||||||
Series 2005 | 111 | 124,088 | ||||||||||
Series 2007 | 494 | 551,448 | ||||||||||
Government National Mortgage Association | 1,409 | 1,430,367 | ||||||||||
3.50%, 5/01/47, TBA | 6,440 | 6,691,562 | ||||||||||
Series 1990 | – 0 | –** | 5 | |||||||||
Series 1999 | 27 | 28,230 | ||||||||||
|
| |||||||||||
50,056,989 | ||||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 56,522,371 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 13.1% | ||||||||||||
Autos - Fixed Rate – 8.3% | ||||||||||||
Ally Auto Receivables Trust | 724 | 723,878 | ||||||||||
Ally Master Owner Trust | 1,226 | 1,226,158 | ||||||||||
Americredit Automobile Receivables Trust | 742 | 741,747 | ||||||||||
Avis Budget Rental Car Funding AESOP LLC | 1,005 | 1,007,502 | ||||||||||
Series 2016-1A, Class A | 418 | 420,828 | ||||||||||
Bank of The West Auto Trust | 906 | 905,194 | ||||||||||
California Republic Auto Receivables Trust | 366 | 366,226 | ||||||||||
Series 2015-2, Class A3 | 274 | 274,248 | ||||||||||
Capital Auto Receivables Asset Trust | 220 | 220,376 |
22 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
CarMax Auto Owner Trust | U.S.$ | 497 | $ | 496,743 | ||||||
Chrysler Capital Auto Receivables Trust | 822 | 823,865 | ||||||||
Series 2016-AA, Class A3 | 913 | 913,929 | ||||||||
CPS Auto Receivables Trust | 132 | 132,397 | ||||||||
Series 2014-B, Class A | 8 | 8,381 | ||||||||
Series 2016-C, Class E | 600 | 650,993 | ||||||||
CPS Auto Trust | 550 | 572,104 | ||||||||
Drive Auto Receivables Trust | 547 | 547,228 | ||||||||
Series 2017-BA, Class A1 | 908 | 908,123 | ||||||||
Enterprise Fleet Financing LLC | 428 | 427,925 | ||||||||
Exeter Automobile Receivables Trust | 270 | 288,940 | ||||||||
Series 2016-3A, Class A | 282 | 281,696 | ||||||||
Series 2016-3A, Class D | 350 | 356,814 | ||||||||
Series 2017-2A, Class A | 615 | 614,168 | ||||||||
Fifth Third Auto Trust | 721 | 720,943 | ||||||||
First Investors Auto Owner Trust | 461 | 459,891 | ||||||||
Flagship Credit Auto Trust | 350 | 379,746 | ||||||||
Series 2016-3, Class A1 | 426 | 424,698 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2016-4, Class E | U.S.$ | 565 | $ | 560,012 | ||||||
Ford Credit Auto Owner Trust | 322 | 325,076 | ||||||||
Ford Credit Floorplan Master Owner Trust | 906 | 903,222 | ||||||||
Series 2016-1, Class A1 | 682 | 682,104 | ||||||||
GM Financial Automobile Leasing Trust | 1,080 | 1,081,451 | ||||||||
Series 2015-3, Class A3 | 1,155 | 1,156,248 | ||||||||
GMF Floorplan Owner Revolving Trust | 575 | 575,105 | ||||||||
Series 2016-1, Class A1 | 860 | 861,584 | ||||||||
Harley-Davidson Motorcycle Trust | 449 | 448,796 | ||||||||
Hertz Vehicle Financing II LP | 386 | 385,915 | ||||||||
Hertz Vehicle Financing LLC | 2,370 | 2,362,887 | ||||||||
Series 2016-1A, Class A | 678 | 675,592 | ||||||||
Hyundai Auto Lease Securitization Trust | 461 | 460,645 | ||||||||
Mercedes Benz Auto Lease Trust | 622 | 621,964 | ||||||||
Nissan Auto Lease Trust | 450 | 450,342 | ||||||||
Santander Drive Auto Receivables Trust | 894 | 898,705 | ||||||||
Series 2016-3, Class A2 | 618 | 617,267 |
24 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Westlake Automobile Receivables Trust | U.S.$ | 80 | $ | 79,799 | ||||||||
Series 2016-2A, Class A2 | 359 | 359,405 | ||||||||||
Wheels SPV 2 LLC | 950 | 944,189 | ||||||||||
|
| |||||||||||
29,345,049 | ||||||||||||
|
| |||||||||||
Credit Cards - Fixed Rate – 1.8% | ||||||||||||
American Express Credit Account Master Trust | 400 | 400,020 | ||||||||||
Barclays Dryrock Issuance Trust | 703 | 703,115 | ||||||||||
Series 2015-4, Class A | 630 | 630,726 | ||||||||||
Discover Card Execution Note Trust | 1,101 | 1,102,720 | ||||||||||
Synchrony Credit Card Master Note Trust | 1,050 | 1,059,571 | ||||||||||
Series 2015-3, Class A | 859 | 859,478 | ||||||||||
Series 2016-1, Class A | 544 | 546,459 | ||||||||||
World Financial Network Credit Card Master Trust | 570 | 570,491 | ||||||||||
Series 2016-B, Class A | 416 | 414,918 | ||||||||||
|
| |||||||||||
6,287,498 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 1.7% | ||||||||||||
Ascentium Equipment Receivables Trust | 165 | 165,024 | ||||||||||
CNH Equipment Trust | 616 | 617,468 | ||||||||||
Dell Equipment Finance Trust | 143 | 143,355 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2015-2, Class A2A | U.S.$ | 32 | $ | 31,797 | ||||||||
Marlette Funding Trust | 390 | 388,958 | ||||||||||
Series 2017-1A, Class A | 465 | 465,703 | ||||||||||
Series 2017-1A, Class C | 750 | 757,759 | ||||||||||
SBA Tower Trust | 688 | 691,509 | ||||||||||
SoFi Consumer Loan Program LLC | 549 | 549,603 | ||||||||||
Series 2016-3, Class A | 602 | 602,155 | ||||||||||
Series 2017-1, Class A | 488 | 489,612 | ||||||||||
Series 2017-2, Class A | 676 | 679,886 | ||||||||||
Taco Bell Funding LLC | 513 | 522,610 | ||||||||||
|
| |||||||||||
6,105,439 | ||||||||||||
|
| |||||||||||
Autos - Floating Rate – 0.8% | ||||||||||||
BMW Floorplan Master Owner Trust | 997 | 998,973 | ||||||||||
Volkswagen Credit Auto Master Trust | 340 | 340,053 | ||||||||||
Wells Fargo Dealer Floorplan Master Note Trust | 537 | 537,205 | ||||||||||
Series 2015-1, Class A | 1,073 | 1,074,838 | ||||||||||
|
| |||||||||||
2,951,069 | ||||||||||||
|
|
26 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Credit Cards - Floating Rate – 0.5% | ||||||||||||
Discover Card Execution Note Trust | U.S.$ | 964 | $ | 966,051 | ||||||||
World Financial Network Credit Card | 681 | 682,926 | ||||||||||
|
| |||||||||||
1,648,977 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.0% | ||||||||||||
Credit-Based Asset Servicing & Securitization LLC | 83 | 83,390 | ||||||||||
Nationstar NIM Ltd. | 18 | – 0 | – | |||||||||
|
| |||||||||||
83,390 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Floating Rate – 0.0% | ||||||||||||
Asset Backed Funding Certificates Trust | 42 | 40,385 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 46,461,807 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 12.8% | ||||||||||||
United States – 12.8% | ||||||||||||
U.S. Treasury Bonds | ||||||||||||
2.50%, 2/15/45-5/15/46 | 1,484 | 1,351,450 | ||||||||||
2.875%, 8/15/45-11/15/46 | 1,556 | 1,529,743 | ||||||||||
3.00%, 5/15/45-11/15/45 | 1,636 | 1,648,119 | ||||||||||
3.125%, 8/15/44 | 10,677 | 11,037,039 | ||||||||||
4.375%, 2/15/38 | 960 | 1,212,750 | ||||||||||
4.50%, 2/15/36 | 416 | 533,393 | ||||||||||
5.375%, 2/15/31 | 1,444 | 1,947,369 | ||||||||||
U.S. Treasury Notes | ||||||||||||
1.125%, 2/28/19 | 3,625 | 3,617,070 | ||||||||||
1.50%, 8/15/26 | 2,095 | 1,959,807 | ||||||||||
1.625%, 2/15/26(f) | 418 | 397,064 | ||||||||||
1.625%, 5/15/26 | 3,306 | 3,132,572 | ||||||||||
1.75%, 11/30/21 | 1,563 | 1,561,235 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
1.875%, 1/31/22 | U.S.$ | 5,010 | $ | 5,026,439 | ||||||||
2.00%, 11/15/26 | 2,530 | 2,469,029 | ||||||||||
2.25%, 11/15/24-2/15/27 | 2,784 | 2,787,681 | ||||||||||
2.25%, 11/15/25(f) | 3,979 | 3,981,787 | ||||||||||
2.375%, 8/15/24 | 1,040 | 1,057,693 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 45,250,240 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 9.8% | ||||||||||||
Non-Agency Fixed Rate CMBS – 8.0% | ||||||||||||
Banc of America Commercial Mortgage Trust | 411 | 418,484 | ||||||||||
Bear Stearns Commercial Mortgage | 43 | 42,770 | ||||||||||
BHMS Mortgage Trust | 890 | 901,612 | ||||||||||
CGRBS Commercial Mortgage Trust | 1,305 | 1,348,677 | ||||||||||
Citigroup Commercial Mortgage Trust | 633 | 601,621 | ||||||||||
Series 2013-GC17, Class D | 565 | 531,686 | ||||||||||
Series 2015-GC27, Class A5 | 1,223 | 1,228,335 | ||||||||||
Series 2016-C1, Class A4 | 1,359 | 1,370,115 | ||||||||||
COBALT CMBS Commercial Mortgage Trust | 35 | 35,414 | ||||||||||
Commercial Mortgage Trust | 426 | 418,636 | ||||||||||
Series 2015-CR25, Class A4 | 1,045 | 1,092,910 | ||||||||||
Series 2015-PC1, Class A5 | 685 | 720,184 | ||||||||||
Credit Suisse Commercial Mortgage Trust | 136 | 135,648 |
28 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
CSAIL Commercial Mortgage Trust | U.S.$ | 573 | $ | 596,742 | ||||||
Series 2015-C4, Class A4 | 1,040 | 1,085,589 | ||||||||
GS Mortgage Securities Corp. II | 1,190 | 1,206,081 | ||||||||
GS Mortgage Securities Trust | 39 | 38,789 | ||||||||
Series 2013-G1, Class A2 | 766 | 765,855 | ||||||||
JP Morgan Chase Commercial Mortgage | 272 | 271,952 | ||||||||
Series 2006-LDP9, Class AM | 219 | 218,576 | ||||||||
Series 2007-CB19, Class AM | 470 | 469,690 | ||||||||
Series 2007-LD12, Class AM | 795 | 803,752 | ||||||||
Series 2011-C5, Class D | 127 | 128,544 | ||||||||
Series 2012-C6, Class D | 690 | 711,493 | ||||||||
Series 2012-C6, Class E | 389 | 348,407 | ||||||||
JPMBB Commercial Mortgage Securities Trust | 620 | 650,331 | ||||||||
Series 2015-C32, Class C | 540 | 518,326 | ||||||||
Series 2015-C33, Class A4 | 1,050 | 1,099,487 | ||||||||
LB-UBS Commercial Mortgage Trust | 220 | 188,792 | ||||||||
LSTAR Commercial Mortgage Trust | 312 | 312,083 | ||||||||
Series 2015-3, Class A2 | 629 | 632,435 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2016-4, Class A2 | U.S.$ | 615 | $ | 600,793 | ||||||||
ML-CFC Commercial Mortgage Trust | 2,183 | 2,198,125 | ||||||||||
Morgan Stanley Capital I Trust | 365 | 365,236 | ||||||||||
Prudential Securities Secured Financing Corp. | 626 | 1,808 | ||||||||||
UBS-Barclays Commercial Mortgage Trust | 1,098 | 1,107,960 | ||||||||||
Wachovia Bank Commercial Mortgage Trust | 24 | 24,326 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 1,040 | 1,068,297 | ||||||||||
Series 2015-SG1, Class C | 516 | 513,910 | ||||||||||
Series 2016-LC25, Class C | 545 | 538,413 | ||||||||||
Series 2016-NXS6, Class A4 | 900 | 880,624 | ||||||||||
Series 2016-NXS6, Class C | 600 | 597,295 | ||||||||||
WF-RBS Commercial Mortgage Trust | 10,169 | 485,816 | ||||||||||
Series 2013-C14, Class A5 | 655 | 674,062 | ||||||||||
Series 2014-C20, Class A2 | 546 | 556,770 | ||||||||||
|
| |||||||||||
28,506,451 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 1.8% | ||||||||||||
CGBAM Commercial Mortgage Trust | 725 | 725,005 | ||||||||||
Series 2016-IMC, Class C | 465 | 465,487 |
30 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CSMC Mortgage-Backed Trust | U.S.$ | 450 | $ | 451,690 | ||||||||
Great Wolf Trust | 700 | 703,500 | ||||||||||
H/2 Asset Funding NRE | 488 | 484,424 | ||||||||||
JP Morgan Chase Commercial Mortgage | 902 | 902,567 | ||||||||||
Series 2015-SGP, Class A | 825 | 829,125 | ||||||||||
Morgan Stanley Capital I Trust | 202 | 201,506 | ||||||||||
Series 2015-XLF2, Class SNMA | 229 | 223,857 | ||||||||||
Resource Capital Corp., Ltd. | 55 | 55,280 | ||||||||||
Starwood Retail Property Trust | 1,179 | 1,167,779 | ||||||||||
|
| |||||||||||
6,210,220 | ||||||||||||
|
| |||||||||||
Agency CMBS – 0.0% | ||||||||||||
Government National Mortgage Association | 881 | 9 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 34,716,680 | |||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
INFLATION-LINKED SECURITIES – 7.3% | ||||||||||||
Japan – 1.0% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 371,156 | $ | 3,532,168 | ||||||||
|
| |||||||||||
United States – 6.3% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 14,901 | 15,037,973 | |||||||||
0.25%, 1/15/25 (TIPS) | 3,655 | 3,643,477 | ||||||||||
0.375%, 7/15/25 (TIPS) | 3,769 | 3,801,515 | ||||||||||
|
| |||||||||||
22,482,965 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 26,015,133 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 7.1% | ||||||||||||
Risk Share Floating Rate – 5.2% | ||||||||||||
Bellemeade Re II Ltd. | 288 | 296,028 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 1,040 | 1,146,692 | ||||||||||
Series 2014-DN3, Class M3 | 870 | 942,232 | ||||||||||
Series 2014-DN4, Class M3 | 300 | 330,677 | ||||||||||
Series 2014-HQ3, Class M3 | 820 | 914,022 | ||||||||||
Series 2015-DNA1, Class M3 | 265 | 287,556 | ||||||||||
Series 2015-DNA2, Class M2 | 789 | 807,715 | ||||||||||
Series 2015-DNA3, Class M3 | 280 | 318,714 |
32 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2015-HQ1, Class M2 | U.S.$ | 270 | $ | 273,447 | ||||||
Series 2015-HQA1, Class M2 | 583 | 598,550 | ||||||||
Series 2015-HQA2, Class M2 | 266 | 274,329 | ||||||||
Series 2015-HQA2, Class M3 | 500 | 571,857 | ||||||||
Series 2016-DNA1, Class M3 | 330 | 380,084 | ||||||||
Series 2017-DNA2, Class M2 | 714 | 728,826 | ||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 58 | 58,242 | ||||||||
Series 2014-C04, Class 1M2 | 511 | 583,006 | ||||||||
Series 2014-C04, Class 2M2 | 181 | 202,667 | ||||||||
Series 2015-C01, Class 1M2 | 316 | 344,615 | ||||||||
Series 2015-C01, Class 2M2 | 430 | 466,299 | ||||||||
Series 2015-C02, Class 1M2 | 569 | 616,303 | ||||||||
Series 2015-C02, Class 2M2 | 420 | 448,996 | ||||||||
Series 2015-C03, Class 1M2 | 700 | 776,771 | ||||||||
Series 2015-C03, Class 2M2 | 675 | 751,869 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2015-C04, Class 1M2 | U.S.$ | 878 | $ | 1,001,661 | ||||||||
Series 2015-C04, Class 2M2 | 631 | 705,139 | ||||||||||
Series 2016-C01, Class 1M2 | 982 | 1,176,849 | ||||||||||
Series 2016-C01, Class 2M2 | 478 | 572,598 | ||||||||||
Series 2016-C02, Class 1M2 | 539 | 628,735 | ||||||||||
Series 2016-C03, Class 2M2 | 881 | 1,021,681 | ||||||||||
Series 2017-C02, Class 2M2 | 710 | 731,649 | ||||||||||
JP Morgan Madison Avenue Securities Trust | 105 | 112,853 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 393 | 413,230 | ||||||||||
Series 2015-WF1, Class 2M2 | 104 | 114,310 | ||||||||||
|
| |||||||||||
18,598,202 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 1.2% | ||||||||||||
Alternative Loan Trust | 221 | 194,304 | ||||||||||
Series 2006-23CB, Class 1A7 | 135 | 129,851 | ||||||||||
Series 2006-24CB, Class A16 | 385 | 319,913 | ||||||||||
Series 2006-28CB, Class A14 | 268 | 216,222 | ||||||||||
Series 2006-J1, Class 1A13 | 227 | 202,305 |
34 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Citigroup Mortgage Loan Trust, Inc. | U.S.$ | 421 | $ | 414,748 | ||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 109 | 91,689 | ||||||||||
Credit Suisse Mortgage Trust | 398 | 323,385 | ||||||||||
First Horizon Alternative Mortgage Securities Trust | 378 | 307,086 | ||||||||||
JP Morgan Alternative Loan Trust | 730 | 606,269 | ||||||||||
RBSSP Resecuritization Trust | 531 | 454,633 | ||||||||||
Series 2010-9, Class 7A6 | 493 | 371,049 | ||||||||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates | 526 | 440,184 | ||||||||||
|
| |||||||||||
4,071,638 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate – 0.4% | ||||||||||||
Deutsche Alt-A Securities Mortgage Loan Trust | 818 | 499,986 | ||||||||||
HomeBanc Mortgage Trust | 312 | 271,143 | ||||||||||
Impac Secured Assets CMN Owner Trust | 419 | 320,617 | ||||||||||
RALI Trust | 781 | 212,258 | ||||||||||
|
| |||||||||||
1,304,004 | ||||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Agency Floating Rate – 0.2% | ||||||||||||
Federal National Mortgage Association REMICs | U.S.$ | 2,124 | $ | 374,964 | ||||||||
Series 2016-22, Class ST | 2,221 | 372,660 | ||||||||||
|
| |||||||||||
747,624 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.1% | ||||||||||||
Federal National Mortgage Association Grantor Trust | 65 | 58,319 | ||||||||||
Federal National Mortgage Association REMICs | 2,174 | 440,930 | ||||||||||
|
| |||||||||||
499,249 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 25,220,717 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 4.2% | ||||||||||||
Industrial – 3.0% | ||||||||||||
Basic – 0.2% | ||||||||||||
Anglo American Capital PLC | 200 | 201,070 | ||||||||||
NOVA Chemicals Corp. | 331 | 337,014 | ||||||||||
SPCM SA | 286 | 289,475 | ||||||||||
|
| |||||||||||
827,559 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.3% | ||||||||||||
CSC Holdings LLC | 120 | 131,959 | ||||||||||
SFR Group SA | EUR | 222 | 251,947 | |||||||||
Ziggo Secured Finance BV | U.S.$ | 560 | 573,653 | |||||||||
|
| |||||||||||
957,559 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.9% | ||||||||||||
Arqiva Broadcast Finance PLC | GBP | 300 | 419,124 |
36 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CenturyLink, Inc. | U.S.$ | 275 | $ | 297,014 | ||||||||
Series Y | 243 | 264,044 | ||||||||||
Sprint Capital Corp. | 970 | 1,041,178 | ||||||||||
Wind Acquisition Finance SA | 700 | 724,073 | ||||||||||
Windstream Services LLC | 750 | 661,545 | ||||||||||
|
| |||||||||||
3,406,978 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.2% | ||||||||||||
Adient Global Holdings Ltd. | 379 | 379,599 | ||||||||||
Allison Transmission, Inc. | 216 | 220,106 | ||||||||||
|
| |||||||||||
599,705 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.3% | ||||||||||||
International Game Technology PLC | 360 | 393,170 | ||||||||||
6.50%, 2/15/25(a) | 520 | 569,707 | ||||||||||
KB Home | 286 | 295,272 | ||||||||||
|
| |||||||||||
1,258,149 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.1% | ||||||||||||
Hanesbrands, Inc. | 212 | 211,756 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.4% | ||||||||||||
First Quality Finance Co., Inc. | 475 | 467,329 | ||||||||||
Lamb Weston Holdings, Inc. | 95 | 98,025 | ||||||||||
4.875%, 11/01/26(a) | 95 | 97,890 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 375 | 277,282 | ||||||||||
Voyage Care Bondco PLC | GBP | 320 | 420,237 | |||||||||
|
| |||||||||||
1,360,763 | ||||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Diamond Offshore Drilling, Inc. | U.S.$ | 567 | 411,863 | |||||||||
SM Energy Co. | 35 | 35,493 | ||||||||||
|
| |||||||||||
447,356 | ||||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Other Industrial – 0.3% | ||||||||||||
General Cable Corp. | U.S.$ | 655 | $ | 649,092 | ||||||||
Global Partners LP/GLP Finance Corp. | 361 | 355,271 | ||||||||||
|
| |||||||||||
1,004,363 | ||||||||||||
|
| |||||||||||
Technology – 0.1% | ||||||||||||
Dell International LLC/EMC Corp. | 186 | 205,259 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 309 | 291,505 | ||||||||||
|
| |||||||||||
10,570,952 | ||||||||||||
|
| |||||||||||
Financial Institutions – 1.2% | ||||||||||||
Banking – 1.0% | ||||||||||||
Bank of America Corp. | 213 | 236,522 | ||||||||||
Barclays Bank PLC | 129 | 147,114 | ||||||||||
Credit Suisse Group AG | 363 | 402,828 | ||||||||||
Intesa Sanpaolo SpA | 569 | 543,953 | ||||||||||
Lloyds Banking Group PLC | 402 | 434,502 | ||||||||||
Royal Bank of Scotland Group PLC | 570 | 615,623 | ||||||||||
Series U | 700 | 654,717 | ||||||||||
Standard Chartered PLC | 400 | 336,008 | ||||||||||
7.50%, 4/02/22(a)(b) | 363 | 387,230 | ||||||||||
|
| |||||||||||
3,758,497 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
Navient Corp. | 440 | 466,114 | ||||||||||
7.25%, 1/25/22 | 99 | 105,695 | ||||||||||
|
| |||||||||||
571,809 | ||||||||||||
|
| |||||||||||
4,330,306 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 14,901,258 | |||||||||||
|
|
38 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – TREASURIES – 0.9% | ||||||||||||
Brazil – 0.9% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 9,685 | $ | 3,027,991 | ||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.6% | ||||||||||||
Industrial – 0.6% | ||||||||||||
Capital Goods – 0.1% | ||||||||||||
Odebrecht Finance Ltd. | U.S.$ | 541 | 236,349 | |||||||||
7.125%, 6/26/42(a) | 394 | 177,300 | ||||||||||
|
| |||||||||||
413,649 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
MTN Mauritius Investment Ltd. | 377 | 384,069 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.2% | ||||||||||||
Marfrig Holdings Europe BV | 350 | 369,684 | ||||||||||
Minerva Luxembourg SA | 233 | 230,376 | ||||||||||
Virgolino de Oliveira Finance SA | 660 | 51,975 | ||||||||||
|
| |||||||||||
652,035 | ||||||||||||
|
| |||||||||||
Energy – 0.2% | ||||||||||||
Petrobras Global Finance BV | 415 | 433,966 | ||||||||||
Ultrapar International SA | 379 | 380,421 | ||||||||||
|
| |||||||||||
814,387 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 2,264,140 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.4% | ||||||||||||
United States – 0.4% | ||||||||||||
State of California | 970 | 1,434,106 | ||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
QUASI-SOVEREIGNS – 0.3% | ||||||||||||
Quasi-Sovereign Bonds – 0.3% | ||||||||||||
Chile – 0.1% | ||||||||||||
Empresa de Transporte de Pasajeros Metro SA | U.S.$ | 358 | $ | 387,535 | ||||||||
|
| |||||||||||
Mexico – 0.2% | ||||||||||||
Petroleos Mexicanos | 756 | 760,385 | ||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 1,147,920 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.2% | ||||||||||||
Financials – 0.2% | ||||||||||||
Insurance – 0.2% | ||||||||||||
Mt Logan Re Ltd. (Preference Shares)(k)(l)(m)(n) | 187 | 191,711 | ||||||||||
Mt Logan Re Ltd. (Preference Shares)(k)(m)(n)(o) | 439 | 450,059 | ||||||||||
|
| |||||||||||
Total Common Stocks | 641,770 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.2% | ||||||||||||
Qatar – 0.2% | ||||||||||||
Qatar Government International Bond | U.S.$ | 593 | 589,294 | |||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.1% | ||||||||||||
Egypt – 0.1% | ||||||||||||
Egypt Government International Bond | 235 | 244,694 | ||||||||||
|
| |||||||||||
40 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
SHORT-TERM INVESTMENTS – 12.3% | ||||||||||||
Governments – Treasuries – 6.9% | ||||||||||||
Japan – 6.9% | ||||||||||||
Japan Treasury Discount Bill | JPY | 600,000 | $ | 5,383,922 | ||||||||
Series 669 | 740,750 | 6,647,587 | ||||||||||
Series 673 | 1,390,000 | 12,472,849 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 24,504,358 | |||||||||||
|
| |||||||||||
Agency Discount Notes – 4.9% | ||||||||||||
Federal Home Loan Bank Discount Notes | U.S.$ | 8,545 | 8,534,575 | |||||||||
Federal Home Loan Mortgage Corp. | 9,025 | 9,012,766 | ||||||||||
|
| |||||||||||
Total Agency Discount Notes | 17,547,341 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
Investment Companies – 0.5% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.57%(p)(q) (cost $1,702,461) | 1,702,461 | 1,702,461 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 43,754,160 | |||||||||||
|
| |||||||||||
Total Investments – 109.1% | 387,106,738 | |||||||||||
Other assets less liabilities – (9.1)% | (32,372,958 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 354,733,780 | ||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
FUTURES (see Note D)
Type | Number of Contracts | Expiration Month | Original Value | Value at April 30, 2017 | Unrealized Appreciation/ | |||||||||||||||
Purchased Contracts |
| |||||||||||||||||||
U.S. T-Note | 684 | June 2017 | $ | 80,475,962 | $ | 80,989,875 | $ | 513,913 | ||||||||||||
U.S. Ultra Bond (CBT) Futures | 83 | June 2017 | 13,229,338 | 13,523,813 | 294,475 | |||||||||||||||
Sold Contracts | ||||||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 27 | June 2017 | 3,659,405 | 3,658,049 | 1,356 | |||||||||||||||
Euro-BOBL Futures | 68 | June 2017 | 9,742,651 | 9,767,184 | (24,533 | ) | ||||||||||||||
U.S. T-Note | 32 | June 2017 | 6,921,453 | 6,931,500 | (10,047 | ) | ||||||||||||||
U.S. T-Note | 180 | June 2017 | 22,392,281 | 22,629,375 | (237,094 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | 538,070 | |||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 1,273 | IDR | 17,095,287 | 5/19/17 | $ | 7,954 | |||||||||
Australia and New Zealand Banking Group Ltd. | AUD | 5,102 | USD | 3,852 | 7/10/17 | 36,770 | ||||||||||
Bank of America, NA | JPY | 1,596,929 | USD | 14,390 | 6/08/17 | 44,529 | ||||||||||
Barclays Bank PLC | KRW | 1,494,072 | USD | 1,320 | 5/18/17 | 6,375 | ||||||||||
BNP Paribas SA | USD | 1,280 | JPY | 141,527 | 5/11/17 | (10,411 | ) | |||||||||
Citibank, NA | GBP | 3,534 | USD | 4,316 | 5/18/17 | (262,748 | ) | |||||||||
Citibank, NA | JPY | 1,590,000 | USD | 14,490 | 5/24/17 | 214,672 | ||||||||||
Citibank, NA | TWD | 40,665 | USD | 1,330 | 6/13/17 | (17,850 | ) | |||||||||
Citibank, NA | USD | 2,139 | INR | 140,162 | 6/15/17 | 31,585 | ||||||||||
Credit Suisse International | BRL | 9,485 | USD | 2,965 | 5/03/17 | (22,750 | ) | |||||||||
Credit Suisse International | USD | 2,984 | BRL | 9,485 | 5/03/17 | 3,714 | ||||||||||
Credit Suisse International | SEK | 16,202 | USD | 1,802 | 5/11/17 | (28,362 | ) | |||||||||
Credit Suisse International | BRL | 9,485 | USD | 2,961 | 6/02/17 | (5,096 | ) | |||||||||
Deutsche Bank AG | BRL | 9,485 | USD | 3,006 | 5/03/17 | 17,566 | ||||||||||
Deutsche Bank AG | USD | 2,965 | BRL | 9,485 | 5/03/17 | 22,750 | ||||||||||
Goldman Sachs Bank USA | NZD | 1,638 | USD | 1,139 | 7/10/17 | 16,982 |
42 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
HSBC Bank USA | USD | 848 | TRY | 3,221 | 6/08/17 | $ | 48,848 | |||||||||
JPMorgan Chase Bank, NA | USD | 3,543 | GBP | 2,881 | 5/18/17 | 189,668 | ||||||||||
JPMorgan Chase Bank, NA | IDR | 16,950,495 | USD | 1,257 | 5/19/17 | (12,632 | ) | |||||||||
Morgan Stanley & Co., Inc. | JPY | 157,018 | USD | 1,416 | 5/11/17 | 7,423 | ||||||||||
Royal Bank of Scotland PLC | EUR | 1,423 | USD | 1,515 | 7/13/17 | (41,195 | ) | |||||||||
Standard Chartered Bank | CAD | 2,235 | USD | 1,667 | 6/22/17 | 28,729 | ||||||||||
UBS AG | GBP | 741 | USD | 925 | 5/18/17 | (34,995 | ) | |||||||||
|
| |||||||||||||||
$ | 241,526 | |||||||||||||||
|
|
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
Morgan Stanley & Co., LLC/(CME Group) | NOK | 202,120 | 5/12/18 | 0.954% | 6 Month NIBOR | $ | (48,719 | ) | ||||||||
Morgan Stanley & Co., LLC/(CME Group) | GBP | 22,320 | 2/23/19 | 0.606% | 6 Month LIBOR | (29,509 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 20,600 | 2/27/19 | 3 Month LIBOR | 1.544% | 14,104 | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,635 | 8/31/21 | 1.256% | 3 Month LIBOR | 67,936 | |||||||||||
Morgan Stanley & Co., LLC/(CME Group) | EUR | 8,330 | 3/20/22 | 0.272% | 6 Month EURIBOR | (49,072 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | JPY | 1,750,390 | 3/31/22 | 0.099% | 6 Month LIBOR | (29,726 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | SEK | 30,420 | 3/31/22 | 3 Month STIBOR | 0.341% | 9,470 | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | NZD | 12,290 | 3/31/22 | 3 Month BKBM | 2.936% | 29,388 | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 2,630 | 1/14/24 | 2.980% | 3 Month LIBOR | (170,980 | ) | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | 2,300 | 2/14/24 | 2.889% | 3 Month LIBOR | (127,005 | ) | ||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 3,600 | 11/10/25 | 2.256% | 3 Month LIBOR | (45,380 | ) |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||
Clearing Broker /(Exchange) | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
Morgan Stanley & Co., LLC/(CME Group) | $ | 456 | 6/28/26 | 1.460% | 3 Month LIBOR | $ | 28,165 | |||||||||
Morgan Stanley & Co., LLC/(CME Group) | 1,240 | 12/21/26 | 3 Month LIBOR | 2.497% | 35,133 | |||||||||||
Morgan Stanley & Co., LLC/(CME Group) | 4,050 | 4/26/27 | 2.287% | 3 Month LIBOR | (3,126 | ) | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | NOK | 60,680 | 8/01/18 | 0.960% | 6 Month NIBOR | (11,211 | ) | |||||||||
Morgan Stanley & Co., LLC/(LCH Group) | 15,730 | 8/04/18 | 1.008% | 6 Month NIBOR | (5,151 | ) | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | 67,430 | 8/11/18 | 1.076% | 6 Month NIBOR | (33,069 | ) | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | NZD | 10,160 | 12/21/21 | 3 Month BKBM | 3.059% | 131,871 | ||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | 985 | 11/08/26 | 1.657% | 3 Month LIBOR | 43,771 | |||||||||||
Morgan Stanley & Co., LLC/(LCH Group) | 1,240 | 11/09/26 | 1.672% | 3 Month LIBOR | 53,467 | |||||||||||
|
| |||||||||||||||
$ | (139,643 | ) | ||||||||||||||
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||
Sprint Communications, Inc., | (5.00 | )% | 1.07 | % | $ | 452 | $ | (39,988 | ) | $ | (11,871 | ) | $ | (28,117 | ) | |||||||||
Sprint Communications, Inc., | (5.00 | ) | 1.07 | 518 | (45,826 | ) | (14,106 | ) | (31,720 | ) |
44 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Credit Suisse International | (3.00 | )% | 4.53 | % | $ | 2,150 | $ | 167,305 | $ | 143,685 | $ | 23,620 | ||||||||||||
Sale Contracts | ||||||||||||||||||||||||
Citigroup Global Markets, Inc. | 3.00 | 5.54 | 201 | (22,351 | ) | (28,284 | ) | 5,933 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 85 | (9,261 | ) | (12,245 | ) | 2,984 | ||||||||||||||||
Credit Suisse International Anadarko Petroleum Corp., | 1.00 | 0.11 | 1,360 | 6,353 | (3,722 | ) | 10,075 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 155 | (17,236 | ) | (11,371 | ) | (5,865 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 509 | (56,601 | ) | (34,937 | ) | (21,664 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 2,150 | (234,063 | ) | (132,018 | ) | (102,045 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 1,882 | (209,258 | ) | (81,634 | ) | (127,624 | ) | |||||||||||||||
Deutsche Bank AG CDX-CMBX.NA.A- Series 6, 5/11/63* | 2.00 | 2.82 | 850 | (34,397 | ) | (17,642 | ) | (16,755 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 322 | (35,860 | ) | (43,051 | ) | 7,191 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 181 | (20,127 | ) | (21,958 | ) | 1,831 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 179 | (19,905 | ) | (21,724 | ) | 1,819 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | 5.54 | % | $ | 530 | $ | (58,936 | ) | $ | (60,581 | ) | $ | 1,645 | ||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 52 | (5,782 | ) | (6,467 | ) | 685 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 46 | (5,115 | ) | (2,801 | ) | (2,314 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 531 | (59,047 | ) | (46,341 | ) | (12,706 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 745 | (82,844 | ) | (55,399 | ) | (27,445 | ) | |||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 574 | (62,346 | ) | (80,744 | ) | 18,398 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 260 | (28,912 | ) | (37,544 | ) | 8,632 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 356 | (39,588 | ) | (40,243 | ) | 655 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 104 | (11,565 | ) | (11,913 | ) | 348 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 52 | (5,782 | ) | (5,449 | ) | (333 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 26 | (2,891 | ) | (2,472 | ) | (419 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 52 | (5,782 | ) | (5,036 | ) | (746 | ) |
46 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Implied Credit Spread at April 30, 2017 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | 5.54 | % | $ | 311 | $ | (34,584 | ) | $ | (28,514 | ) | $ | (6,070 | ) | |||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 219 | (24,353 | ) | (15,405 | ) | (8,948 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 760 | (84,511 | ) | (64,195 | ) | (20,316 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 1,125 | (125,100 | ) | (91,252 | ) | (33,848 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | 5.54 | 1,469 | (163,353 | ) | (76,225 | ) | (87,128 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (1,371,706 | ) | $ | (921,459 | ) | $ | (450,247 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||
JPMorgan Chase Bank, NA | $ | 1,640 | 2/07/22 | 2.043% | 3 Month LIBOR | $ | (13,804 | ) |
** | Principal amount less than 500. |
(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 April 30, 2017, the aggregate market value of these securities amounted to $69,318,614 or 19.5% 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 rate was in effect at April 30, 2017. |
(d) | Fair valued by the Adviser. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
(e) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.41% of net assets as of April 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Bellemeade Re II Ltd. | 4/29/16 | $ | 288,308 | $ | 296,028 | 0.08 | % | |||||||||
H/2 Asset Funding NRE | 6/19/15 | 487,839 | 484,424 | 0.14 | % | |||||||||||
JP Morgan Madison Avenue Securities Trust | 11/06/15 | 103,797 | 112,853 | 0.03 | % | |||||||||||
Nationstar NIM Ltd. | 4/04/07 | 17,607 | – 0 | – | 0.00 | % | ||||||||||
Prudential Securities Secured Financing Corp. | 11/02/07 | 7 | 1,808 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/24/14 –1/27/14 | 365,927 | 51,975 | 0.01 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 393,322 | 413,230 | 0.12 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 104,273 | 114,310 | 0.03 | % |
(f) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(g) | IO – Interest Only. |
(h) | Variable rate coupon, rate shown as of April 30, 2017. |
(i) | Inverse interest only security. |
(j) | Defaulted. |
(k) | Non-income producing security. |
(l) | Effective prepayment date of April 2017. |
(m) | The security is subject to a 12 month lock-up period, after which semi-annual redemptions are permitted. |
(n) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Mt Logan Re Ltd. | 1/02/14 | $ | 439,000 | $ | 450,059 | 0.13 | % | |||||||||
Mt Logan Re Ltd. | 12/30/14 | 187,000 | 191,711 | 0.05 | % |
48 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(o) | Effective prepayment date of December 2016. |
(p) | 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. |
(q) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
IDR – Indonesian Rupiah
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
NOK – Norwegian Krone
NZD – New Zealand Dollar
SEK – Swedish Krona
TRY – Turkish Lira
TWD – New Taiwan Dollar
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
ARMs – Adjustable Rate Mortgages
BKBM – Bank Bill Benchmark (New Zealand)
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CMBS – Commercial Mortgage-Backed Securities
CME – Chicago Mercantile Exchange
CPI – Consumer Price Index
EURIBOR – Euro Interbank Offered Rate
LCH – London Clearing House
LIBOR – London Interbank Offered Rates
MTN – Medium Term Note
NIBOR – Norwegian Interbank Offered Rate
REIT – Real Estate Investment Trust
REMICs – Real Estate Mortgage Investment Conduits
STIBOR – Stockholm Interbank Offered Rate
TBA – To Be Announced
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 49 |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $383,349,116) | $ | 385,404,277 | ||
Affiliated issuers (cost $1,702,461) | 1,702,461 | |||
Cash collateral due from broker | 1,483,833 | |||
Foreign currencies, at value (cost $558,682) | 560,588 | |||
Interest receivable | 2,005,098 | |||
Unrealized appreciation on forward currency exchange contracts | 677,565 | |||
Receivable for capital stock sold | 236,066 | |||
Upfront premiums paid on credit default swaps | 143,685 | |||
Unrealized appreciation on credit default swaps | 83,816 | |||
Receivable from class action settlement proceeds | 55,169 | |||
Receivable for variation margin on exchange-traded derivatives | 38,319 | |||
Receivable for investment securities sold | 35,543 | |||
Affiliated dividends receivable | 1,177 | |||
|
| |||
Total assets | 392,427,597 | |||
|
| |||
Liabilities | ||||
Due to custodian | 1,431 | |||
Payable for investment securities purchased | 34,220,584 | |||
Upfront premiums received on credit default swaps | 1,065,144 | |||
Payable for capital stock redeemed | 860,074 | |||
Unrealized depreciation on credit default swaps | 534,063 | |||
Unrealized depreciation on forward currency exchange contracts | 436,039 | |||
Dividends payable | 155,632 | |||
Distribution fee payable | 75,170 | |||
Advisory fee payable | 52,334 | |||
Transfer Agent fee payable | 38,024 | |||
Payable for variation margin on exchange-traded derivatives | 26,642 | |||
Administrative fee payable | 19,262 | |||
Unrealized depreciation on interest rate swaps | 13,804 | |||
Accrued expenses | 195,614 | |||
|
| |||
Total liabilities | 37,693,817 | |||
|
| |||
Net Assets | $ | 354,733,780 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 32,043 | ||
Additional paid-in capital | 356,904,259 | |||
Distributions in excess of net investment income | (629,186 | ) | ||
Accumulated net realized loss on investment and foreign currency transactions | (3,813,792 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 2,240,456 | |||
|
| |||
$ | 354,733,780 | |||
|
|
See notes to financial statements.
50 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—24 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 227,697,615 | 20,567,673 | $ | 11.07 | * | ||||||
| ||||||||||||
B | $ | 880,189 | 79,485 | $ | 11.07 | |||||||
| ||||||||||||
C | $ | 37,142,764 | 3,361,486 | $ | 11.05 | |||||||
| ||||||||||||
Advisor | $ | 61,668,607 | 5,567,926 | $ | 11.08 | |||||||
| ||||||||||||
R | $ | 2,666,572 | 240,915 | $ | 11.07 | |||||||
| ||||||||||||
K | $ | 4,784,492 | 431,822 | $ | 11.08 | |||||||
| ||||||||||||
I | $ | 2,646,421 | 238,703 | $ | 11.09 | |||||||
| ||||||||||||
Z | $ | 17,247,120 | 1,554,607 | $ | 11.09 | |||||||
|
* | The maximum offering price per share for Class A shares was $11.56 which reflects a sales charge of 4.25%. |
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 51 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest | $ | 5,045,264 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 46,638 | |||||||
Affiliated issuers | 8,540 | |||||||
Other income(a) | 55,612 | $ | 5,156,054 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 803,975 | |||||||
Distribution fee—Class A | 289,614 | |||||||
Distribution fee—Class B | 4,727 | |||||||
Distribution fee—Class C | 194,042 | |||||||
Distribution fee—Class R | 7,098 | |||||||
Distribution fee—Class K | 6,305 | |||||||
Transfer agency—Class A | 169,994 | |||||||
Transfer agency—Class B | 859 | |||||||
Transfer agency—Class C | 29,319 | |||||||
Transfer agency—Advisor Class | 42,286 | |||||||
Transfer agency—Class R | 3,691 | |||||||
Transfer agency—Class K | 5,043 | |||||||
Transfer agency—Class I | 1,600 | |||||||
Transfer agency—Class Z | 1,729 | |||||||
Custodian | 119,308 | |||||||
Registration fees | 55,841 | |||||||
Audit and tax | 45,303 | |||||||
Printing | 33,870 | |||||||
Administrative | 27,301 | |||||||
Legal | 19,151 | |||||||
Directors’ fees | 12,965 | |||||||
Miscellaneous | 13,344 | |||||||
|
| |||||||
Total expenses | 1,887,365 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (387,496 | ) | ||||||
|
| |||||||
Net expenses | 1,499,869 | |||||||
|
| |||||||
Net investment income | 3,656,185 | |||||||
|
|
See notes to financial statements.
52 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | $ | (1,242,576 | ) | |||||
Futures | (3,024,973 | ) | ||||||
Swaptions written | 45,037 | |||||||
Swaps | 66,190 | |||||||
Foreign currency transactions | (331,661 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (946,611 | ) | ||||||
Futures | 1,433,955 | |||||||
Swaptions written | (4,561 | ) | ||||||
Swaps | 437,790 | |||||||
Foreign currency denominated assets and liabilities | 49,474 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (3,517,936 | ) | ||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 848 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 139,097 | ||||||
|
|
(a) | Other income represents a refund for overbilling of prior years’ custody out-of-pocket fees. |
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 53 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 3,656,185 | $ | 8,098,827 | ||||
Net realized gain (loss) on investment and foreign currency transactions | (4,487,983 | ) | 1,728,366 | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 970,047 | 7,073,367 | ||||||
Contributions from Affiliates (see Note B) | 848 | – 0 | – | |||||
|
|
|
| |||||
Net increase in net assets from operations | 139,097 | 16,900,560 | ||||||
Dividends and Distributions to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (2,732,736 | ) | (8,196,991 | ) | ||||
Class B | (7,477 | ) | (35,840 | ) | ||||
Class C | (312,331 | ) | (1,044,850 | ) | ||||
Advisor Class | (758,370 | ) | (1,369,668 | ) | ||||
Class R | (29,938 | ) | (85,941 | ) | ||||
Class K | (58,932 | ) | (147,387 | ) | ||||
Class I | (34,895 | ) | (28,992 | ) | ||||
Class Z | (226,918 | ) | (398,815 | ) | ||||
Net realized gain on investment transactions | ||||||||
Class A | (859,057 | ) | – 0 | – | ||||
Class B | (3,644 | ) | – 0 | – | ||||
Class C | (145,770 | ) | – 0 | – | ||||
Advisor Class | (198,792 | ) | – 0 | – | ||||
Class R | (10,588 | ) | – 0 | – | ||||
Class K | (19,031 | ) | – 0 | – | ||||
Class I | (10,045 | ) | – 0 | – | ||||
Class Z | (60,304 | ) | – 0 | – | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | (14,155,889 | ) | 38,117,126 | |||||
|
|
|
| |||||
Total increase (decrease) | (19,485,620 | ) | 43,709,202 | |||||
Net Assets | ||||||||
Beginning of period | 374,219,400 | 330,510,198 | ||||||
|
|
|
| |||||
End of period (including distributions in excess of net investment income of ($629,186) and ($123,774), respectively) | $ | 354,733,780 | $ | 374,219,400 | ||||
|
|
|
|
See notes to financial statements.
54 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Intermediate Bond Portfolio (the “Portfolio”), a diversified portfolio. The Portfolio offers Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, and Class Z shares. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class B shares are currently sold with a contingent deferred sales charge which declines from 3% to zero depending on the period of time the shares are held. Effective January 31, 2009, sales of Class B shares of the Portfolio to new investors were suspended. Class B shares will only be issued (i) upon the exchange of Class B shares from another AB Mutual Fund, (ii) for purposes of dividend reinvestment, (iii) through the Portfolio’s Automatic Investment Program (the “Program”) for accounts that established the Program prior to January 31, 2009, and (iv) for purchases of additional shares by Class B shareholders as of January 31, 2009. The ability to establish a new Program for accounts containing Class B shares was suspended as of January 31, 2009. Class B shares will automatically convert to Class A shares six years after the end of the calendar month of purchase. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I and Class Z shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eight classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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 Portfolio is an
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (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 between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price 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
56 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement 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 Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
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NOTES TO FINANCIAL STATEMENTS (continued)
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The 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. In addition, non-agency rated investments are 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 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.
58 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Investment Grade | $ | – 0 | – | $ | 84,914,457 | $ | – 0 | – | $ | 84,914,457 | ||||||
Mortgage Pass-Throughs | – 0 | – | 56,522,371 | – 0 | – | 56,522,371 | ||||||||||
Asset-Backed Securities | – 0 | – | 41,190,237 | 5,271,570 | (a) | 46,461,807 | ||||||||||
Governments – Treasuries | – 0 | – | 45,250,240 | – 0 | – | 45,250,240 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 26,141,839 | 8,574,841 | 34,716,680 | |||||||||||
Inflation-Linked Securities | – 0 | – | 26,015,133 | – 0 | – | 26,015,133 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 25,220,717 | – 0 | – | 25,220,717 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 14,901,258 | – 0 | – | 14,901,258 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 3,027,991 | – 0 | – | 3,027,991 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 2,264,140 | – 0 | – | 2,264,140 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 1,434,106 | – 0 | – | 1,434,106 | ||||||||||
Quasi-Sovereigns | – 0 | – | 1,147,920 | – 0 | – | 1,147,920 | ||||||||||
Common Stocks | – 0 | – | – 0 | – | 641,770 | 641,770 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 589,294 | – 0 | – | 589,294 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 244,694 | – 0 | – | 244,694 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Governments – Treasuries | – 0 | – | 24,504,358 | – 0 | – | 24,504,358 | ||||||||||
Agency Discount Notes | – 0 | – | 17,547,341 | – 0 | – | 17,547,341 | ||||||||||
Investment Companies | 1,702,461 | – 0 | – | – 0 | – | 1,702,461 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 1,702,461 | 370,916,096 | 14,488,181 | 387,106,738 | ||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 809,744 | – 0 | – | – 0 | – | 809,744 | (c) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 677,565 | – 0 | – | 677,565 | ||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 413,305 | – 0 | – | 413,305 | (c) | |||||||||
Credit Default Swaps | – 0 | – | 83,816 | – 0 | – | 83,816 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (271,674 | ) | – 0 | – | – 0 | – | (271,674 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (436,039 | ) | – 0 | – | (436,039 | ) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (552,948 | ) | – 0 | – | (552,948 | )(c) | ||||||||
Credit Default Swaps | – 0 | – | (534,063 | ) | – 0 | – | (534,063 | ) | ||||||||
Interest Rate Swaps | – 0 | – | (13,804 | ) | – 0 | – | (13,804 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(d) | $ | 2,240,531 | $ | 370,553,928 | $ | 14,488,181 | $ | 387,282,640 | ||||||||
|
|
|
|
|
|
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 59 |
NOTES TO FINANCIAL STATEMENTS (continued)
(a) | The Portfolio held securities with zero market value at period end. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. |
(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) of exchange-traded derivatives as reported in the portfolio of investments. |
(d) | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Asset-Backed Securities(a) | Commercial Mortgage-Backed Securities | Collateralized Mortgage Obligations | ||||||||||
Balance as of 10/31/16 | $ | 3,445,583 | $ | 11,234,132 | $ | 831,988 | ||||||
Accrued discounts/(premiums) | 66 | (2,300 | ) | – 0 | – | |||||||
Realized gain (loss) | 204 | (198,560 | ) | 10,432 | ||||||||
Change in unrealized appreciation/depreciation | 2,193 | 145,022 | (378 | ) | ||||||||
Purchases | 2,473,736 | 1,686,416 | – 0 | – | ||||||||
Sales | (650,212 | ) | (4,289,869 | ) | (550,310 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (291,732 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/17 | $ | 5,271,570 | $ | 8,574,841 | $ | – 0 | – | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | 2,193 | $ | 62,798 | $ | – 0 | – | |||||
|
|
|
|
|
| |||||||
Common Stocks | Total | |||||||||||
Balance as of 10/31/16 | $ | 1,032,105 | $ | 16,543,808 | ||||||||
Accrued discounts/(premiums) | – 0 | – | (2,234 | ) | ||||||||
Realized gain (loss) | – 0 | – | (187,924 | ) | ||||||||
Change in unrealized appreciation/depreciation | (19,335 | ) | 127,502 | |||||||||
Purchases | – 0 | – | 4,160,152 | |||||||||
Sales | (371,000 | ) | (5,861,391 | ) | ||||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | ||||||||
Transfers out of Level 3 | – 0 | – | (291,732 | ) | ||||||||
|
|
|
| |||||||||
Balance as of 4/30/17 | $ | 641,770 | $ | 14,488,181 | (c) | |||||||
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | (19,335 | ) | $ | 45,656 | |||||||
|
|
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(b) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
(c) | There were de minimis transfers under 1% of net assets during the reporting period. |
60 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Portfolio’s Level 3 investments at April 30, 2017. Securities priced by third party vendors and NAV equivalent are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/17 | Valuation Technique | Unobservable Input | Range / Weighted Average | |||||||
Asset-Backed Securities | $ | – 0 | – | Qualitative Assessment | $0.00 / N/A |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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NOTES TO FINANCIAL STATEMENTS (continued)
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the
62 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, .40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .77%, 1.52%, 1.52%, .52%, 1.02%, .77%, .52%, and .52% of the daily average net assets for the Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, and Class Z shares, respectively. Effective February 1, 2017, the Expense Cap were reduced from .85% to .77%, 1.60% to 1.52%, 1.60% to 1.52%, .60% to .52%, 1.10% to 1.02%, .85% to .77%, ..60% to .52%, and .60% to .52% of the daily average net assets for Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. This waiver extends through January 31, 2018 and then may be extended by the Adviser for additional one year terms. For the six months ended April 30, 2017, such reimbursements/waivers amounted to $383,301.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 63 |
NOTES TO FINANCIAL STATEMENTS (continued)
the Portfolio by the Adviser. For the six months ended April 30, 2017, the reimbursement for such services amounted to $27,301.
During the six months ended April 30, 2017, the Adviser reimbursed the Portfolio $848 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $101,285 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $1,594 from the sale of Class A shares and received $975, $294 and $611 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C shares, respectively, for the six months ended April 30, 2017.
The Portfolio 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. In connection with the investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver amounted to $4,195. A summary of the Portfolio’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||||
$ | 8,129 | $ | 74,561 | $ | 80,988 | $ | 1,702 | $ | 9 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2017 amounted to $8,800, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Portfolio’s average daily net assets attributable to Class A shares, 1% of the Portfolio’s average daily net assets attributable to both Class B and Class C shares, .50% of the Portfolio’s average daily net assets attributable to Class R shares and .25% of the Portfolio’s average daily net assets attributable to Class K shares. Effective June 1, 2015, payments under the Agreement in respect of Class A shares are limited to an annual rate of .25% of Class A shares’ average daily net assets. There are no distribution and servicing fees on the Advisor Class, Class I and Class Z shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amounts of $-0-, $1,183,383, $132,557 and $52,602 for Class B, Class C, Class R and Class K shares, respectively. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 44,204,070 | $ | 41,791,585 | ||||
U.S. government securities | 313,682,843 | 312,003,098 |
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 (excluding futures, foreign currency and swap transactions) are as follows:
Gross unrealized appreciation | $ | 5,969,328 | ||
Gross unrealized depreciation | (3,914,167 | ) | ||
|
| |||
Net unrealized appreciation | $ | 2,055,161 | ||
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
1. Derivative Financial Instruments
The Portfolio 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 Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio 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 Portfolio 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 Portfolio 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, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio 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 Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio 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 Portfolio 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended April 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by
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NOTES TO FINANCIAL STATEMENTS (continued)
premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
During the six months ended April 30, 2017, the Portfolio held purchased options for hedging purposes.
During the six months ended April 30, 2017, the Portfolio held written swaptions for hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
For the six months ended April 30, 2017, the Portfolio had the following transactions in written options:
Notional Amount | Premiums Received | |||||||
Swaptions written outstanding as of 10/31/16 | $ | 8,350,000 | $ | 15,865 | ||||
Swaptions written | 45,710,000 | 96,356 | ||||||
Swaptions assigned | – 0 | – | – 0 | – | ||||
Swaptions expired | – 0 | – | – 0 | – | ||||
Swaptions bought back | (54,060,000 | ) | (112,221 | ) | ||||
Swaptions exercised | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Swaptions written outstanding as of 4/30/17 | $ | – 0 | – | $ | – 0 | – | ||
|
|
|
|
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates or credit risk. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by 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 Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio 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 Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio 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 Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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
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NOTES TO FINANCIAL STATEMENTS (continued)
termination of swaps. Upfront premiums paid or received 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 Portfolio enters into a centrally cleared swap, the Portfolio 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 Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio 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 Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional
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NOTES TO FINANCIAL STATEMENTS (continued)
amount. The Portfolio 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 Portfolio 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 Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) 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 Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Portfolio 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 Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio 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 Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio 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 Portfolio for the same reference obligation with the same counterparty. As of April 30, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sale Contracts outstanding.
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NOTES TO FINANCIAL STATEMENTS (continued)
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
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 April 30, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions
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NOTES TO FINANCIAL STATEMENTS (continued)
under Master Agreements typically provide that a default in connection with one transaction between the Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.
During the six months ended April 30, 2017, the Portfolio 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 exchange-traded derivatives | $ | 1,223,049 | * | Receivable/Payable for variation margin on exchange-traded derivatives | $ | 824,622 | * | ||||
Foreign exchange contracts | Unrealized appreciation on forward currency exchange contracts | | 677,565 | Unrealized depreciation on forward currency exchange contracts | | 436,039 | ||||||
Interest rate contracts | Unrealized depreciation on interest rate swaps | | 13,804 | |||||||||
Credit contracts | Unrealized appreciation on credit default swaps | | 83,816 | Unrealized depreciation on credit default swaps | | 534,063 | ||||||
|
|
|
| |||||||||
Total | $ | 1,984,430 | $ | 1,808,528 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of | 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 | $ | (3,024,973 | ) | $ | 1,433,955 | ||||
Foreign exchange contracts | Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities | 978,609 | 45,489 | |||||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (60,577 | ) | 18,829 | ||||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 45,037 | (4,561 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (13,385 | ) | 714,977 | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 79,575 | (277,187 | ) | ||||||
|
|
|
| |||||||
Total | $ | (1,995,714 | ) | $ | 1,931,502 | |||||
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended April 30, 2017:
Futures: | ||||
Average original value of buy contracts | $ | 101,032,644 | ||
Average original value of sale contracts | $ | 30,303,280 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 13,531,596 | ||
Average principal amount of sale contracts | $ | 55,217,714 | ||
Purchased Options: | ||||
Average monthly cost | $ | 34,187 | (a) | |
Interest Rate Swaps: | ||||
Average notional amount | $ | 7,314,286 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 115,549,500 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 3,236,143 | ||
Average notional amount of sale contracts | $ | 12,241,385 |
(a) | Positions were open for three months during the period. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of April 30, 2017:
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Exchange-Traded Derivatives: | ||||||||||||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co., LLC* | $ | 38,319 | $ | (26,642 | ) | $ | – 0 | – | $ | – 0 | – | $ | 11,677 | |||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 38,319 | $ | (26,642 | ) | $ | – 0 | – | $ | – 0 | – | $ | 11,677 | |||||||
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|
|
|
|
| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 44,724 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 44,724 | |||||||
Bank of America, NA | 44,529 | – 0 | – | – 0 | – | – 0 | – | 44,529 | ||||||||||||
Barclays Bank PLC | 6,375 | – 0 | – | – 0 | – | – 0 | – | 6,375 | ||||||||||||
Citibank, NA | 246,257 | (246,257 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 177,372 | (177,372 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 40,316 | (40,316 | ) | – 0 | – | – 0 | – | – 0 | – |
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NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | $ | 16,982 | $ | (16,982 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
HSBC Bank USA | 48,848 | – 0 | – | – 0 | – | – 0 | – | 48,848 | ||||||||||||
JPMorgan Chase Bank, NA | 189,668 | (26,436 | ) | – 0 | – | – 0 | – | 163,232 | ||||||||||||
Morgan Stanley & Co., Inc. | 7,423 | – 0 | – | – 0 | – | – 0 | – | 7,423 | ||||||||||||
Standard Chartered Bank | 28,729 | – 0 | – | – 0 | – | – 0 | – | 28,729 | ||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 851,223 | $ | (507,363 | ) | $ | – 0 | – | $ | – 0 | – | $ | 343,860 | ^ | ||||||
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| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged | Security Collateral Pledged** | Net Amount of Derivatives Liabilities | |||||||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co., LLC* | $ | 26,642 | $ | (26,642 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 26,642 | $ | (26,642 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
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|
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|
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|
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| |||||||||||
OTC Derivatives: | ||||||||||||||||||||
BNP Paribas SA | $ | 10,411 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 10,411 | |||||||
Citibank, NA | 366,412 | (246,257 | ) | – 0 | – | – 0 | – | 120,155 | ||||||||||||
Citigroup Global Markets, Inc. | 31,612 | – 0 | – | – 0 | – | – 0 | – | 31,612 | ||||||||||||
Credit Suisse International | 573,366 | (177,372 | ) | – 0 | – | (266,627 | ) | 129,367 | ||||||||||||
Deutsche Bank AG | 322,013 | (40,316 | ) | – 0 | – | (281,697 | ) | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 588,767 | (16,982 | ) | – 0 | – | (562,022 | ) | 9,763 | ||||||||||||
JPMorgan Chase Bank, NA | 26,436 | (26,436 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Royal Bank of Scotland PLC | 41,195 | – 0 | – | – 0 | – | – 0 | – | 41,195 | ||||||||||||
UBS AG | 34,995 | – 0 | – | – 0 | – | – 0 | – | 34,995 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,995,207 | $ | (507,363 | ) | $ | – 0 | – | $ | (1,110,346 | ) | $ | 377,498 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at April 30, 2017. |
** | The actual collateral received/pledged is 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. |
76 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. TBA and Dollar Rolls
The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the six months ended April 30, 2017, the Portfolio earned drop income of $221,385 which is included in interest income in the accompanying statement of operations.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 77 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 595,279 | 2,201,706 | $ | 6,549,332 | $ | 24,368,945 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 247,923 | 527,574 | 2,721,873 | 5,831,973 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class B | 16,158 | 49,298 | 177,990 | 546,216 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,167,001 | ) | (3,778,000 | ) | (23,815,445 | ) | (41,905,564 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (1,307,641 | ) | (999,422 | ) | $ | (14,366,250 | ) | $ | (11,158,430 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||
Shares sold | 6,179 | 12,222 | $ | 67,761 | $ | 135,425 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 952 | 2,880 | 10,449 | 31,751 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (16,154 | ) | (49,288 | ) | (177,990 | ) | (546,216 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (9,919 | ) | (20,383 | ) | (108,981 | ) | (225,858 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (18,942 | ) | (54,569 | ) | $ | (208,761 | ) | $ | (604,898 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 121,291 | 707,843 | $ | 1,333,995 | $ | 7,817,124 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 32,237 | 67,345 | 353,184 | 742,400 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (528,683 | ) | (746,536 | ) | (5,798,935 | ) | (8,256,301 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (375,155 | ) | 28,652 | $ | (4,111,756 | ) | $ | 303,223 | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 2,406,373 | 4,427,579 | $ | 26,394,934 | $ | 49,003,433 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 51,725 | 74,968 | 568,522 | 831,653 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,880,595 | ) | (1,564,156 | ) | (20,679,576 | ) | (17,378,185 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 577,503 | 2,938,391 | $ | 6,283,880 | $ | 32,456,901 | ||||||||||||||||||
|
78 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 41,814 | 49,530 | $ | 459,252 | $ | 550,840 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 3,678 | 7,524 | 40,383 | 83,149 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (73,757 | ) | (53,430 | ) | (811,387 | ) | (585,664 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (28,265 | ) | 3,624 | $ | (311,752 | ) | $ | 48,325 | ||||||||||||||||
| ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 48,076 | 186,805 | $ | 533,219 | $ | 2,068,640 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 7,069 | 13,274 | 77,682 | 147,054 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (130,931 | ) | (46,817 | ) | (1,440,770 | ) | (517,323 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (75,786 | ) | 153,262 | $ | (829,869 | ) | $ | 1,698,371 | ||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 33,949 | 196,134 | $ | 372,322 | $ | 2,200,619 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 4,058 | 2,550 | 44,635 | 28,431 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (31,750 | ) | (12,405 | ) | (349,264 | ) | (137,850 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 6,257 | 186,279 | $ | 67,693 | $ | 2,091,200 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 367,766 | 2,295,097 | $ | 4,042,671 | $ | 25,699,685 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 26,093 | 34,717 | 287,222 | 385,137 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (450,423 | ) | (1,156,346 | ) | (5,008,967 | ) | (12,802,388 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (56,564 | ) | 1,173,468 | $ | (679,074 | ) | $ | 13,282,434 | ||||||||||||||||
|
NOTE F
Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
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, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Prepayment Risk—The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates.
80 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
Leverage Risk—When the Portfolio 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 Portfolio’s investments. The Portfolio 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 Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of fund shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended April 30, 2017.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2016 and October 31, 2015 were as follows:
2016 | 2015 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 11,308,484 | $ | 10,226,708 | ||||
|
|
|
| |||||
Total taxable distributions | $ | 11,308,484 | $ | 10,226,708 | ||||
|
|
|
|
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 1,118,392 | ||
Undistributed capital gains | 181,353 | |||
Accumulated capital and other losses | (141,264 | )(a) | ||
Unrealized appreciation/(depreciation) | 2,330,984 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 3,489,465 | (c) | |
|
|
(a) | As of October 31, 2016, the cumulative deferred loss on straddles was $141,264. |
(b) | The differences between book-basis and tax-basis unrealized appreciation and (depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of passive foreign investment companies (PFICs), the difference between book and tax amortization methods for premium, the tax treatment of swaps, and the realization for tax purposes of gains/losses on certain derivative instruments. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to dividends payable and the tax treatment of defaulted securities. |
82 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
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 capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of October 31, 2016, the Portfolio did not have any capital loss carryforwards.
NOTE I
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
NOTE J
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE K
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 83 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.40 | $ 11.04 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | † | .26 | .28 | .35 | .26 | .26 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.10 | ) | .27 | (.12 | ) | .23 | (.35 | ) | .41 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .53 | .16 | .58 | (.09 | ) | .68 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.13 | ) | (.36 | ) | (.34 | ) | (.34 | ) | (.31 | ) | (.32 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.17 | ) | (.36 | ) | (.34 | ) | (.34 | ) | (.31 | ) | (.32 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.07 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.40 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .10 | %† | 4.93 | % | 1.45 | % | 5.34 | %* | (.81 | )%†† | 6.27 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $227,698 | $245,683 | $252,965 | $273,962 | $301,764 | $370,672 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .81 | %^ | .85 | % | .88 | % | .90 | % | .89 | % | .85 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.03 | %^ | 1.03 | % | 1.06 | % | 1.06 | % | 1.02 | % | .99 | % | ||||||||||||
Net investment income(b) | 2.08 | %†^ | 2.35 | % | 2.51 | % | 3.15 | % | 2.32 | % | 2.29 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
84 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.41 | $ 11.05 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | † | .18 | .20 | .28 | .18 | .18 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.10 | ) | .27 | (.12 | ) | .22 | (.36 | ) | .42 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.03 | ) | .45 | .08 | .50 | (.18 | ) | .61 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | (.25 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.13 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | (.25 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.07 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.41 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.28 | )%† | 4.15 | % | .72 | % | 4.61 | %* | (1.59 | )%†† | 5.56 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $880 | $1,106 | $1,692 | $3,017 | $5,348 | $9,089 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.56 | %^ | 1.60 | % | 1.60 | % | 1.60 | % | 1.58 | % | 1.55 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.81 | %^ | 1.81 | % | 1.80 | % | 1.78 | % | 1.74 | % | 1.74 | % | ||||||||||||
Net investment income(b) | 1.30 | %†^ | 1.59 | % | 1.77 | % | 2.48 | % | 1.59 | % | 1.59 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 85 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.21 | $ 11.04 | $ 11.22 | $ 10.98 | $ 11.38 | $ 11.02 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | † | .18 | .20 | .27 | .18 | .18 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.10 | ) | .27 | (.12 | ) | .23 | (.35 | ) | .41 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.03 | ) | .45 | .08 | .50 | (.17 | ) | .60 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | (.24 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.13 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | (.24 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.05 | $ 11.21 | $ 11.04 | $ 11.22 | $ 10.98 | $ 11.38 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.27 | )%† | 4.16 | % | .73 | % | 4.63 | %* | (1.51 | )%†† | 5.55 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $37,143 | $41,886 | $40,928 | $42,690 | $47,530 | $61,224 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.56 | %^ | 1.60 | % | 1.60 | % | 1.60 | % | 1.59 | % | 1.55 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.79 | %^ | 1.78 | % | 1.78 | % | 1.77 | % | 1.73 | % | 1.70 | % | ||||||||||||
Net investment income(b) | 1.33 | %†^ | 1.60 | % | 1.79 | % | 2.46 | % | 1.62 | % | 1.60 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
86 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.24 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.41 | $ 11.05 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .13 | † | .29 | .31 | .39 | .29 | .29 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.11 | ) | .28 | (.12 | ) | .22 | (.36 | ) | .41 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .02 | .57 | .19 | .61 | (.07 | ) | .71 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.14 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | (.35 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends | (0.18 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | (.35 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.08 | $ 11.24 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.41 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .22 | %† | 5.29 | % | 1.73 | % | 5.65 | %* | (.61 | )%†† | 6.59 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $61,669 | $56,068 | $22,705 | $26,352 | $73,445 | $94,584 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .56 | %^ | .60 | % | .60 | % | .60 | % | .59 | % | .55 | % | ||||||||||||
Expenses, before waivers/reimbursements | .78 | %^ | .78 | % | .77 | % | .75 | % | .72 | % | .69 | % | ||||||||||||
Net investment income(b) | 2.33 | %†^ | 2.60 | % | 2.78 | % | 3.51 | % | 2.60 | % | 2.59 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 87 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.40 | $ 11.04 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .10 | † | .23 | .26 | .33 | .24 | .23 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.11 | ) | .28 | (.12 | ) | .23 | (.36 | ) | .42 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.01 | ) | .51 | .14 | .56 | (.12 | ) | .66 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.34 | ) | (.32 | ) | (.32 | ) | (.28 | ) | (.30 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.15 | ) | (.34 | ) | (.32 | ) | (.32 | ) | (.28 | ) | (.30 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.07 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.40 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.03 | )%† | 4.67 | % | 1.23 | % | 5.13 | %* | (1.01 | )%†† | 6.05 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,667 | $3,023 | $2,936 | $2,368 | $2,241 | $1,568 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.06 | %^ | 1.10 | % | 1.10 | % | 1.10 | % | 1.09 | % | 1.05 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.39 | %^ | 1.38 | % | 1.38 | % | 1.36 | % | 1.31 | % | 1.29 | % | ||||||||||||
Net investment income(b) | 1.82 | %†^ | 2.10 | % | 2.29 | % | 2.94 | % | 2.13 | % | 2.07 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
88 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.24 | $ 11.07 | $ 11.24 | $ 11.01 | $ 11.41 | $ 11.05 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | † | .26 | .28 | .35 | .27 | .26 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.10 | ) | .27 | (.10 | ) | .22 | (.36 | ) | .42 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .53 | .18 | .57 | (.09 | ) | .69 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.13 | ) | (.36 | ) | (.35 | ) | (.34 | ) | (.31 | ) | (.33 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.17 | ) | (.36 | ) | (.35 | ) | (.34 | ) | (.31 | ) | (.33 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.08 | $ 11.24 | $ 11.07 | $ 11.24 | $ 11.01 | $ 11.41 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .10 | %† | 4.93 | % | 1.57 | % | 5.30 | %* | (.76 | )%†† | 6.32 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $4,784 | $5,706 | $3,922 | $4,515 | $3,459 | $3,823 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .81 | %^ | .85 | % | .85 | % | .85 | % | .84 | % | .80 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.08 | %^ | 1.09 | % | 1.08 | % | 1.03 | % | .93 | % | .99 | % | ||||||||||||
Net investment income(b) | 2.05 | %†^ | 2.34 | % | 2.53 | % | 3.17 | % | 2.38 | % | 2.34 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 89 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.24 | $ 11.07 | $ 11.25 | $ 11.01 | $ 11.42 | $ 11.06 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .13 | † | .28 | .31 | .36 | .18 | .29 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.10 | ) | .28 | (.12 | ) | .25 | (.25 | ) | .41 | # | ||||||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .01 | # | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .03 | .56 | .19 | .61 | (.07 | ) | .71 | |||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.14 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | (.35 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.18 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | (.35 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 11.09 | $ 11.24 | $ 11.07 | $ 11.25 | $ 11.01 | $ 11.42 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .31 | %† | 5.20 | % | 1.73 | % | 5.65 | %* | (.62 | )%†† | 6.58 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,646 | $2,613 | $511 | $107 | $14 | $814 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .56 | %^ | .60 | % | .60 | % | .60 | % | .56 | % | .55 | % | ||||||||||||
Expenses, before waivers/reimbursements | .75 | %^ | .76 | % | .75 | % | .75 | % | .67 | % | .66 | % | ||||||||||||
Net investment income(b) | 2.33 | %†^ | 2.56 | % | 2.74 | % | 3.22 | % | 2.46 | % | 2.59 | % | ||||||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % | 189 | % | 110 | % |
See footnote summary on page 92.
90 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | April 28, 2014(e) to October 31, | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 11.26 | $ 11.08 | $ 11.26 | $ 11.15 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(a)(b) | .13 | † | .28 | .32 | .19 | |||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.12 | ) | .29 | (.13 | ) | .10 | ||||||||||
Contributions from Affiliates | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase in net asset value from operations | .01 | .57 | .19 | .29 | ||||||||||||
|
| |||||||||||||||
Less: Dividends | ||||||||||||||||
Dividends from net investment income | (.14 | ) | (.39 | ) | (.37 | ) | (.18 | ) | ||||||||
Distributions from net realized gain on investment transactions | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.18 | ) | (.39 | ) | (.37 | ) | (.18 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 11.09 | $ 11.26 | $ 11.08 | $ 11.26 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | .13 | %† | 5.28 | % | 1.72 | % | 2.61 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $17,247 | $18,134 | $4,851 | $10 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements | .56 | %^ | .60 | % | .60 | % | .60 | %^ | ||||||||
Expenses, before waivers/reimbursements | .65 | %^ | .66 | % | .71 | % | .66 | %^ | ||||||||
Net investment income(b) | 2.34 | %†^ | 2.52 | % | 2.91 | % | 3.29 | %^ | ||||||||
Portfolio turnover rate** | 104 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 92.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 91 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | Based on average shares outstanding. |
(b) | Net of fees waived and expenses reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | Commencement of operations. |
† | For the six months ended April 30, 2017 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$ .002 | .03% | .02% |
# | Amount reclassified from realized gain (loss) on investment transactions. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the year ended October 31, 2014 by 0.01%. |
†† | Includes the impact of proceeds received and credited to the Portfolio resulting from third party regulatory settlements, which enhanced the Portfolio’s performance for the year ended October 31, 2013 by 0.14%. |
Includes the Adviser’s reimbursement in respect of the Lehman Bankruptcy Claim which contributed to the Portfolio’s performance by 0.07% for the year-ended October 31, 2012. |
^ | Annualized. |
** | The Portfolio accounts for dollar roll transactions as purchases and sales. |
See notes to financial statements.
92 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Shawn E. Keegan(2), Vice President Douglas J. Peebles(2), Vice President Greg J. Wilensky(2), Vice President | Michael Canter(2), Vice President Emilie D. Wrapp, Secretary 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 State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 U.S. Investment Grade Core Fixed Income Team. Mr. Shawn E. Keegan, Mr. Douglas J. Peebles, Mr. Greg J. Wilensky and Mr. Michael Canter are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 93 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Intermediate Bond Portfolio (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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
94 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency and distribution services to 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.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by
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the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. 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 also compared the fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund
96 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the expense cap level by the Adviser effective February 1, 2017. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
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New York Portfolio
Ohio Portfolio
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TAXABLE
Bond Inflation Strategy
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ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
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Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
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NOTES
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NOTES
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AB INTERMEDIATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
IB-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB MUNICIPAL BOND INFLATION STRATEGY
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 Bond Inflation Strategy (the “Strategy”). Please review the discussion of Strategy performance, the market conditions during the reporting period and the Strategy’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 BOND INFLATION STRATEGY | 1 |
SEMI-ANNUAL REPORT
June 12, 2017
This report provides management’s discussion of fund performance for AB Municipal Bond Inflation Strategy for the semi-annual period ended April 30, 2017.
The Strategy’s investment objective is to maximize real after-tax return for investors subject to federal income taxes, without undue risk to principal.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB MUNICIPAL BOND INFLATION STRATEGY | ||||||||
Class 1 Shares1 | 1.00% | 1.69% | ||||||
Class 2 Shares1 | 1.05% | 1.80% | ||||||
Class A Shares | 0.92% | 1.52% | ||||||
Class C Shares | 0.55% | 0.77% | ||||||
Advisor Class Shares2 | 1.04% | 1.87% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | 0.13% | 1.64% | ||||||
Lipper Intermediate Municipal Debt Funds Average | -0.62% | -0.22% |
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to large Bernstein Global Wealth Management private client accounts and the Adviser’s institutional clients or through other limited arrangements. |
2 | Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
INVESTMENT RESULTS
The table above shows the Strategy’s performance for the six- and 12-month periods ended April 30, 2017, compared to its benchmark, the Bloomberg Barclays 1-10 Year Treasury Inflation-Protected Securities (“TIPS”) Index and to the Lipper Intermediate Municipal Debt Funds Average (the “Lipper Average”). Funds in the Lipper Average have generally similar investment objectives to the Strategy, although some may have different investment policies and sales and management fees and fund expenses.
For the six-month period, all share classes outperformed the benchmark; for the 12-month period, all share classes except for Class A and Class C shares outperformed, before sales charges. In order to pursue the investment objective of after-tax returns net of inflation, the Strategy invests in municipal bonds and uses derivatives for inflation protection. Out-
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performance relative to the benchmark for both periods was driven by the Strategy’s lower interest rate risk as well as its investment in municipal bonds, which outperformed comparable maturity taxables over both periods. Consumer price index (“CPI”), or inflation hedges, added to performance on an absolute basis as breakeven inflation rates increased, but underperformed on a relative basis versus TIPS. Interest rate swaps were used for hedging purposes, for both periods, and had no material impact on performance.
Relative to the Lipper Average, all share classes outperformed for both periods; CPI hedges added to performance while the Strategy’s lower interest rate risk also contributed positively to returns.
MARKET REVIEW AND INVESTMENT STRATEGY
The relatively strong performance of equities and corporate bonds during the six- and 12-month periods reflected investors’ expectations that economic growth should be solid going forward. Within the municipal market, this sentiment was reflected in higher interest rates and the better performance of mid-grade bonds over high-grade bonds. Given the still-sizable debt overhang in the US and other major economies, rates may not climb as high as they have in previous tightening cycles, and this may limit future increases in longer-term bond yields.
The specter of tax reform remains on the horizon, though the chances of significant reform have declined recently as Republicans continued to grapple with repealing and replacing the Affordable Care Act. At the end of the reporting period, the market yields of municipal bonds relative to taxable bonds suggested a low probability of significant tax reform. The after-tax income of municipals relative to taxable bonds would be below average, however, if tax rates were cut to 33%, as proposed by both President Trump and House Speaker Ryan. The relative advantage of municipals would fall sharply if long-term capital gains rates were cut as in certain proposals, and taxable interest were subject to the same reduced rate. While significant tax reform may be unlikely in the near term, the Strategy’s Senior Investment Management Team (the “Team”) continues to position the Strategy with a relatively small portion in the longest-maturity bonds; this potentially reduces the Strategy’s exposure to tax reform should a push to significantly cut taxes materialize in the months ahead. While inflation expectations have risen from pre-election levels, the Team still believes it is prudent to remain fully hedged to inflation within the Strategy.
The Strategy 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 fund insurers, insurance has less value than it did in the past. The market now
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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 April 30, 2017, the Strategy’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 6.66% and 0.09%, respectively.
INVESTMENT POLICIES
The Strategy seeks real after-tax return for investors subject to federal income taxes. Real return is the rate of return after adjusting for inflation. The Strategy pursues its objective by investing principally in high-quality, predominantly investment-grade, municipal securities that pay interest exempt from federal taxation. As a fundamental policy, the Strategy will invest at least 80% of its net assets in municipal securities. These securities may be subject to the federal alternative minimum tax for some taxpayers.
The Strategy will invest at least 80% of its total assets in fixed-income securities rated A or better or the equivalent by one or more national rating agencies or deemed to be of comparable credit quality by the Adviser. In deciding whether to take direct or indirect exposure, the Strategy may invest up to 20% of its total assets in fixed-income securities rated BB or B or the equivalent by one or more national rating agencies (or deemed to be of comparable credit quality by the Adviser), which are not investment grade (“junk bonds”). If the rating of a fixed-income security falls below investment grade, the Strategy will not be obligated to sell the security and may continue to hold it if, in the Adviser’s opinion, the investment is appropriate under the circumstances.
The Strategy may invest in fixed-income securities with any maturity and duration.
To provide inflation protection, the Strategy will typically enter into inflation swaps. The Strategy may use other inflation-indexed instruments. Payments to the Strategy pursuant to swaps will result in taxable income, either ordinary income or capital gains, rather than income exempt from federal income taxation. It is expected that the Strategy’s primary use of derivatives will be for the purpose of inflation protection.
(continued on next page)
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The Strategy may also invest in 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 Strategy 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 Strategy’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
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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 mutual fund portfolio. The Bloomberg Barclays 1-10 Year TIPS Index represents the performance of inflation-protected securities issued by the US Treasury. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Strategy.
A Word About Risk
Market Risk: The value of the Strategy’s assets will fluctuate as the bond market fluctuates. The value of the Strategy’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events 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. 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 Strategy’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Strategy invests more of its assets in a particular state’s municipal securities, the Strategy is vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters. The Strategy’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.
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
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DISCLOSURES AND RISKS (continued)
decrease in value may not be offset by higher income from new investments. The Strategy may be subject to heightened interest rate risk due to rising rates as the current period of historically low rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Strategy’s assets can decline as can the value of the Strategy’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Strategy, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: To the extent the Strategy 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 Strategy’s investments.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Strategy. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Strategy shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
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DISCLOSURES AND RISKS (continued)
Management Risk: The Strategy 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.
These risks are fully discussed in the Strategy’s prospectus. As with all investments, you may lose money by investing in the Strategy.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Strategy will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown on the following pages 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 visiting abfunds.com. For Class 1 shares visit www.bernstein.com, click on “Investments”, then “Mutual Funds—Mutual Fund Performance at a Glance”.
All fees and expenses related to the operation of the Strategy have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Strategy’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 3.00% maximum front-end sales charge for Class A shares; and a 1% 1-year contingent deferred sales charge for Class C shares. Class 1 and 2 shares do not carry sales charges. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS 1 SHARES2 | 1.31% | |||||||||||
1 Year | 1.69% | 1.69% | ||||||||||
5 Years | 1.00% | 1.00% | ||||||||||
Since Inception3 | 2.08% | 2.08% | ||||||||||
CLASS 2 SHARES2 | 1.41% | |||||||||||
1 Year | 1.80% | 1.80% | ||||||||||
5 Years | 1.08% | 1.08% | ||||||||||
Since Inception3 | 2.17% | 2.17% | ||||||||||
CLASS A SHARES | 1.11% | |||||||||||
1 Year | 1.52% | -1.53% | ||||||||||
5 Years | 0.80% | 0.19% | ||||||||||
Since Inception3 | 1.90% | 1.47% | ||||||||||
CLASS C SHARES | 0.40% | |||||||||||
1 Year | 0.77% | -0.23% | ||||||||||
5 Years | 0.07% | 0.07% | ||||||||||
Since Inception3 | 1.17% | 1.17% | ||||||||||
ADVISOR CLASS SHARES4 | 1.39% | |||||||||||
1 Year | 1.87% | 1.87% | ||||||||||
5 Years | 1.10% | 1.10% | ||||||||||
Since Inception3 | 2.19% | 2.19% |
The Strategy’s current prospectus fee table shows the Strategy’s total annual operating expense ratios as 0.68%, 0.58%, 0.86%, 1.61% and 0.61% for Class 1, Class 2, Class A, Class C and Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Strategy’s annual operating expense ratios to 0.60%, 0.50%, 0.75%, 1.50% and 0.50% for Class 1, Class 2, Class A, Class C and Advisor Class shares, respectively. These waivers/reimbursements may not be terminated prior to January 31, 2018 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights sections since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended April 30, 2017. |
2 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to large Bernstein Global Wealth Management private client accounts and the Adviser’s institutional clients or through other limited arrangements. |
3 | Inception date: 1/26/2010. |
4 | Advisor Class shares are offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
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HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 2.28% | |||
5 Years | 1.07% | |||
Since Inception2 | 2.07% | |||
CLASS 2 SHARES1 | ||||
1 Year | 2.29% | |||
5 Years | 1.15% | |||
Since Inception2 | 2.16% | |||
CLASS A SHARES | ||||
1 Year | -0.98% | |||
5 Years | 0.25% | |||
Since Inception2 | 1.46% | |||
CLASS C SHARES | ||||
1 Year | 0.35% | |||
5 Years | 0.14% | |||
Since Inception2 | 1.16% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 2.36% | |||
5 Years | 1.17% | |||
Since Inception2 | 2.18% |
1 | Class 1 shares are only available to Bernstein Global Wealth Management private client accounts. Class 2 shares are only available to large Bernstein Global Wealth Management private client accounts and the Adviser’s institutional clients or through other limited arrangements. |
2 | Inception date: 1/26/2010. |
3 | Advisor Class shares are offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Strategy. |
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FUND EXPENSES
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 11 |
FUND EXPENSES (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,009.20 | $ | 3.69 | 0.74 | % | $ | 3.74 | 0.75 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.12 | $ | 3.71 | 0.74 | % | $ | 3.76 | 0.75 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,005.50 | $ | 7.41 | 1.49 | % | $ | 7.46 | 1.50 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.41 | $ | 7.45 | 1.49 | % | $ | 7.50 | 1.50 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,010.40 | $ | 2.44 | 0.49 | % | $ | 2.49 | 0.50 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.36 | $ | 2.46 | 0.49 | % | $ | 2.51 | 0.50 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,010.00 | $ | 2.94 | 0.59 | % | $ | 2.99 | 0.60 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.87 | $ | 2.96 | 0.59 | % | $ | 3.01 | 0.60 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,010.50 | $ | 2.44 | 0.49 | % | $ | 2.49 | 0.50 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.36 | $ | 2.46 | 0.49 | % | $ | 2.51 | 0.50 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. Currently the Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s effective expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
12 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $853.4
1 | All data are as of April 30, 2017. The Strategy’s quality rating breakdown is expressed as a percentage of the Strategy’s total investments in municipal securities and may vary over time. The Strategy 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 Standard & Poor’s Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Strategy 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 BOND INFLATION STRATEGY | 13 |
PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 96.6% | ||||||||
Long-Term Municipal Bonds – 92.6% | ||||||||
Alabama – 2.5% | ||||||||
Alabama Special Care Facilities Financing Authority-Birmingham AL | $ | 3,905 | $ | 4,503,832 | ||||
County of Jefferson AL Sewer Revenue | 1,825 | 1,898,182 | ||||||
Infirmary Health System Special Care Facilities Financing Authority of Mobile | 2,110 | 2,443,823 | ||||||
Special Care Facilities Financing Authority of the City of Pell City Alabama | 11,235 | 12,299,966 | ||||||
|
| |||||||
21,145,803 | ||||||||
|
| |||||||
Arizona – 2.2% | ||||||||
Arizona State University COP | 8,345 | 9,481,731 | ||||||
City of Phoenix Civic Improvement Corp. | 3,330 | 3,798,398 | ||||||
County of Pima AZ Sewer System Revenue | 630 | 702,784 | ||||||
5.00%, 7/01/21 | 1,135 | 1,266,501 | ||||||
Salt River Project Agricultural Improvement & Power District | 3,140 | 3,631,944 | ||||||
|
| |||||||
18,881,358 | ||||||||
|
| |||||||
California – 2.6% | ||||||||
San Francisco City & County Airport Comm-San Francisco International Airport | 450 | 485,271 |
14 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
NATL Series 2006-32F | $ | 290 | $ | 302,400 | ||||
State of California | 5,000 | 5,631,300 | ||||||
Series 2012 | 9,305 | 10,454,912 | ||||||
Series 2014 | 4,250 | 5,053,092 | ||||||
|
| |||||||
21,926,975 | ||||||||
|
| |||||||
Colorado – 3.7% | ||||||||
Centerra Metropolitan District No 1 | 1,510 | 1,608,528 | ||||||
City & County of Denver CO Airport System Revenue | 375 | 420,964 | ||||||
Series 2012A | 10,395 | 11,874,417 | ||||||
5.00%, 11/15/25 | 3,000 | 3,425,280 | ||||||
Denver City & County School District No 1 | 4,730 | 5,687,683 | ||||||
Denver Urban Renewal Authority | 5,655 | 6,291,960 | ||||||
Plaza Metropolitan District No 1 | 1,310 | 1,393,185 | ||||||
Regional Transportation District | 440 | 473,739 | ||||||
|
| |||||||
31,175,756 | ||||||||
|
| |||||||
Connecticut – 0.6% | ||||||||
State of Connecticut | 4,360 | 5,157,662 | ||||||
|
| |||||||
Florida – 7.7% | ||||||||
Citizens Property Insurance Corp. | 7,315 | 8,472,891 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
City of Jacksonville FL | $ | 1,720 | $ | 1,926,744 | ||||
City of Jacksonville FL | 10,190 | 11,761,656 | ||||||
City of Tampa FL Water & Wastewater System Revenue | 1,565 | 1,795,055 | ||||||
County of Miami-Dade FL | 18,500 | 21,734,273 | ||||||
County of Miami-Dade FL Spl Tax | 1,500 | 1,729,680 | ||||||
Florida Department of Environmental Protection | 3,775 | 4,212,371 | ||||||
Series 2013A | 3,905 | 4,161,535 | ||||||
Florida Municipal Power Agency | 2,890 | 3,302,865 | ||||||
Series 2015B | 1,500 | 1,770,465 | ||||||
Florida State Board of Education | 1,725 | 1,973,228 | ||||||
Martin County Industrial Development Authority | 1,900 | 1,946,797 | ||||||
Mid-Bay Bridge Authority | 1,000 | 1,149,280 | ||||||
|
| |||||||
65,936,840 | ||||||||
|
| |||||||
Georgia – 0.4% | ||||||||
Cherokee County Board of Education | 1,000 | 1,118,170 |
16 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
City of Atlanta Department of Aviation | $ | 2,500 | $ | 2,567,725 | ||||
|
| |||||||
3,685,895 | ||||||||
|
| |||||||
Illinois – 4.4% | ||||||||
Chicago O’Hare International Airport | 5,000 | 5,742,400 | ||||||
Series 2016C | 5,000 | 5,651,650 | ||||||
Chicago O’Hare International Airport | 2,500 | 2,859,300 | ||||||
5.50%, 1/01/25 | 2,250 | 2,564,640 | ||||||
Illinois Finance Authority | 6,355 | 6,856,239 | ||||||
Springfield Metropolitan Sanitation District | 2,170 | 2,395,420 | ||||||
State of Illinois | 1,040 | 1,083,919 | ||||||
Series 2010 | 500 | 509,455 | ||||||
Series 2013A | 4,030 | 4,233,434 | ||||||
Series 2014 | 4,180 | 4,253,986 | ||||||
State of Illinois | 1,450 | 1,456,902 | ||||||
|
| |||||||
37,607,345 | ||||||||
|
| |||||||
Indiana – 1.3% |
| |||||||
Indiana Finance Authority | 5,235 | 5,549,624 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Indiana Municipal Power Agency | $ | 4,965 | $ | 5,509,809 | ||||
|
| |||||||
11,059,433 | ||||||||
|
| |||||||
Kentucky – 1.0% |
| |||||||
Kentucky Municipal Power Agency | 4,875 | 5,631,964 | ||||||
Kentucky Turnpike Authority | 2,275 | 2,620,095 | ||||||
|
| |||||||
8,252,059 | ||||||||
|
| |||||||
Louisiana – 1.5% |
| |||||||
Jefferson Sales Tax District | 1,800 | 2,080,008 | ||||||
State of Louisiana Gasoline & Fuels Tax Revenue | 9,085 | 10,490,177 | ||||||
|
| |||||||
12,570,185 | ||||||||
|
| |||||||
Maryland – 4.9% |
| |||||||
State of Maryland | 10,165 | 11,400,759 | ||||||
5.00%, 8/01/21(a) | 26,600 | 30,626,974 | ||||||
|
| |||||||
42,027,733 | ||||||||
|
| |||||||
Massachusetts – 4.2% | ||||||||
Commonwealth of Massachusetts | 9,575 | 9,696,028 | ||||||
NATL Series 2000E | 4,525 | 4,128,198 | ||||||
Commonwealth of Massachusetts | 3,450 | 3,578,961 | ||||||
Massachusetts Bay Transportation Authority | 3,330 | 3,852,277 | ||||||
Series 2004C | 2,650 | 2,692,453 |
18 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Massachusetts Clean Water Trust (The) | $ | 3,240 | $ | 3,290,803 | ||||
Massachusetts School Building Authority | 2,475 | 2,892,805 | ||||||
Metropolitan Boston Transit Parking Corp. | 5,025 | 5,720,515 | ||||||
|
| |||||||
35,852,040 | ||||||||
|
| |||||||
Michigan – 3.1% |
| |||||||
City of Detroit MI Sewage Disposal System Revenue | 3,750 | 4,211,288 | ||||||
Michigan Finance Authority | 2,735 | 3,156,596 | ||||||
Michigan Finance Authority | 10,545 | 12,338,704 | ||||||
Michigan Finance Authority | 1,785 | 2,034,597 | ||||||
University of Michigan | 4,000 | 4,839,800 | ||||||
|
| |||||||
26,580,985 | ||||||||
|
| |||||||
Minnesota – 1.0% |
| |||||||
Minnesota Higher Education Facilities Authority | 1,295 | 1,400,633 | ||||||
State of Minnesota | 6,715 | 7,051,422 | ||||||
|
| |||||||
8,452,055 | ||||||||
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Mississippi – 0.5% |
| |||||||
Mississippi Development Bank | $ | 1,500 | $ | 1,596,015 | ||||
Series 2013A | 1,000 | 1,064,010 | ||||||
Mississippi Hospital Equipment & Facilities Authority | 1,500 | 1,666,320 | ||||||
|
| |||||||
4,326,345 | ||||||||
|
| |||||||
Missouri – 0.4% |
| |||||||
City of Springfield MO Public Utility Revenue | 1,390 | 1,423,332 | ||||||
Lees Summit Industrial Development Authority | 1,675 | 1,687,244 | ||||||
|
| |||||||
3,110,576 | ||||||||
|
| |||||||
Montana – 0.5% |
| |||||||
Montana Facility Finance Authority | 3,275 | 3,704,462 | ||||||
|
| |||||||
Nevada – 1.3% |
| |||||||
City of Reno NV | 1,000 | 1,073,890 | ||||||
Series 2013B | 2,210 | 2,373,297 | ||||||
County of Clark Department of Aviation | 775 | 851,783 | ||||||
Las Vegas Valley Water District | 1,500 | 1,670,745 | ||||||
Series 2015B | 4,250 | 4,801,140 | ||||||
|
| |||||||
10,770,855 | ||||||||
|
|
20 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey – 4.3% |
| |||||||
Morris-Union Jointure Commission COP | $ | 2,340 | $ | 2,360,943 | ||||
New Jersey Economic Development Authority | 20 | 20,505 | ||||||
New Jersey Economic Development Authority | 1,000 | 1,065,540 | ||||||
New Jersey Transportation Trust Fund Authority | 10,000 | 10,813,100 | ||||||
New Jersey Transportation Trust Fund Authority | 4,390 | 4,670,653 | ||||||
New Jersey Turnpike Authority | 1,800 | 2,104,434 | ||||||
Series 2014A | 4,785 | 5,561,318 | ||||||
Series 2014C | 1,590 | 1,858,917 | ||||||
Series 2017A | 7,300 | 8,443,399 | ||||||
|
| |||||||
36,898,809 | ||||||||
|
| |||||||
New York – 15.0% |
| |||||||
City of New York NY | 4,250 | 4,842,450 | ||||||
Series 2014J | 6,100 | 6,993,589 | ||||||
Metropolitan Transportation Authority | 9,065 | 10,588,515 | ||||||
Series 2012F | 3,635 | 4,222,125 | ||||||
Series 2013A | 2,300 | 2,663,400 | ||||||
Series 2013E | 8,510 | 9,986,570 | ||||||
New York City Municipal Water Finance Authority | 3,875 | 4,358,251 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New York City Transitional Finance Authority Future Tax Secured Revenue | $ | 6,830 | $ | 7,976,279 | ||||
New York State Dormitory Authority | 3,000 | 3,396,600 | ||||||
Series 2012A | 14,610 | 17,242,138 | ||||||
Series 2012B | 7,900 | 8,757,545 | ||||||
Series 2014A | 6,565 | 7,708,229 | ||||||
New York State Energy Research & Development Authority | 3,500 | 3,232,120 | ||||||
New York State Environmental Facilities Corp. | 3,000 | 3,425,340 | ||||||
New York State Thruway Authority | 17,025 | 19,419,396 | ||||||
Triborough Bridge & Tunnel Authority | 4,360 | 4,785,972 | ||||||
Series 2013B | 4,100 | 4,632,836 | ||||||
Series 2017B | 3,250 | 3,849,755 | ||||||
|
| |||||||
128,081,110 | ||||||||
|
| |||||||
North Carolina – 1.8% |
| |||||||
North Carolina Eastern Municipal Power Agency | 6,700 | 7,575,690 | ||||||
State of North Carolina | 6,710 | 7,927,060 | ||||||
|
| |||||||
15,502,750 | ||||||||
|
|
22 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Ohio – 1.1% |
| |||||||
American Municipal Power, Inc. | $ | 5,000 | $ | 5,610,900 | ||||
City of Cleveland OH Airport System Revenue | 2,585 | 2,992,330 | ||||||
City of Cleveland OH COP | 700 | 714,623 | ||||||
|
| |||||||
9,317,853 | ||||||||
|
| |||||||
Oregon – 1.4% |
| |||||||
Deschutes County Administrative School District No 1 Bend-La Pine | 5,180 | 5,768,500 | ||||||
Deschutes County Hospital Facilities Authority | 1,000 | 1,031,760 | ||||||
Tri-County Metropolitan Transportation District of Oregon | 4,605 | 5,237,589 | ||||||
|
| |||||||
12,037,849 | ||||||||
|
| |||||||
Pennsylvania – 6.1% |
| |||||||
Allegheny County Sanitary Authority | 2,250 | 2,419,133 | ||||||
City of Philadelphia PA | 12,990 | 15,216,226 | ||||||
City of Philadelphia PA Water & Wastewater Revenue | 2,135 | 2,485,868 | ||||||
AGM Series 2010A | 550 | 573,733 | ||||||
Commonwealth of Pennsylvania | 5,000 | 5,033,350 | ||||||
Montgomery County Industrial Development Authority/PA | 475 | 515,617 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Moon Industrial Development Authority | $ | 2,060 | $ | 2,118,648 | ||||
Pennsylvania Economic Development Financing Authority | 3,085 | 3,287,746 | ||||||
Series 2012B | 7,550 | 7,766,232 | ||||||
School District of Philadelphia (The) | 1,800 | 1,952,244 | ||||||
Series 2016F | 5,000 | 5,373,700 | ||||||
State Public School Building Authority | 5,150 | 5,585,141 | ||||||
|
| |||||||
52,327,638 | ||||||||
|
| |||||||
Puerto Rico – 0.4% |
| |||||||
Puerto Rico Electric Power Authority | 3,400 | 3,546,200 | ||||||
|
| |||||||
South Carolina – 0.8% |
| |||||||
Renewable Water Resources | 2,570 | 2,948,458 | ||||||
South Carolina Public Service Authority | 2,535 | 2,754,384 | ||||||
Series 2016C | 930 | 1,014,193 | ||||||
|
| |||||||
6,717,035 | ||||||||
|
| |||||||
Tennessee – 0.3% |
| |||||||
Metropolitan Government of Nashville & Davidson County TN | 455 | 532,068 | ||||||
5.00%, 7/01/23 | 1,930 | 2,256,903 | ||||||
|
| |||||||
2,788,971 | ||||||||
|
|
24 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Texas – 6.5% |
| |||||||
Austin Community College District Public Facility Corp. | $ | 1,000 | $ | 1,079,710 | ||||
Birdville Independent School District | 3,825 | 4,410,034 | ||||||
Central Texas Regional Mobility Authority | 2,085 | 2,222,110 | ||||||
City of Corpus Christi TX Utility System Revenue | 5,675 | 6,465,527 | ||||||
City of Garland TX | 500 | 550,505 | ||||||
City of Houston TX Airport System Revenue | 2,105 | 2,261,507 | ||||||
City of Houston TX Combined Utility System Revenue | 2,735 | 3,162,098 | ||||||
City of Lubbock TX | 1,740 | 1,861,087 | ||||||
Conroe Independent School District | 255 | 281,148 | ||||||
5.00%, 2/15/24-2/15/26 | 4,955 | 5,443,589 | ||||||
5.00%, 2/15/26 (Pre-refunded/ETM) | 1,030 | 1,135,616 | ||||||
Harris County-Houston Sports Authority | 4,220 | 4,787,590 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 1,000 | 1,027,460 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 800 | 785,008 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Hope Cultural Education Facilities Finance Corp. | $ | 1,000 | $ | 1,071,820 | ||||
North Texas Tollway Authority | 3,625 | 4,189,195 | ||||||
Rockwall Independent School District | 3,280 | 3,510,682 | ||||||
San Antonio Independent School District/TX | 1,710 | 1,931,992 | ||||||
Spring Branch Independent School District | 3,485 | 3,945,124 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 900 | 924,894 | ||||||
Texas Transportation Commission State Highway Fund | 2,865 | 3,492,607 | ||||||
University of Texas System (The) | 1,070 | 1,181,269 | ||||||
|
| |||||||
55,720,572 | ||||||||
|
| |||||||
Virginia – 0.8% |
| |||||||
Fairfax County Economic Development Authority | 2,000 | 2,221,620 | ||||||
5.00%, 4/01/26 (Pre-refunded/ETM) | 4,000 | 4,443,240 | ||||||
|
| |||||||
6,664,860 | ||||||||
|
| |||||||
Washington – 8.6% |
| |||||||
Central Puget Sound Regional Transit Authority | 7,815 | 9,074,859 | ||||||
Chelan County Public Utility District No 1 | 3,305 | 3,784,489 |
26 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
City of Seattle WA | $ | 9,770 | $ | 10,565,278 | ||||
City of Seattle WA Municipal Light & Power Revenue | 2,070 | 2,153,835 | ||||||
City of Seattle WA Water System Revenue | 4,020 | 4,813,226 | ||||||
City of Tacoma WA Electric System Revenue | 4,000 | 4,346,015 | ||||||
Energy Northwest | 680 | 711,634 | ||||||
Series 2012A | 4,200 | 4,551,624 | ||||||
Port of Seattle WA | 4,820 | 5,554,472 | ||||||
State of Washington | 710 | 779,658 | ||||||
Series 2015R | 13,325 | 15,952,290 | ||||||
Series 2017D | 9,985 | 11,334,673 | ||||||
|
| |||||||
73,622,053 | ||||||||
|
| |||||||
Wisconsin – 1.7% | ||||||||
Wisconsin Department of Transportation | 12,000 | 14,215,895 | ||||||
|
| |||||||
Total Long-Term Municipal Bonds | 789,665,957 | |||||||
|
| |||||||
Short-Term Municipal Notes – 4.0% | ||||||||
California – 2.2% | ||||||||
Irvine Unified School District | 19,225 | 19,225,000 | ||||||
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Texas – 1.8% | ||||||||
Lower Neches Valley Authority Industrial Development Corp. | $ | 15,000 | $ | 15,000,000 | ||||
|
| |||||||
Total Short-Term Municipal Notes | 34,225,000 | |||||||
|
| |||||||
Total Municipal Obligations | 823,890,957 | |||||||
|
| |||||||
GOVERNMENTS – TREASURIES – 4.6% | ||||||||
United States – 4.6% | ||||||||
U.S. Treasury Notes | 6,200 | 6,194,188 | ||||||
1.625%, 11/30/20(a) | 6,632 | 6,636,145 | ||||||
2.125%, 11/30/23 | 26,650 | 26,766,594 | ||||||
|
| |||||||
Total Governments – Treasuries | 39,596,927 | |||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 2.3% | ||||||||
Investment Companies – 2.3% | ||||||||
AB Fixed Income Shares, Inc. – Government | 19,727,113 | 19,727,113 | ||||||
|
| |||||||
Total Investments – 103.5% | 883,214,997 | |||||||
Other assets less liabilities – (3.5)% | (29,859,079 | ) | ||||||
|
| |||||||
Net Assets – 100.0% | $ | 853,355,918 | ||||||
|
|
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Bank of America, NA | $ | 25,000 | 9/02/20 | 1.548 | % | CPI | # | $ | 462,548 | |||||||||||
Bank of America, NA | 25,000 | 2/02/32 | 2.403 | % | CPI | # | (304,447 | ) | ||||||||||||
Barclays Bank PLC | 3,000 | 7/19/17 | 2.038 | % | CPI | # | (84,375 | ) | ||||||||||||
Barclays Bank PLC | 37,000 | 8/07/17 | 2.124 | % | CPI | # | (1,235,084 | ) | ||||||||||||
Barclays Bank PLC | 5,500 | 6/02/19 | 2.580 | % | CPI | # | (470,347 | ) |
28 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Barclays Bank PLC | $ | 4,000 | 6/15/20 | 2.480 | % | CPI | # | $ | (315,097 | ) | ||||||||||
Barclays Bank PLC | 35,000 | 7/02/20 | 2.256 | % | CPI | # | (1,592,436 | ) | ||||||||||||
Barclays Bank PLC | 1,500 | 8/04/20 | 2.308 | % | CPI | # | (80,967 | ) | ||||||||||||
Barclays Bank PLC | 2,000 | 11/10/20 | 2.500 | % | CPI | # | (142,800 | ) | ||||||||||||
Barclays Bank PLC | 1,000 | 5/04/21 | 2.845 | % | CPI | # | (123,422 | ) | ||||||||||||
Barclays Bank PLC | 3,000 | 5/12/21 | 2.815 | % | CPI | # | (361,986 | ) | ||||||||||||
Barclays Bank PLC | 14,000 | 4/03/22 | 2.663 | % | CPI | # | (1,507,599 | ) | ||||||||||||
Barclays Bank PLC | 16,700 | 10/05/22 | 2.765 | % | CPI | # | (1,811,288 | ) | ||||||||||||
Barclays Bank PLC | 25,000 | 8/07/24 | 2.573 | % | CPI | # | (1,929,393 | ) | ||||||||||||
Barclays Bank PLC | 19,000 | 5/05/25 | 2.125 | % | CPI | # | (56,662 | ) | ||||||||||||
Barclays Bank PLC | 5,400 | 3/06/27 | 2.695 | % | CPI | # | (693,414 | ) | ||||||||||||
Citibank, NA | 14,000 | 5/30/17 | 2.125 | % | CPI | # | (665,687 | ) | ||||||||||||
Citibank, NA | 11,500 | 6/21/17 | 2.153 | % | CPI | # | (568,456 | ) | ||||||||||||
Citibank, NA | 22,000 | 7/02/18 | 2.084 | % | CPI | # | (749,162 | ) | ||||||||||||
Citibank, NA | 15,600 | 12/14/20 | 1.548 | % | CPI | # | 398,678 | |||||||||||||
Citibank, NA | 9,000 | 6/29/22 | 2.398 | % | CPI | # | (699,444 | ) | ||||||||||||
Citibank, NA | 5,400 | 7/19/22 | 2.400 | % | CPI | # | (404,915 | ) | ||||||||||||
Citibank, NA | 4,000 | 8/10/22 | 2.550 | % | CPI | # | (354,204 | ) | ||||||||||||
Citibank, NA | 15,500 | 12/07/22 | 2.748 | % | CPI | # | (1,736,461 | ) | ||||||||||||
Citibank, NA | 47,000 | 5/24/23 | 2.533 | % | CPI | # | (3,963,761 | ) | ||||||||||||
Citibank, NA | 30,000 | 10/29/23 | 2.524 | % | CPI | # | (2,230,508 | ) | ||||||||||||
Citibank, NA | 15,800 | 2/08/28 | 2.940 | % | CPI | # | (2,555,030 | ) | ||||||||||||
Deutsche Bank AG | 11,000 | 6/20/21 | 2.655 | % | CPI | # | (1,169,280 | ) | ||||||||||||
Deutsche Bank AG | 9,800 | 9/07/21 | 2.400 | % | CPI | # | (735,523 | ) | ||||||||||||
Deutsche Bank AG | 25,000 | 9/02/25 | 1.880 | % | CPI | # | 542,023 | |||||||||||||
JPMorgan Chase Bank, NA | 1,000 | 7/29/20 | 2.305 | % | CPI | # | (54,403 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 19,000 | 8/17/22 | 2.523 | % | CPI | # | (1,602,370 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 1,400 | 6/30/26 | 2.890 | % | CPI | # | (239,291 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 3,300 | 7/21/26 | 2.935 | % | CPI | # | (593,733 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 2,400 | 10/03/26 | 2.485 | % | CPI | # | (224,268 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 5,400 | 11/14/26 | 2.488 | % | CPI | # | (505,588 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 4,850 | 12/23/26 | 2.484 | % | CPI | # | (442,274 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 13,000 | 3/01/27 | 2.279 | % | CPI | # | (54,912 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 21,350 | 2/20/28 | 2.899 | % | CPI | # | (3,285,702 | ) | ||||||||||||
JPMorgan Chase Bank, NA | 12,000 | 3/26/28 | 2.880 | % | CPI | # | (1,799,426 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 50,000 | 4/16/18 | 2.395 | % | CPI | # | (2,870,756 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 2,000 | 10/14/20 | 2.370 | % | CPI | # | (114,246 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 13,000 | 5/23/21 | 2.680 | % | CPI | # | (1,370,675 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 10,000 | 4/16/23 | 2.690 | % | CPI | # | (1,038,397 | ) | ||||||||||||
Morgan Stanley Capital Services LLC | 5,000 | 8/15/26 | 2.885 | % | CPI | # | (841,604 | ) | ||||||||||||
|
| |||||||||||||||||||
$ | (40,176,144 | ) | ||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 29 |
PORTFOLIO OF INVESTMENTS (continued)
(a) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(b) | 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 April 30, 2017, the aggregate market value of these securities amounted to $3,339,982 or 0.4% of net assets. |
(c) | Variable rate coupon, rate shown as of April 30, 2017. |
(d) | An auction rate security whose interest rate resets at each auction date. Auctions are typically held every week or month. The rate shown is as of April 30, 2017 and the aggregate market value of these securities amounted to $7,360,318 or 0.86% of net assets. |
(e) | Variable Rate Demand Notes are instruments whose interest rates change on a specific date (such as coupon date or interest payment date) or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). This instrument is payable on demand and is secured by letters of credit or other credit support agreements from major banks. |
(f) | Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end. |
(g) | 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 April 30, 2017, 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 6.7% and 0.1%, respectively.
Glossary:
AGM – Assured Guaranty Municipal
AMBAC – Ambac Assurance Corporation
COP – Certificate of Participation
DOT – Department of Transportation
ETM – Escrowed to Maturity
NATL – National Interstate Corporation
SRF – State Revolving Fund
See notes to financial statements.
30 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $839,171,993) | $ | 863,487,884 | ||
Affiliated issuers (cost $19,727,113) | 19,727,113 | |||
Interest receivable | 10,401,682 | |||
Unrealized appreciation on inflation swaps | 1,403,249 | |||
Receivable for capital stock sold | 1,213,707 | |||
Affiliated dividends receivable | 10,204 | |||
|
| |||
Total assets | 896,243,839 | |||
|
| |||
Liabilities | ||||
Unrealized depreciation on inflation swaps | 41,579,393 | |||
Payable for capital stock redeemed | 855,974 | |||
Advisory fee payable | 269,974 | |||
Distribution fee payable | 50,532 | |||
Administrative fee payable | 17,042 | |||
Transfer Agent fee payable | 8,752 | |||
Accrued expenses | 106,254 | |||
|
| |||
Total liabilities | 42,887,921 | |||
|
| |||
Net Assets | $ | 853,355,918 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 83,087 | ||
Additional paid-in capital | 874,813,495 | |||
Undistributed net investment income | 341,797 | |||
Accumulated net realized loss on investment transactions | (6,022,208 | ) | ||
Net unrealized depreciation on investments | (15,860,253 | ) | ||
|
| |||
$ | 853,355,918 | |||
|
|
Net Asset Value Per Share—27 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 61,337,584 | 5,960,087 | $ | 10.29 | * | ||||||
| ||||||||||||
C | $ | 13,698,889 | 1,333,811 | $ | 10.27 | |||||||
| ||||||||||||
Advisor | $ | 210,625,728 | 20,455,952 | $ | 10.30 | |||||||
| ||||||||||||
1 | $ | 374,264,849 | 36,489,640 | $ | 10.26 | |||||||
| ||||||||||||
2 | $ | 193,428,868 | 18,847,428 | $ | 10.26 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.61 which reflects a sales charge of 3.00%. |
See notes to financial statements.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 31 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest | $ | 10,126,216 | ||||||
Dividends—Affiliated issuers | 50,649 | |||||||
Other income | 33 | $ | 10,176,898 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 1,920,968 | |||||||
Distribution fee—Class A | 64,937 | |||||||
Distribution fee—Class C | 60,724 | |||||||
Distribution fee—Class 1 | 172,688 | |||||||
Transfer agency—Class A | 7,166 | |||||||
Transfer agency—Class C | 1,746 | |||||||
Transfer agency—Advisor Class | 25,245 | |||||||
Transfer agency—Class 1 | 10,427 | |||||||
Transfer agency—Class 2 | 5,337 | |||||||
Custodian | 85,765 | |||||||
Registration fees | 42,635 | |||||||
Audit and tax | 40,616 | |||||||
Administrative | 27,393 | |||||||
Printing | 22,835 | |||||||
Legal | 20,244 | |||||||
Directors’ fees | 12,966 | |||||||
Miscellaneous | 14,772 | |||||||
|
| |||||||
Total expenses | 2,536,464 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (341,311 | ) | ||||||
|
| |||||||
Net expenses | 2,195,153 | |||||||
|
| |||||||
Net investment income | 7,981,745 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized loss on: | ||||||||
Investment transactions | (213,194 | ) | ||||||
Swaps | (62,390 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (8,946,615 | ) | ||||||
Swaps | 10,257,273 | |||||||
|
| |||||||
Net gain on investment transactions | 1,035,074 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 9,016,819 | ||||||
|
|
See notes to financial statements.
32 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 7,981,745 | $ | 14,330,212 | ||||
Net realized loss on investment transactions | (275,584 | ) | (1,293,189 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,310,658 | 12,779,736 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 9,016,819 | 25,816,759 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income |
| |||||||
Class A | (471,427 | ) | (695,439 | ) | ||||
Class C | (66,205 | ) | (129,987 | ) | ||||
Advisor Class | (1,861,864 | ) | (3,429,320 | ) | ||||
Class 1 | (3,457,317 | ) | (7,315,833 | ) | ||||
Class 2 | (1,853,891 | ) | (3,595,101 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | 148,158,474 | (95,338,279 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | 149,464,589 | (84,687,200 | ) | |||||
Net Assets | ||||||||
Beginning of period | 703,891,329 | 788,578,529 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $341,797 and $70,756, respectively) | $ | 853,355,918 | $ | 703,891,329 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 33 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Municipal Bond Inflation Strategy Portfolio (the “Strategy”), a diversified portfolio. The Strategy offers Class A, Class C, Advisor Class, Class 1 and Class 2 shares. Class 1 shares are sold only to the private clients of Sanford C. Bernstein & Co. LLC by its registered representatives. Class B, Class R, Class K and Class I shares have been authorized by the Strategy but have not been issued. Class A shares are sold with a front-end sales charge of up to 3.0% for purchases not exceeding $500,000. With respect to purchases of $500,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class, Class I, and Class 2 shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. Class 1 shares are sold without an initial or contingent deferred sales charge, but are subject to ongoing distribution expenses. All nine classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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 Strategy 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 Strategy.
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 Company’s Board of Directors (the “Board”).
34 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price 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
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Strategy may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Strategy 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 Strategy may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Strategy 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 Strategy. Unobservable inputs reflect the Strategy’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 Strategy’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 rates, coupon rates, yield curves, option
36 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which is 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. In addition, non-agency rated investments 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 Strategy’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 783,497,911 | $ | 6,168,046 | $ | 789,665,957 | |||||||
Short-Term Municipal Notes | – 0 | – | 34,225,000 | – 0 | – | 34,225,000 | ||||||||||
Governments – Treasuries | – 0 | – | 39,596,927 | – 0 | – | 39,596,927 | ||||||||||
Short-Term Investments | 19,727,113 | – 0 | – | – 0 | – | 19,727,113 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 19,727,113 | 857,319,838 | 6,168,046 | 883,214,997 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Inflation (CPI) Swaps | – 0 | – | 1,403,249 | – 0 | – | 1,403,249 | ||||||||||
Liabilities: | ||||||||||||||||
Inflation (CPI) Swaps | – 0 | – | (41,579,393 | ) | – 0 | – | (41,579,393 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(b) | $ | 19,727,113 | $ | 817,143,694 | $ | 6,168,046 | $ | 843,038,853 | ||||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. |
(b) | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Strategy recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Long-Term Municipal Bonds | Total | |||||||
Balance as of 10/31/16 | $ | 6,068,785 | $ | 6,068,785 | ||||
Accrued discounts/(premiums) | (17,036 | ) | (17,036 | ) | ||||
Realized gain (loss) | 10,312 | 10,312 | ||||||
Change in unrealized appreciation/depreciation | (219,679 | ) | (219,679 | ) | ||||
Purchases | 1,602,488 | 1,602,488 | ||||||
Sales | (477,296 | ) | (477,296 | ) | ||||
Transfers in to Level 3 | – 0 | – | – 0 | – | ||||
Transfers out of Level 3 | (799,528 | ) | (799,528 | ) | ||||
|
|
|
| |||||
Balance as of 4/30/17 | $ | 6,168,046 | $ | 6,168,046 | (a) | |||
|
|
|
| |||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(b) | $ | (206,358 | ) | $ | (206,358 | ) | ||
|
|
|
|
(a) | There were de minimis transfers under 1% of net assets during the reporting period. |
(b) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Strategy. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that
38 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Taxes
It is the Strategy’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 Strategy’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 Strategy’s financial statements.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Strategy 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 Strategy amortizes premiums and accretes original issue discounts and market discounts as adjustments to interest income.
5. Class Allocations
All income earned and expenses incurred by the Strategy are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Strategy represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
6. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are
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NOTES TO FINANCIAL STATEMENTS (continued)
determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Strategy pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Strategy’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .75%, 1.50%, .50%, .60% and .50% of the daily average net assets for the Class A, Class C, Advisor Class, Class 1 and Class 2 shares, respectively. Effective January 30, 2015, the Expense Cap for the Class A shares was reduced from .80% to .75% of the daily average net assets. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2018 and then may be extended by the Adviser for additional one-year terms. For the six months ended April 30, 2017, such reimbursement/waivers amounted to $317,147.
Pursuant to the investment advisory agreement, the Strategy may reimburse the Adviser for certain legal and accounting services provided to the Strategy by the Adviser. For the six months ended April 30, 2017, the reimbursement for such services amounted to $27,393.
The Strategy compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Strategy. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $26,984 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Strategy’s shares. The Distributor has advised the Strategy that it has retained front-end sales charges of $1 from the sale of Class A shares and received $4,259 and $341 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the six months ended April 30, 2017.
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NOTES TO FINANCIAL STATEMENTS (continued)
The Strategy 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. In connection with the investment by the Strategy in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Strategy in an amount equal to the Strategy’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Strategy as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver amounted to $24,164. A summary of the Strategy’s transactions in shares of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value 10/31/16 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||
$ 14,945 | $ 164,235 | $ 159,453 | $ 19,727 | $ 51 |
NOTE C
Distribution Services Agreement
The Strategy has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Strategy pays distribution and servicing fees to the Distributor at an annual rate of up to ..30% of the Strategy’s average daily net assets attributable to Class A shares, 1% of the Strategy’s average daily net assets attributable to Class C shares and .10% of the Strategy’s average daily net assets attributable to Class 1 shares. There are no distribution and servicing fees on the Advisor Class and Class 2 shares. Effective January 30, 2015, payments under the Agreement in respect of Class A shares are limited to an annual rate of ..25% of Class A shares’ average daily net assets. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Strategy’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Strategy in the amount of $380,030 and $1,637,880 for Class C and Class 1 shares, respectively. While such costs may be recovered from the Strategy in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Strategy’s shares.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 41 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 113,785,519 | $ | 35,626,994 | ||||
U.S. government securities | 26,398,879 | – 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 (excluding swap transactions) are as follows:
Gross unrealized appreciation | $ | 26,206,850 | ||
Gross unrealized depreciation | (1,890,959 | ) | ||
|
| |||
Net unrealized appreciation | $ | 24,315,891 | ||
|
|
1. Derivative Financial Instruments
The Strategy 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 type of derivative utilized by the Strategy, as well as the methods in which they may be used are:
• | Swaps |
The Strategy 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 Strategy in accordance with the terms of the respective swaps to provide value and recourse to the Strategy 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 Strategy, and/or the termination value at the end
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NOTES TO FINANCIAL STATEMENTS (continued)
of the contract. Therefore, the Strategy 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 Strategy and the counterparty and by the posting of collateral by the counterparty to the Strategy to cover the Strategy’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Strategy 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 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.
Inflation (CPI) Swaps:
Inflation swaps 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 the Strategy against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
During the six months ended April 30, 2017, the Strategy held inflation (CPI) swaps for hedging purposes.
Interest Rate Swaps:
The Strategy is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Strategy 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 Strategy may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Strategy 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
In addition, the Strategy 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 Strategy anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Strategy 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 Strategy receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2017, the Strategy held interest rate swaps for hedging purposes.
The Strategy typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Strategy typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Strategy and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Strategy’s net liability, held by the defaulting party, may be delayed or denied.
The Strategy’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Strategy decline below specific levels (“net asset contingent features”). If
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NOTES TO FINANCIAL STATEMENTS (continued)
these levels are triggered, the Strategy’s counterparty has the right to terminate such transaction and require the Strategy to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.
During the six months ended April 30, 2017, the Strategy had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps | $ | 1,403,249 |
| Unrealized depreciation on inflation swaps | $ | 41,579,393 |
| ||||
|
|
|
| |||||||||
Total | $ | 1,403,249 | $ | 41,579,393 | ||||||||
|
|
|
|
Derivative Type | Location of | 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 | $ | (62,390 | ) | $ | 10,257,273 | ||||
|
|
|
| |||||||
Total | $ | (62,390 | ) | $ | 10,257,273 | |||||
|
|
|
|
The following table represents the average monthly volume of the Strategy’s derivative transactions during the six months ended April 30, 2017:
Interest Rate Swaps: | ||||
Average notional amount | $ | 12,700,000 | (a) | |
Inflation Swaps: | ||||
Average notional amount | $ | 607,542,857 |
(a) | Positions were open for five months during the period. |
For financial reporting purposes, the Strategy does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
All derivatives held at period end were subject to netting arrangements. The following table presents the Strategy’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Strategy as of April 30, 2017:
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received | Security Collateral Received | Net Amount of Derivatives Assets | |||||||||||||||
OTC Derivatives: |
| |||||||||||||||||||
Bank of America, NA | $ | 462,548 | $ | (304,447 | ) | $ | – 0 | – | $ | – 0 | – | $ | 158,101 | |||||||
Citibank, NA | 398,678 | (398,678 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 542,023 | (542,023 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,403,249 | $ | (1,245,148 | ) | $ | – 0 | – | $ | – 0 | – | $ | 158,101 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged | Security Collateral Pledged | Net Amount of Derivatives Liabilities | |||||||||||||||
OTC Derivatives: |
| |||||||||||||||||||
Bank of America, NA | $ | 304,447 | $ | (304,447 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 10,404,870 | – 0 | – | – 0 | – | – 0 | – | 10,404,870 | ||||||||||||
Citibank, NA | 13,927,628 | (398,678 | ) | – 0 | – | – 0 | – | 13,528,950 | ||||||||||||
Deutsche Bank AG | 1,904,803 | (542,023 | ) | – 0 | – | – 0 | – | 1,362,780 | ||||||||||||
JPMorgan Chase Bank, NA | 8,801,967 | – 0 | – | – 0 | – | – 0 | – | 8,801,967 | ||||||||||||
Morgan Stanley Capital Services LLC | 6,235,678 | – 0 | – | – 0 | – | – 0 | – | 6,235,678 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 41,579,393 | $ | (1,245,148 | ) | $ | – 0 | – | $ | – 0 | – | $ | 40,334,245 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
^ | 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. |
46 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for Class A, Class C, Advisor Class, Class 1 and Class 2 were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 3,244,465 | 612,904 | $ | 33,058,377 | $ | 6,270,343 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 32,225 | 47,816 | 329,319 | 487,459 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (945,479 | ) | (1,087,170 | ) | (9,651,815 | ) | (11,086,129 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 2,331,211 | (426,450 | ) | $ | 23,735,881 | $ | (4,328,327 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 384,857 | 74,599 | $ | 3,908,672 | $ | 760,864 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 4,761 | 9,167 | 48,576 | 93,308 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (107,802 | ) | (331,629 | ) | (1,096,070 | ) | (3,381,118 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 281,816 | (247,863 | ) | $ | 2,861,178 | $ | (2,526,946 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 9,176,334 | 1,850,768 | $ | 93,599,112 | $ | 18,907,336 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 128,309 | 235,187 | 1,311,654 | 2,399,197 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,638,622 | ) | (4,229,484 | ) | (37,163,588 | ) | (43,229,628 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 5,666,021 | (2,143,529 | ) | $ | 57,747,178 | $ | (21,923,095 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 6,803,492 | 3,544,601 | $ | 69,302,648 | $ | 36,078,979 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 268,586 | 565,721 | 2,735,212 | 5,749,029 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,076,310 | ) | (9,837,890 | ) | (31,322,734 | ) | (100,065,872 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 3,995,768 | (5,727,568 | ) | $ | 40,715,126 | $ | (58,237,864 | ) | ||||||||||||||||
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||
Shares sold | 2,939,533 | 2,818,891 | $ | 29,937,032 | $ | 28,753,538 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 137,995 | 246,291 | 1,406,301 | 2,505,442 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (808,478 | ) | (3,889,115 | ) | (8,244,222 | ) | (39,581,027 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 2,269,050 | (823,933 | ) | $ | 23,099,111 | $ | (8,322,047 | ) | ||||||||||||||||
|
NOTE F
Risks Involved in Investing in the Strategy
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. 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 Strategy’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Strategy invests more of its assets in a particular state’s municipal securities, the Strategy may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters. The Strategy’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.
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NOTES TO FINANCIAL STATEMENTS (continued)
The Strategy may invest in the municipal securities of Puerto Rico and other U.S. 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 U.S. 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 credit ratings and are on “negative watch” by the credit rating organizations. Some Puerto Rico issuers are in default on principal and interest payments. The Government Development Bank, which provides liquidity to Puerto Rico’s government agencies, defaulted on a $400 million debt payment. This default casts doubts on the ability of Puerto Rico and its government agencies to make future payments. If there are additional defaults and the general economic situation in Puerto Rico persist or worsen, the volatility and credit quality of Puerto Rican municipal securities could 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.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Strategy may be subject to a heightened risk of rising interest rates as the current period of historically low rates is beginning to end and rates have begun rising. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Strategy’s assets can decline as can the value of the Strategy’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 49 |
NOTES TO FINANCIAL STATEMENTS (continued)
Derivatives Risk—The Strategy 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 Strategy, 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 Strategy 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 Strategy’s investments. The Strategy 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 Strategy, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Strategy than if the Strategy were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Strategy. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of fund shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
Indemnification Risk—In the ordinary course of business, the Strategy enters into contracts that contain a variety of indemnifications. The Strategy’s maximum exposure under these arrangements is unknown. However, the Strategy has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Strategy has not accrued any liability in connection with these indemnification provisions.
50 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Strategy, participate in a $280 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 Strategy did not utilize the Facility during the six months ended April 30, 2017.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2016 and October 31, 2015 were as follows:
2016 | 2015 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 423,254 | $ | 456,565 | ||||
Long-term capital gains | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Total taxable distributions | 423,254 | 456,565 | ||||||
Tax-exempt distributions | 14,742,426 | 13,443,276 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 15,165,680 | $ | 13,899,841 | ||||
|
|
|
|
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 70,147 | ||
Accumulated capital and other losses | (5,746,624 | )(a) | ||
Unrealized appreciation/(depreciation) | (17,170,302 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (22,846,779 | ) | |
|
|
(a) | As of October 31, 2016, the Strategy had a net capital loss carryforward of $5,746,624. |
(b) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax treatment of swaps. |
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 October 31, 2016, the Strategy had a net short-term capital loss carryforward of $344,563 and a net long-term capital loss carryforward of $5,402,061 which may be carried forward for an indefinite period.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 51 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE I
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
NOTE J
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE K
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Strategy’s financial statements through this date.
52 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.29 | $ 10.14 | $ 10.48 | $ 10.35 | $ 10.80 | $ 10.32 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .10 | .18 | .15 | .13 | .12 | .14 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.01 | ) | .16 | (.34 | ) | .12 | (.44 | ) | .50 | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .09 | .34 | (.19 | ) | .25 | (.32 | ) | .64 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.19 | ) | (.15 | ) | (.12 | ) | (.11 | ) | (.14 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.09 | ) | (.19 | ) | (.15 | ) | (.12 | ) | (.13 | ) | (.16 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.29 | $ 10.29 | $ 10.14 | $ 10.48 | $ 10.35 | $ 10.80 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .92 | % | 3.38 | % | (1.83 | )% | 2.44 | % | (2.98 | )% | 6.22 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $61,337 | $37,345 | $41,122 | $60,016 | $95,466 | $79,735 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .74 | %^ | .75 | % | .76 | % | .80 | % | .80 | % | .80 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | .85 | %^ | .86 | % | .87 | % | .90 | % | .91 | % | .95 | % | ||||||||||||
Net investment income(a) | 1.91 | %^ | 1.78 | % | 1.49 | % | 1.24 | % | 1.10 | % | 1.34 | % | ||||||||||||
Portfolio turnover rate | 5 | % | 9 | % | 17 | % | 18 | % | 15 | % | 10 | % |
See footnote summary on page 58.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 53 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||||||
Six Months 2017 (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.27 | $ 10.12 | $ 10.46 | $ 10.33 | $ 10.78 | $ 10.30 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .06 | .10 | .08 | .06 | .04 | .07 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.00 | )(c) | .16 | (.35 | ) | .12 | (.43 | ) | .50 | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .06 | .26 | (.27 | ) | .18 | (.39 | ) | .57 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.06 | ) | (.11 | ) | (.07 | ) | (.05 | ) | (.04 | ) | (.07 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.06 | ) | (.11 | ) | (.07 | ) | (.05 | ) | (.06 | ) | (.09 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.27 | $ 10.27 | $ 10.12 | $ 10.46 | $ 10.33 | $ 10.78 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .55 | % | 2.61 | % | (2.56 | )% | 1.72 | % | (3.67 | )% | 5.51 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $13,699 | $10,805 | $13,154 | $20,873 | $29,748 | $35,436 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.49 | %^ | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.60 | %^ | 1.61 | % | 1.61 | % | 1.60 | % | 1.61 | % | 1.65 | % | ||||||||||||
Net investment income(a) | 1.16 | %^ | 1.03 | % | .75 | % | .54 | % | .41 | % | .64 | % | ||||||||||||
Portfolio turnover rate | 5 | % | 9 | % | 17 | % | 18 | % | 15 | % | 10 | % |
See footnote summary on page 58.
54 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.30 | $ 10.14 | $ 10.48 | $ 10.35 | $ 10.81 | $ 10.32 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | .21 | .18 | .16 | .15 | .17 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.00 | )(c) | .17 | (.34 | ) | .12 | (.45 | ) | .51 | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .11 | .38 | (.16 | ) | .28 | (.30 | ) | .68 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.22 | ) | (.18 | ) | (.15 | ) | (.14 | ) | (.17 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.11 | ) | (.22 | ) | (.18 | ) | (.15 | ) | (.16 | ) | (.19 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.30 | $ 10.30 | $ 10.14 | $ 10.48 | $ 10.35 | $ 10.81 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 1.04 | % | 3.74 | % | (1.56 | )% | 2.75 | % | (2.78 | )% | 6.64 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $210,626 | $152,275 | $171,789 | $185,106 | $179,620 | $85,781 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .49 | %^ | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | .60 | %^ | .61 | % | .61 | % | .60 | % | .61 | % | .65 | % | ||||||||||||
Net investment income(a) | 2.16 | %^ | 2.03 | % | 1.76 | % | 1.55 | % | 1.39 | % | 1.63 | % | ||||||||||||
Portfolio turnover rate | 5 | % | 9 | % | 17 | % | 18 | % | 15 | % | 10 | % |
See footnote summary on page 58.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 55 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.26 | $ 10.11 | $ 10.45 | $ 10.33 | $ 10.78 | $ 10.30 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .10 | .20 | .17 | .15 | .14 | .16 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.00 | )(c) | .16 | (.34 | ) | .12 | (.43 | ) | .50 | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .10 | .36 | (.17 | ) | .27 | (.29 | ) | .66 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.10 | ) | (.21 | ) | (.17 | ) | (.15 | ) | (.14 | ) | (.16 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.10 | ) | (.21 | ) | (.17 | ) | (.15 | ) | (.16 | ) | (.18 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.26 | $ 10.26 | $ 10.11 | $ 10.45 | $ 10.33 | $ 10.78 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 1.00 | % | 3.58 | % | (1.62 | )% | 2.60 | % | (2.76 | )% | 6.45 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $374,265 | $333,311 | $386,448 | $408,307 | $419,573 | $236,285 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .59 | %^ | .60 | % | .60 | % | .60 | % | .60 | % | .60 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | .68 | %^ | .68 | % | .67 | % | .66 | % | .67 | % | .74 | % | ||||||||||||
Net investment income(a) | 2.05 | %^ | 1.93 | % | 1.66 | % | 1.44 | % | 1.30 | % | 1.54 | % | ||||||||||||
Portfolio turnover rate | 5 | % | 9 | % | 17 | % | 18 | % | 15 | % | 10 | % |
See | footnote summary on page 58. |
56 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.26 | $ 10.12 | $ 10.46 | $ 10.33 | $ 10.79 | $ 10.31 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | .21 | .18 | .16 | .15 | .17 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.00 | )(c) | .15 | (.34 | ) | .13 | (.44 | ) | .50 | |||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .11 | .36 | (.16 | ) | .29 | (.29 | ) | .67 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.22 | ) | (.18 | ) | (.16 | ) | (.15 | ) | (.17 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.11 | ) | (.22 | ) | (.18 | ) | (.16 | ) | (.17 | ) | (.19 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.26 | $ 10.26 | $ 10.12 | $ 10.46 | $ 10.33 | $ 10.79 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return |
| |||||||||||||||||||||||
Total investment return based on net asset value(d) | 1.05 | % | 3.58 | % | (1.52 | )% | 2.79 | % | (2.75 | )% | 6.54 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $193,429 | $170,155 | $176,066 | $185,904 | $183,237 | $92,507 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers(e) | .49 | %^ | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||||
Expenses, before waivers(e) | .58 | %^ | .58 | % | .57 | % | .56 | % | .57 | % | .64 | % | ||||||||||||
Net investment income(a) | 2.15 | %^ | 2.03 | % | 1.76 | % | 1.54 | % | 1.39 | % | 1.64 | % | ||||||||||||
Portfolio turnover rate. | 5 | % | 9 | % | 17 | % | 18 | % | 15 | % | 10 | % |
See footnote summary on page 58.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 57 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | Net of fees waived and expenses reimbursed by the Adviser. |
(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. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | In connection with the Strategy’s investments in affiliated underlying portfolios, the Strategy incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Strategy in an amount equal to the Strategy’s pro rata share of certain acquired fund fees and expenses, and for the six months ended April 30, 2017, such waiver amounted to 0.01% annualized for the Strategy. |
^ | Annualized. |
See notes to financial statements.
58 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) | Nancy P. Jacklin(1) Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Robert (“Guy”) B. 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 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 State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
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 Strategy’s portfolio are made by the Adviser’s Municipal Bond Investment Team. Messrs. Robert “Guy” B. Davidson III, Terrance T. Hults, Matthew J. Norton and Andrew D. Potter are the investment professionals with the most significant responsibility for the day-to-day management of the Strategy’s portfolio. |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 59 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Municipal Bond Inflation Strategy (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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
60 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency and distribution services to 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.
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Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. 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 and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional
62 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. 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 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 light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 63 |
noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 65 |
NOTES
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NOTES
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NOTES
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AB MUNICIPAL BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
MBIS-0152-0417
APR 04.30.17
SEMI-ANNUAL REPORT
AB TAX-AWARE FIXED INCOME PORTFOLIO
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 on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. 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 Fixed Income Portfolio (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 FIXED INCOME PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
June 12, 2017
This report provides management’s discussion of fund performance for AB Tax-Aware Fixed Income Portfolio for the semi-annual reporting period ended April 30, 2017.
The investment objective of the Fund is to seek to maximize after-tax return and income.
NAV RETURNS AS OF APRIL 30, 2017 (unaudited)
6 Months | 12 Months | |||||||
AB TAX-AWARE FIXED INCOME PORTFOLIO | ||||||||
Class A Shares | -1.07% | -0.34% | ||||||
Class C Shares | -1.44% | -1.09% | ||||||
Advisor Class Shares1 | -0.95% | -0.09% | ||||||
Bloomberg Barclays Municipal Bond Index | -0.34% | 0.14% |
1 | Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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 April 30, 2017.
All share classes of the Fund underperformed the benchmark over both periods, before sales charges. An overweight in intermediate maturity bonds relative to the benchmark, detracted from performance during both periods. An overweight in taxable municipal bonds and in the senior living sector added to performance; a position in US Treasuries detracted. Security selection in the local general obligation and tobacco bond sectors benefited performance; security selection in the industrial development bond sector detracted.
The Fund used derivatives during both periods, which had no material impact on absolute performance. Interest rate swaps and inflation swaps were used for hedging purposes; credit default swaps were used for investment purposes for the 12-month period.
MARKET REVIEW AND INVESTMENT STRATEGY
The relatively strong performance of equities and corporate bonds during the six- and 12-month periods reflected investors’ expectations that economic
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growth should be solid going forward. Within the municipal market, this sentiment was reflected in higher interest rates and the better performance of mid-grade bonds over high-grade bonds. The Fund’s Senior Investment Management Team (the “Team”) positioned the Fund to be what it considers neutral with respect to interest-rate risk. Given the still-sizable debt overhang in the US and other major economies, rates may not climb as high as they have in previous tightening cycles, and this may limit future increases in longer-term bond yields, in the Team’s view.
The specter of tax reform remains on the horizon, though the chances of significant reform have declined recently as Republicans continue to grapple with repealing and replacing the Affordable Care Act. At the end of the reporting period, the market yields of municipal bonds relative to taxable bonds suggested a low probability of significant tax reform. The after-tax income of municipals relative to taxable bonds would be below average, however, if tax rates were cut to 33%, as proposed by both President Trump and House Speaker Ryan. The relative advantage of municipals would fall sharply if long-term capital gains rates were cut as in certain proposals and taxable interest were subject to the same reduced rate. While significant tax reform may be unlikely in the near term, the Team continues to position the Fund with a relatively small portion in the longest-maturity bonds; this potentially reduces the Fund’s exposure to tax reform should a push to significantly cut taxes materialize in the months ahead.
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 fund 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 April 30, 2017, 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 4.92% and 0.00%, respectively.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in a national portfolio of both municipal and taxable fixed-income securities. The Fund invests, under normal circumstances, at least 80% of its net
(continued on next page)
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 3 |
assets in fixed-income securities. The Fund also invests, under normal circumstances, at least 65% of its total 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 income earned and distributed to shareholders on non-municipal securities would not be exempt from federal income tax. The Fund may invest in fixed-income securities rated below investment grade (commonly known as “junk bonds”), although such securities are not expected to be the Fund’s primary focus.
The Adviser selects securities for the Fund based on a variety of factors, including credit quality, maturity, diversification benefits, and the relative expected after-tax returns of taxable and municipal securities (considering federal tax rates and without regard to state and local income taxes). As the objective is to increase the after-tax return of the Fund, an investor in the Fund may incur a tax liability that will generally be greater than the same investor would have in a fund investing exclusively in municipal securities, and that will be higher if the investor is in a higher tax bracket. In addition, the tax implications of the Fund’s trading activity, such as realizing taxable gains, are considered in making purchase and sale decisions for the Fund. The Fund may invest in fixed-income securities of any maturity from short- to long-term.
The Fund may also invest in forward commitments, zero-coupon municipal securities and variable, floating and inverse floating-rate municipal securities.
The Fund may use derivatives, such as swaps, options, futures contracts and forwards, to achieve its investment strategies. For example, the Fund may enter into credit default and interest rate swaps relating to municipal and taxable fixed-income securities or securities indices. Derivatives may provide more efficient and economical exposure to fixed-income securities markets than direct investments.
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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 mutual fund portfolio. 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 bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade 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 municipal or corporate developments, negative performance of the junk bond market generally and less secondary market liquidity.
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, 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 and catastrophic natural disasters, such as hurricanes or earthquakes. 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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 5 |
DISCLOSURES AND RISKS (continued)
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. Like many US states and municipalities, Puerto Rico experienced a significant downturn during the recent 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 many Puerto Rico issuers have extremely low credit ratings and are on “negative watch” by credit rating organizations. Some Puerto Rico issuers are in default on principal and interest payments. The Government Development Bank, which provides liquidity to Puerto Rico’s government agencies, defaulted on a $400 million debt payment. This default casts doubts on the ability of Puerto Rico and its government agencies to make future payments. If there are additional defaults and the general economic situation in Puerto Rico persists or worsens, the volatility and credit quality of Puerto Rican municipal securities could 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.
Tax Risk: 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.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Fund may be subject to heightened interest rate risk due to
6 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the 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.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of liquidity risk may include low trading volumes and large positions. Municipal securities may have more liquidity risk than other fixed-income securities because they trade less frequently and the market for municipal securities is generally smaller than many other markets.
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.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional 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.
These and other risks are more fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
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DISCLOSURES AND RISKS (continued)
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. 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 visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns and the Fund’s returns shown in the line graphs reflect the applicable sales charges for each share class: a 3% maximum front-end sales charge for Class A shares; a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to their different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2017 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS A SHARES | ||||||||
1 Year | -0.34% | -3.35% | ||||||
Since Inception1 | 3.72% | 2.79% | ||||||
CLASS C SHARES | ||||||||
1 Year | -1.09% | -2.07% | ||||||
Since Inception1 | 2.97% | 2.97% | ||||||
ADVISOR CLASS SHARES2 | ||||||||
1 Year | -0.09% | -0.09% | ||||||
Since Inception1 | 4.00% | 4.00% |
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2017 (unaudited)
SEC Returns (reflects applicable | ||||
CLASS A SHARES | ||||
1 Year | -3.21% | |||
Since Inception1 | 2.60% | |||
CLASS C SHARES | ||||
1 Year | -1.99% | |||
Since Inception1 | 2.81% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | -0.01% | |||
Since Inception1 | 3.84% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.67%, 2.42% and 1.42% for Class A, Class C and Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios exclusive of expenses associated with securities sold short, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, brokerage commissions and other transaction costs to 0.75%, 1.50% and 0.50% for Class A, Class C and Advisor Class shares, respectively. These waivers/reimbursements may not be terminated prior to January 31, 2018 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
1 | Inception date: 12/11/2013. |
2 | Please note that Advisor Class shares are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, 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.
10 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2016 | Ending Account Value April 30, 2017 | Expenses Paid During Period* | Annualized Expense Ratio* | Effective Expenses Paid During Period+ | Effective Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 989.30 | $ | 3.70 | 0.75 | % | $ | 3.80 | 0.77 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.08 | $ | 3.76 | 0.75 | % | $ | 3.86 | 0.77 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 985.60 | $ | 7.38 | 1.50 | % | $ | 7.43 | 1.51 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.36 | $ | 7.50 | 1.50 | % | $ | 7.55 | 1.51 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 990.50 | $ | 2.47 | 0.50 | % | $ | 2.57 | 0.52 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.32 | $ | 2.51 | 0.50 | % | $ | 2.61 | 0.52 | % |
* | Expenses are equal to the Portfolio’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. Currently the Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s effective expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 11 |
PORTFOLIO SUMMARY
April 30, 2017 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $59.0
1 | All data are as of April 30, 2017. The Fund’s quality rating and state breakdowns are 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 Standard & Poor’s 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. |
2 | “Other” represents less than 2.2% in 20 different states, District of Columbia and Puerto Rico. |
12 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS
April 30, 2017 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 82.5% | ||||||||
Long-Term Municipal Bonds – 82.5% | ||||||||
Alabama – 1.5% | ||||||||
County of Jefferson AL Sewer Revenue | $ | 110 | $ | 126,390 | ||||
Water Works Board of the City of Birmingham (The) | 680 | 788,358 | ||||||
|
| |||||||
914,748 | ||||||||
|
| |||||||
Arizona – 2.6% | ||||||||
Arizona Health Facilities Authority | 110 | 108,781 | ||||||
City of Peoria AZ | 1,000 | 1,186,910 | ||||||
Industrial Development Authority of the City of Phoenix (The) | 100 | 105,404 | ||||||
Salt Verde Financial Corp. | 100 | 117,179 | ||||||
|
| |||||||
1,518,274 | ||||||||
|
| |||||||
California – 0.5% | ||||||||
California Pollution Control Financing Authority (Poseidon Resources Channelside LP) | 250 | 265,855 | ||||||
|
| |||||||
Colorado – 1.8% | ||||||||
Colorado Health Facilities Authority | 170 | 176,644 | ||||||
Colorado Health Facilities Authority | 200 | 229,274 | ||||||
Denver City & County School District No 1 | 560 | 673,383 | ||||||
|
| |||||||
1,079,301 | ||||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Connecticut – 3.1% | ||||||||
Connecticut State Health & Educational Facility Authority | $ | 100 | $ | 97,060 | ||||
State of Connecticut | 1,000 | 1,172,580 | ||||||
Series 2016G | 500 | 557,190 | ||||||
|
| |||||||
1,826,830 | ||||||||
|
| |||||||
Delaware – 1.3% | ||||||||
State of Delaware | 650 | 763,977 | ||||||
|
| |||||||
District of Columbia – 0.2% | ||||||||
District of Columbia | 100 | 102,267 | ||||||
|
| |||||||
Florida – 9.1% | ||||||||
Bexley Community Development District | 100 | 94,366 | ||||||
Brevard County School District COP | 290 | 344,155 | ||||||
Capital Trust Agency, Inc. | 100 | 90,980 | ||||||
Citizens Property Insurance Corp. | 560 | 629,539 | ||||||
Collier County Industrial Development Authority (Arlington of Naples (The)) | 100 | 114,199 | ||||||
County of Miami-Dade FL | 780 | 905,104 | ||||||
County of Miami-Dade FL Aviation Revenue | 265 | 302,232 |
14 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
County of Orange FL Tourist Development Tax Revenue | $ | 435 | $ | 497,144 | ||||
Florida Development Finance Corp. | 100 | 97,732 | ||||||
Florida Development Finance Corp. | 100 | 80,704 | ||||||
Florida’s Turnpike Enterprise | 1,605 | 1,793,603 | ||||||
School District of Broward County/FL | 365 | 440,048 | ||||||
|
| |||||||
5,389,806 | ||||||||
|
| |||||||
Georgia – 0.6% | ||||||||
City of Atlanta Department of Aviation | 310 | 351,776 | ||||||
|
| |||||||
Hawaii – 0.9% | ||||||||
State of Hawaii | 460 | 550,592 | ||||||
|
| |||||||
Illinois – 5.4% | ||||||||
Chicago Board of Education | 140 | 111,629 | ||||||
Chicago O’Hare International Airport | 335 | 364,038 | ||||||
City of Chicago IL | 100 | 101,538 | ||||||
City of Chicago IL | 100 | 98,692 | ||||||
Illinois Finance Authority | 50 | 27,000 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Illinois Finance Authority | $ | 85 | $ | 81,081 | ||||
Series 2016C | 15 | 641 | ||||||
Illinois Finance Authority | 100 | 101,702 | ||||||
Illinois Finance Authority | 250 | 268,377 | ||||||
Illinois Municipal Electric Agency | 465 | 530,997 | ||||||
Metropolitan Pier & Exposition Authority | 600 | 602,052 | ||||||
State of Illinois | 100 | 100,932 | ||||||
Series 2013 | 270 | 290,380 | ||||||
Series 2014 | 130 | 129,695 | ||||||
Series 2016 | 375 | 397,181 | ||||||
|
| |||||||
3,205,935 | ||||||||
|
| |||||||
Indiana – 1.7% | ||||||||
Indiana Finance Authority | 160 | 169,173 | ||||||
Indiana Finance Authority | 490 | 517,072 | ||||||
Indiana Finance Authority | 190 | 202,257 | ||||||
Indiana Finance Authority | 100 | 107,042 | ||||||
|
| |||||||
995,544 | ||||||||
|
|
16 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Kentucky – 0.5% | ||||||||
Kentucky Economic Development Finance Authority | $ | 65 | $ | 65,014 | ||||
Louisville/Jefferson County Metropolitan Government | 225 | 249,759 | ||||||
|
| |||||||
314,773 | ||||||||
|
| |||||||
Louisiana – 0.3% | ||||||||
City of New Orleans LA Water Revenue | 100 | 111,739 | ||||||
Louisiana Public Facilities Authority | 250 | 85,000 | ||||||
|
| |||||||
196,739 | ||||||||
|
| |||||||
Maine – 0.5% | ||||||||
Finance Authority of Maine | 100 | 102,979 | ||||||
Maine Health & Higher Educational Facilities Authority | 165 | 188,145 | ||||||
|
| |||||||
291,124 | ||||||||
|
| |||||||
Maryland – 3.9% | ||||||||
University System of Maryland | 365 | 378,578 | ||||||
Series 2017A | 1,635 | 1,943,263 | ||||||
|
| |||||||
2,321,841 | ||||||||
|
| |||||||
Massachusetts – 2.7% | ||||||||
Commonwealth of Massachusetts | 1,000 | 1,228,890 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
NATL Series 2000E | $ | 125 | $ | 114,039 | ||||
NATL Series 2000G | 300 | 273,750 | ||||||
|
| |||||||
1,616,679 | ||||||||
|
| |||||||
Michigan – 2.0% | ||||||||
City of Detroit MI Sewage Disposal System Revenue | 115 | 131,470 | ||||||
Michigan Finance Authority | 735 | 769,810 | ||||||
Michigan Finance Authority | 235 | 262,730 | ||||||
|
| |||||||
1,164,010 | ||||||||
|
| |||||||
Minnesota – 0.4% | ||||||||
City of Minneapolis MN | 200 | 226,536 | ||||||
|
| |||||||
Missouri – 0.2% | ||||||||
Kansas City Industrial Development Authority (Kingswood Senior Living Community) | 100 | 96,254 | ||||||
|
| |||||||
Nebraska – 0.2% | ||||||||
Central Plains Energy Project | 100 | 106,030 | ||||||
|
| |||||||
Nevada – 4.6% | ||||||||
Clark County Water Reclamation District | 1,305 | 1,526,041 | ||||||
County of Clark NV | 1,000 | 1,209,380 | ||||||
|
| |||||||
2,735,421 | ||||||||
|
|
18 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Hampshire – 0.2% | ||||||||
New Hampshire Health and Education Facilities Authority Act | $ | 115 | $ | 124,879 | ||||
|
| |||||||
New Jersey – 3.0% | ||||||||
New Jersey Economic Development Authority | 30 | 33,107 | ||||||
New Jersey Economic Development Authority (New Jersey Economic Development Authority State Lease) | 260 | 274,565 | ||||||
New Jersey Economic Development Authority (United Airlines, Inc.) | 85 | 92,602 | ||||||
New Jersey Transportation Trust Fund Authority (New Jersey Transportation Fed Hwy Grant) | 550 | 585,161 | ||||||
New Jersey Transportation Trust Fund Authority (New Jersey Transportation Trust Fund Authority State Lease) | 240 | 256,090 | ||||||
New Jersey Turnpike Authority | 315 | 353,061 | ||||||
Tobacco Settlement Financing Corp./NJ | 185 | 180,192 | ||||||
|
| |||||||
1,774,778 | ||||||||
|
| |||||||
New York – 5.7% | ||||||||
City of New York NY | 340 | 389,807 | ||||||
Metropolitan Transportation Authority | 315 | 362,845 | ||||||
New York State Dormitory Authority | 200 | 215,416 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New York State Dormitory Authority | $ | 425 | $ | 499,009 | ||||
New York State Energy Research & Development Authority | 200 | 180,436 | ||||||
New York State Thruway Authority | 365 | 421,144 | ||||||
New York State Urban Development Corp. | 1,000 | 1,202,230 | ||||||
Ulster County Industrial Development Agency (Kingston Regional Senior Living Corp.) | 120 | 120,503 | ||||||
|
| |||||||
3,391,390 | ||||||||
|
| |||||||
North Carolina – 1.0% | ||||||||
North Carolina Turnpike Authority | 500 | 568,920 | ||||||
|
| |||||||
Ohio – 2.5% | ||||||||
Buckeye Tobacco Settlement Financing Authority | 170 | 162,945 | ||||||
City of Akron OH | 445 | 511,470 | ||||||
City of Columbus OH | 110 | 125,238 | ||||||
County of Cuyahoga OH | 365 | 420,779 | ||||||
Dayton-Montgomery County Port Authority (StoryPoint Troy Project) | 100 | 101,110 |
20 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Ohio Air Quality Development Authority (FirstEnergy Generation LLC) | $ | 145 | $ | 135,056 | ||||
|
| |||||||
1,456,598 | ||||||||
|
| |||||||
Pennsylvania – 6.3% | ||||||||
City of Philadelphia PA | 1,000 | 1,144,830 | ||||||
Delaware River Joint Toll Bridge Commission | 1,500 | 1,743,885 | ||||||
Montour School District | 450 | 506,830 | ||||||
Moon Industrial Development Authority | 100 | 103,882 | ||||||
Pennsylvania Economic Development Financing Authority | 100 | 100,672 | ||||||
Pennsylvania Economic Development Financing Authority | 100 | 108,478 | ||||||
|
| |||||||
3,708,577 | ||||||||
|
| |||||||
Puerto Rico – 0.2% | ||||||||
Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth | 100 | 96,000 | ||||||
|
| |||||||
South Carolina – 1.0% | ||||||||
South Carolina Public Service Authority | 265 | 287,098 | ||||||
Spartanburg County School District No 1/SC | 250 | 289,840 | ||||||
|
| |||||||
576,938 | ||||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Tennessee – 0.4% | ||||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facs Bd | $ | 215 | $ | 241,335 | ||||
|
| |||||||
Texas – 14.0% | ||||||||
Central Texas Regional Mobility Authority | 100 | 108,494 | ||||||
City of Houston TX | 260 | 293,420 | ||||||
Series 2015 | 160 | 180,566 | ||||||
City of San Antonio TX Electric & Gas Systems Revenue | 1,155 | 1,276,425 | ||||||
Dallas Area Rapid Transit | 580 | 695,907 | ||||||
Dallas County Flood Control District No 1 | 100 | 105,451 | ||||||
Love Field Airport Modernization Corp. | 500 | 566,080 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 100 | 101,238 | ||||||
North Texas Tollway Authority | 250 | 281,798 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 100 | 106,199 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 100 | 104,786 |
22 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Tarrant Regional Water District | $ | 325 | $ | 384,261 | ||||
Texas Transportation Commission State Highway Fund | 1,300 | 1,441,687 | ||||||
Travis County Cultural Education Facilities Finance Corp. | 160 | 160,048 | ||||||
Travis County Health Facilities Development Corp. | 55 | 59,761 | ||||||
Trinity River Authority Central Regional Wastewater System Revenue | 795 | 900,569 | ||||||
Trinity River Authority LLC | 335 | 378,577 | ||||||
University of Houston | 1,000 | 1,131,000 | ||||||
|
| |||||||
8,276,267 | ||||||||
|
| |||||||
Virginia – 0.2% | ||||||||
Tobacco Settlement Financing Corp./VA | 100 | 94,933 | ||||||
|
| |||||||
Washington – 3.0% | ||||||||
Port of Seattle WA | 510 | 569,415 | ||||||
State of Washington | 830 | 974,138 | ||||||
Washington State Housing Finance Commission (Mirabella) | 100 | 103,882 | ||||||
Washington State Housing Finance Commission (Rockwood Retirement Communities) | 100 | 111,390 | ||||||
|
| |||||||
1,758,825 | ||||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
West Virginia – 0.2% | ||||||||
West Virginia Hospital Finance Authority | $ | 100 | $ | 90,957 | ||||
|
| |||||||
Wisconsin – 0.8% | ||||||||
Wisconsin Public Finance Authority | 100 | 100,519 | ||||||
Wisconsin Public Finance Authority | 130 | 136,728 | ||||||
Wisconsin Public Finance Authority | 263 | 264,159 | ||||||
|
| |||||||
501,406 | ||||||||
|
| |||||||
Total Municipal Obligations | 48,696,115 | |||||||
|
| |||||||
GOVERNMENTS – TREASURIES – 8.3% | ||||||||
United States – 8.3% | ||||||||
U.S. Treasury Notes | 1,150 | 1,155,031 | ||||||
2.25%, 12/31/23 | 3,725 | 3,766,907 | ||||||
|
| |||||||
Total Governments – Treasuries | 4,921,938 | |||||||
|
| |||||||
ASSET-BACKED SECURITIES – 0.9% | ||||||||
Autos - Fixed Rate – 0.5% | ||||||||
Ally Auto Receivables Trust | 100 | 99,485 | ||||||
Ford Credit Floorplan Master Owner Trust | 100 | 100,015 | ||||||
Hertz Vehicle Financing LLC | 100 | 99,645 | ||||||
Volkswagen Auto Loan Enhanced Trust | 14 | 14,307 | ||||||
|
| |||||||
Total Autos – Fixed Rate | 313,452 | |||||||
|
|
24 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Credit Cards - Fixed Rate – 0.2% | ||||||||
Synchrony Credit Card Master Note Trust | $ | 100 | $ | 100,452 | ||||
|
| |||||||
Credit Cards - Floating Rate – 0.2% | ||||||||
Cabela’s Credit Card Master Note Trust | 100 | 100,045 | ||||||
|
| |||||||
Total Asset-Backed Securities | 513,949 | |||||||
|
| |||||||
COMMERCIAL MORTGAGE-BACKED SECURITY – 0.2% | ||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||
Citigroup Commercial Mortgage Trust | 100 | 101,348 | ||||||
|
| |||||||
COLLATERALIZED MORTGAGE | ||||||||
Risk Share Floating Rate – 0.0% | ||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 14 | 14,353 | ||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 7.5% | ||||||||
Investment Companies – 7.5% | ||||||||
AB Fixed Income Shares, Inc. – | 4,391,869 | 4,391,869 | ||||||
|
| |||||||
Total Investments – 99.4% | 58,639,572 | |||||||
Other assets less liabilities – 0.6% | 367,475 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 59,007,047 | ||||||
|
|
(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 April 30, 2017, the aggregate market value of these securities amounted to $1,991,499 or 3.4% of net assets. |
(b) | Restricted and illiquid security. |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Capital Trust Agency, Inc. | 12/19/14 | $ | 95,328 | $ | 90,980 | 0.15 | % | |||||||||
Illinois Finance Authority (Greenfields of Geneva) | 12/18/13 | 48,112 | 27,000 | 0.05 | % | |||||||||||
Louisiana Public Facilities Authority (Louisiana Pellets, Inc.) | 7/31/14 | 250,000 | 85,000 | 0.14 | % |
(c) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.17% of net assets as of April 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
City of Chicago IL | 5/27/15 | $ | 100,000 | $ | 98,692 | 0.17 | % |
(d) | Defaulted. |
(e) | Non-income producing security. |
(f) | Illiquid security. |
(g) | An auction rate security whose interest rate resets at each auction date. Auctions are typically held every week or month. The rate shown is as of April 30, 2017 and the aggregate market value of these securities amounted to $659,182 or 1.12% of net assets. |
(h) | Floating Rate Security. Stated interest/floor rate was in effect at April 30, 2017. |
(i) | Investment in affiliated money market mutual fund. 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 April 30, 2017, 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 4.9% and 0.0%, respectively.
Glossary:
AGM – Assured Guaranty Municipal
CMBS – Commercial Mortgage-Backed Securities
COP – Certificate of Participation
ETM – Escrowed to Maturity
LIBOR – London Interbank Offered Rates
NATL – National Interstate Corporation
XLCA – XL Capital Assurance Inc.
See notes to financial statements.
26 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2017 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $53,281,284) | $ | 54,247,703 | ||
Affiliated issuers (cost $4,391,869) | 4,391,869 | |||
Interest receivable | 647,116 | |||
Receivable for investment securities sold | 104,271 | |||
Receivable for capital stock sold | 101,785 | |||
Receivable due from Adviser | 2,269 | |||
Affiliated dividends receivable | 1,874 | |||
Receivable for terminated interest rate swaps | 1,159 | |||
|
| |||
Total assets | 59,498,046 | |||
|
| |||
Liabilities | ||||
Payable for capital stock redeemed | 276,288 | |||
Payable for investment securities purchased | 103,433 | |||
Custody fee payable | 32,809 | |||
Audit and tax fee payable | 25,632 | |||
Dividends payable | 18,916 | |||
Distribution fee payable | 2,705 | |||
Transfer Agent fee payable | 1,540 | |||
Accrued expenses | 29,676 | |||
|
| |||
Total liabilities | 490,999 | |||
|
| |||
Net Assets | $ | 59,007,047 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 5,541 | ||
Additional paid-in capital | 57,859,087 | |||
Undistributed net investment income | 15,677 | |||
Accumulated net realized gain on investment transactions | 160,323 | |||
Net unrealized appreciation on investments | 966,419 | |||
|
| |||
$ | 59,007,047 | |||
|
|
Net Asset Value Per Share—18 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 8,910,287 | 836,779 | $ | 10.65 | * | ||||||
| ||||||||||||
C | $ | 1,242,458 | 116,657 | $ | 10.65 | |||||||
| ||||||||||||
Advisor | $ | 48,854,302 | 4,587,144 | $ | 10.65 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.98 which reflects a sales charge of 3.00%. |
See notes to financial statements.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 27 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2017 (unaudited)
Investment Income | ||||||||
Interest | $ | 676,747 | ||||||
Dividends—Affiliated issuers | 8,401 | |||||||
Other income | 5 | $ | 685,153 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 117,771 | |||||||
Distribution fee—Class A | 10,019 | |||||||
Distribution fee—Class C | 8,653 | |||||||
Transfer agency—Class A | 2,288 | |||||||
Transfer agency—Class C | 517 | |||||||
Transfer agency—Advisor Class | 11,586 | |||||||
Custodian | 47,379 | |||||||
Administrative | 28,913 | |||||||
Audit and tax | 27,696 | |||||||
Registration fees | 24,434 | |||||||
Legal | 19,146 | |||||||
Directors’ fees | 12,823 | |||||||
Printing | 7,467 | |||||||
Miscellaneous | 2,791 | |||||||
|
| |||||||
Total expenses | 321,483 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (176,223 | ) | ||||||
|
| |||||||
Net expenses | 145,260 | |||||||
|
| |||||||
Net investment income | 539,893 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (213,947 | ) | ||||||
Swaps | 559,416 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (487,910 | ) | ||||||
Swaps | (419,786 | ) | ||||||
|
| |||||||
Net loss on investment transactions | (562,227 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (22,334 | ) | |||||
|
|
See notes to financial statements.
28 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, 2016 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 539,893 | $ | 845,201 | ||||
Net realized gain (loss) on investment transactions | 345,469 | (148,501 | ) | |||||
Net change in unrealized appreciation/depreciation of investments | (907,696 | ) | 1,057,313 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (22,334 | ) | 1,754,013 | |||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (78,781 | ) | (127,309 | ) | ||||
Class C | (10,464 | ) | (23,951 | ) | ||||
Advisor Class | (449,931 | ) | (688,508 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 17,494,258 | 8,526,502 | ||||||
|
|
|
| |||||
Total increase | 16,932,748 | 9,440,747 | ||||||
Net Assets | ||||||||
Beginning of period | 42,074,299 | 32,633,552 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $15,677 and $14,960, respectively) | $ | 59,007,047 | $ | 42,074,299 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 29 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2017 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of ten portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Tax-Aware Fixed Income Portfolio (the “Portfolio”), a diversified portfolio. The Portfolio has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class 1 and Class 2 shares. Class B, Class 1 and Class 2 shares have not been issued. Class A shares are sold with a front-end sales charge of up to 3.0% for purchases not exceeding $500,000. With respect to purchases of $500,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase and 0% after the first year of purchase. Effective April 10, 2017, Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class shares are sold without any initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All six classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. 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 Portfolio 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 Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (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
30 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price 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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement 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 Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The 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
32 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are 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 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 Portfolio’s investments by the above fair value hierarchy levels as of April 30, 2017:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 46,535,969 | $ | 2,160,146 | $ | 48,696,115 | |||||||
Governments – Treasuries | – 0 | – | 4,921,938 | – 0 | – | 4,921,938 | ||||||||||
Asset-Backed Securities | – 0 | – | 513,949 | – 0 | – | 513,949 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 101,348 | – 0 | – | 101,348 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 14,353 | – 0 | – | 14,353 | ||||||||||
Short-Term Investments | 4,391,869 | – 0 | – | – 0 | – | 4,391,869 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 4,391,869 | 52,087,557 | 2,160,146 | 58,639,572 | ||||||||||||
Other Financial Instruments(a) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(b) | $ | 4,391,869 | $ | 52,087,557 | $ | 2,160,146 | $ | 58,639,572 | ||||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. |
(b) | There were no transfers between any levels during the reporting period. |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Long-Term Municipal Bonds | Total | |||||||
Balance as of 10/31/16 | $ | 2,401,063 | $ | 2,401,063 | ||||
Accrued discounts/(premiums) | (1,643 | ) | (1,643 | ) | ||||
Realized gain (loss) | 7,619 | 7,619 | ||||||
Change in unrealized appreciation/depreciation | (153,161 | ) | (153,161 | ) | ||||
Purchases | 12,500 | 12,500 | ||||||
Sales | (106,232 | ) | (106,232 | ) | ||||
Transfers in to Level 3 | – 0 | – | – 0 | – | ||||
Transfers out of Level 3 | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Balance as of 4/30/17 | $ | 2,160,146 | $ | 2,160,146 | ||||
|
|
|
| |||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/17(a) | $ | (140,790 | ) | $ | (140,790 | ) | ||
|
|
|
|
(a) | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
As of April 30, 2017, all Level 3 securities were priced by third party vendors.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing
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NOTES TO FINANCIAL STATEMENTS (continued)
Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser a management fee at an annual rate of .50% of the Portfolio’s average daily net assets. Effective January 1, 2017, the fee was reduced from .50% of the Portfolio’s average daily net assets to .45% of the first $2.5 billion of the Portfolio’s average daily net assets, .40% of the excess over $2.5 billion up to $5 billion and .35% in excess of $5 billion of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total
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NOTES TO FINANCIAL STATEMENTS (continued)
operating expenses on an annual basis (the “Expense Caps”) to 0.75%, 1.50% and 0.50%, of average daily net assets for Class A, Class C and Advisor Class shares, respectively. Effective January 1, 2017, the Expense Cap was reduced from 0.80% to 0.75%, 1.55% to 1.50% and 0.55% to 0.50% of the daily average net assets for the Class A, Class C and the Advisor Class shares, respectively. Effective January 30, 2015, the Expense Cap for the Class A shares was reduced from 0.85% to 0.80% of the daily average net assets. For the six months ended April 30, 2017, such reimbursements/waivers amounted to $143,435. The Expense Caps may not be terminated before January 31, 2018.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended April 30, 2017, the Adviser voluntarily agreed to waive such fees amounting to $28,913.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $9,045 for the six months ended April 30, 2017.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Portfolio’s shares. The Distributor has advised the Portfolio that it has retained front-end sales charges of $-0- from the sale of Class A shares and received $341 in contingent deferred sales charges imposed upon redemptions by shareholders of Class C shares for the six months ended April 30, 2017.
The Portfolio 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. In connection with the investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended April 30, 2017, such waiver amounted to $3,875. A summary of the Portfolio’s transactions in shares
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
of the Government Money Market Portfolio for the six months ended April 30, 2017 is as follows:
Market Value | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/17 (000) | Dividend Income (000) | ||||||||||||
$ 1,026 | $ | 21,877 | $ | 18,511 | $ | 4,392 | $ | 8 |
NOTE C
Distribution Services Agreement
The Portfolio has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to 0.30% of the Portfolio’s average daily net assets attributable to Class A shares and 1% of the Portfolio’s average daily net assets attributable to Class C shares. Effective January 30, 2015, payments under the Agreement in respect of Class A shares are limited to an annual rate of 0.25% of Class A Shares’ average daily net assets. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Portfolio’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Portfolio in the amount of $9,324 for Class C shares. While such costs may be recovered from the Portfolio in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2017 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 14,702,207 | $ | 3,783,684 | ||||
U.S. government securities | 6,848,676 | 3,639,113 |
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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 | $ | 1,322,534 | ||
Gross unrealized depreciation | (356,115 | ) | ||
|
| |||
Net unrealized appreciation | $ | 966,419 | ||
|
|
1. Derivative Financial Instruments
The Portfolio 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 Portfolio, as well as the methods in which they may be used are:
• | Swaps |
The Portfolio 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 Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio 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 Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio 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 Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio 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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 Portfolio enters into a centrally cleared swap, the Portfolio 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 Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential 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 Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio 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 Portfolio may enter into interest rate swaps. Interest rate swaps are agreements
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NOTES TO FINANCIAL STATEMENTS (continued)
between two parties to exchange cash flows based on a notional amount. The Portfolio 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 Portfolio 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 Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) 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 Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2017, the Portfolio held interest rate swaps for hedging purposes.
Inflation (CPI) Swaps:
Inflation swaps 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 Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if unexpected inflation increases.
During the six months ended April 30, 2017, the Portfolio held inflation (CPI) swaps for hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the 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.
Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions,
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NOTES TO FINANCIAL STATEMENTS (continued)
repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
During the six months ended April 30, 2017, the Portfolio had entered into the following derivatives:
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 | $ | 559,416 | $ | (419,786 | ) | ||||
|
|
|
| |||||||
Total | $ | 559,416 | $ | (419,786 | ) | |||||
|
|
|
|
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended April 30, 2017:
Interest Rate Swaps: | ||||
Average notional amount | $ | 1,211,667 | (a) | |
Inflation Swaps: | ||||
Average notional amount | $ | 1,400,000 | (b) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 9,460,000 | (c) |
(a) | Positions were open for five months during the period. |
(b) | Positions were open for less than one month during the period. |
(c) | Positions were open for one month during the period. |
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended 2016 | Six Months Ended April 30, 2017 (unaudited) | Year Ended 2016 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 519,201 | 419,502 | $ | 5,429,919 | $ | 4,523,103 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 2,371 | 5,728 | 24,992 | 62,365 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (272,380 | ) | (289,428 | ) | (2,873,856 | ) | (3,149,530 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 249,192 | 135,802 | $ | 2,581,055 | $ | 1,435,938 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 2,248 | 131,822 | $ | 23,721 | $ | 1,433,498 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 773 | 1,590 | 8,133 | 17,323 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (72,367 | ) | (90,740 | ) | (763,924 | ) | (983,319 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (69,346 | ) | 42,672 | $ | (732,070 | ) | $ | 467,502 | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 2,334,718 | 1,397,419 | $ | 24,598,356 | $ | 15,152,409 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 18,019 | 26,897 | 189,940 | 292,728 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (863,293 | ) | (813,451 | ) | (9,143,023 | ) | (8,822,075 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,489,444 | 610,865 | $ | 15,645,273 | $ | 6,623,062 | ||||||||||||||||||
|
NOTE F
Risks Involved in Investing in the Portfolio
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are
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NOTES TO FINANCIAL STATEMENTS (continued)
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 municipal or corporate developments, negative perceptions of the junk bond market generally and less secondary market liquidity.
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 Portfolio’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Portfolio invests more of its assets in a particular state’s municipal securities, the Portfolio may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes or earthquakes. The Portfolio’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 Portfolio may invest in the municipal securities of Puerto Rico and other U.S. 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 U.S. issuers of municipal securities. Like many U.S. states and municipalities, Puerto Rico experienced a significant downturn during the recent 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 many Puerto Rico issuers have extremely low credit ratings and are on “negative watch” by credit rating organizations. Some Puerto Rico issuers are in default on principal and interest payments. The Government Development Bank, which provides liquidity to Puerto Rico’s government agencies, defaulted on a $400 million debt payment. This default casts doubts on the ability of Puerto Rico and its government agencies to make future payments. If there are additional defaults and the general economic situation in Puerto Rico persists or worsens, the volatility and credit quality of Puerto Rican municipal securities could 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
Tax Risk—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 net income received by shareholders from the Portfolio by increasing taxes on that income. In such event, the Portfolio’s 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 Portfolio shares as investors anticipate adverse effects on the Portfolio or seek higher yields to offset the potential loss of the tax deduction. As a result, the Portfolio would be required to maintain higher levels of cash to meet the redemptions, which would negatively affect the Portfolio’s yield.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to a heightened risk of rising interest rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.
Liquidity Risk—Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing the Portfolio from selling out of these securities at an advantageous price. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk. The Portfolio is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets.
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NOTES TO FINANCIAL STATEMENTS (continued)
Leverage Risk—To the extent the Portfolio uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended April 30, 2017.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2016 and October 31, 2015 were as follows:
2016 | 2015 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 67,221 | $ | 42,656 | ||||
|
|
|
| |||||
Total taxable distributions | 67,221 | 42,656 | ||||||
Tax exempt distributions | 772,547 | 468,917 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 839,768 | $ | 511,573 | ||||
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
As of October 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 50,595 | ||
Accumulated capital and other losses | (185,146 | )(a) | ||
Unrealized appreciation/(depreciation) | 1,875,836 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 1,741,285 | (c) | |
|
|
(a) | As of October 31, 2016, the Portfolio had a net capital loss carryforward of $185,146. |
(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 the dividends payable and the tax treatment of defaulted securities. |
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 incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of October 31, 2016, the Portfolio had a net short-term capital loss carryforward of $185,146 which may be carried forward for an indefinite period.
NOTE I
Other
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.
NOTE J
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE K
Subsequent Event
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
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FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | December 11, 2013(a) to October 31, 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.87 | $ 10.59 | $ 10.51 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(b)(c) | .10 | .22 | .18 | .14 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.22 | ) | .28 | .09 | .50 | |||||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | (.12 | ) | .50 | .27 | .64 | |||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | (.10 | ) | (.22 | ) | (.18 | ) | (.13 | ) | ||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.10 | ) | (.22 | ) | (.19 | ) | (.13 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.65 | $ 10.87 | $ 10.59 | $ 10.51 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | (1.07 | )% | 4.69 | % | 2.64 | % | 6.44 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $8,910 | $6,385 | $4,783 | $1,954 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements | .75 | %(e)^ | .80 | % | .81 | % | .85 | %^ | ||||||||
Expenses, before waivers/reimbursements | 1.45 | %(e)^ | 1.72 | % | 2.19 | % | 3.59 | %^ | ||||||||
Net investment income(c) | 1.97 | %^ | 1.98 | % | 1.75 | % | 1.57 | %^ | ||||||||
Portfolio turnover rate | 15 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 52.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 49 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | December 11, 2013(a) to October 31 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.87 | $ 10.59 | $ 10.52 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(b)(c) | .06 | .13 | .10 | .07 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.22 | ) | .28 | .09 | .52 | |||||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | (.16 | ) | .41 | .19 | .59 | |||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | (.06 | ) | (.13 | ) | (.11 | ) | (.07 | ) | ||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.06 | ) | (.13 | ) | (.12 | ) | (.07 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.65 | $ 10.87 | $ 10.59 | $ 10.52 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | (1.44 | )% | 3.91 | % | 1.78 | % | 5.92 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $1,243 | $2,022 | $1,518 | $369 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements | 1.50 | %(e)^ | 1.55 | % | 1.55 | % | 1.55 | %^ | ||||||||
Expenses, before waivers/reimbursements | 2.22 | %(e)^ | 2.47 | % | 2.85 | % | 4.33 | %^ | ||||||||
Net investment income(c) | 1.21 | %^ | 1.23 | % | .99 | % | .82 | %^ | ||||||||
Portfolio turnover rate | 15 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 52.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||
Six Months Ended April 30, 2017 (unaudited) | Year Ended October 31, | December 11, 2013(a) to October 31 2014 | ||||||||||||||
2016 | 2015 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.87 | $ 10.59 | $ 10.52 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(b)(c) | .11 | .24 | .21 | .16 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.21 | ) | .28 | .08 | .52 | |||||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | (.10 | ) | .52 | .29 | .68 | |||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | (.12 | ) | (.24 | ) | (.21 | ) | (.16 | ) | ||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.12 | ) | (.24 | ) | (.22 | ) | (.16 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.65 | $ 10.87 | $ 10.59 | $ 10.52 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | (.95 | )% | 4.96 | % | 2.81 | % | 6.84 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $48,854 | $33,667 | $26,333 | $14,584 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements | .50 | %(e)^ | .55 | % | .55 | % | .55 | %^ | ||||||||
Expenses, before waivers/reimbursements | 1.19 | %(e)^ | 1.47 | % | 1.92 | % | 3.82 | %^ | ||||||||
Net investment income(c) | 2.20 | %^ | 2.24 | % | 1.99 | % | 1.76 | %^ | ||||||||
Portfolio turnover rate | 15 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 52.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 51 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees and expenses waived/reimbursed by the Adviser. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. 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) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the six months ended April 30, 2017, such waiver amounted to 0.02% annualized for the Portfolio. |
^ | Annualized. |
See notes to financial statements.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1) , Chairman John H. Dobkin(1) Michael J. Downey(1) William H. Foulk, Jr.(1) D. James Guzy(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Philip L. Kirstein, Senior Vice President and Independent Compliance Officer Robert “Guy” B. Davidson III(2), Vice President Terrance T. Hults(2), Vice President Shawn E. Keegan(2), Vice President | Matthew J. Norton(2), Vice President Emilie D. Wrapp, Secretary 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 State Street Corporation CCB/5 1 Iron Street Boston, MA 02210
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
(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 are made by its senior investment management team. Messrs. Davidson, Hults, Keegan and Norton are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser, as proposed to be amended (the “Advisory Agreement”) to effect a fee reduction, in respect of AB Tax-Aware Fixed Income Portfolio (the “Fund”) at a meeting held on November 1-3, 2016 (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 an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the proposed advisory fee, in which the Senior Officer concluded that the proposed contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
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 receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.
The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, 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 proposed 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
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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. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. 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 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior 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, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund, and that the proposed reduction in the advisory fee rate would likely impact the Adviser’s profitability analysis in future years. 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 noted that the Fund was not profitable to the Adviser in the periods reviewed.
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Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. 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 information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the proposed advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective January 1, 2017) with a peer group median.
The Adviser informed the directors that there were no institutional products managed by it that have a substantially similar investment style.
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
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fees pursuant to their advisory contracts. The directors concluded, based on the Adviser’s explanation of how it may use ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the proposed 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 in which the Fund may invest.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the expense cap level by the Adviser effective January 1, 2017. The directors noted the effects of any fee waivers and/or expense reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the proposed advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund1
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
INTERNATIONAL/ GLOBAL CORE
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund1
Tax-Managed International Portfolio
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
International Growth Fund
INTERNATIONAL/ GLOBAL VALUE
Asia ex-Japan 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 Portfolio
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
TAXABLE
Bond Inflation Strategy
Global Bond Fund
High Income Fund
High Yield Portfolio
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Credit Long/Short Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio1
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio1
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
TARGET-DATE
Multi-Manager Select Retirement Allocation Fund
Multi-Manager Select 2010 Fund
Multi-Manager Select 2015 Fund
Multi-Manager Select 2020 Fund
Multi-Manager Select 2025 Fund
Multi-Manager Select 2030 Fund
Multi-Manager Select 2035 Fund
Multi-Manager Select 2040 Fund
Multi-Manager Select 2045 Fund
Multi-Manager Select 2050 Fund
Multi-Manager Select 2055 Fund
CLOSED-END FUNDS
Alliance California Municipal Income Fund
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
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 November 1, 2016, Sustainable Global Thematic Fund was named Global Thematic Growth Fund; prior to January 9, 2017, Relative Value Fund was named Growth & Income Fund; prior to April 17, 2017, Tax-Managed All Market Income Portfolio was named Tax-Managed Balanced Wealth Strategy; prior to April 24, 2017, All Market Total Return Portfolio was named Balanced Wealth Strategy. |
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NOTES
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NOTES
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AB TAX-AWARE FIXED INCOME PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
TAFI-0152-0417
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. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no 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. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
12 (b) (1) | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (b) (2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (c) | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AB Bond Fund, Inc. | ||
By: | /s/ Robert M. Keith | |
Robert M. Keith President |
Date: June 26, 2017
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: June 26, 2017
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo Treasurer and Chief Financial Officer |
Date: June 26, 2017