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, 2018
Date of reporting period: April 30, 2018
ITEM 1. | REPORTS TO STOCKHOLDERS. |
APR 04.30.18
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 18, 2018
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, 2018.
The Fund’s investment objective is to maximize real return over inflation.
NAV RETURNS AS OF APRIL 30, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB ALL MARKET REAL RETURN PORTFOLIO | ||||||||
Class 1 Shares1 | 5.46% | 11.17% | ||||||
Class 2 Shares1 | 5.59% | 11.44% | ||||||
Class A Shares | 5.50% | 11.12% | ||||||
Class C Shares | 5.01% | 10.12% | ||||||
Advisor Class Shares2 | 5.44% | 11.33% | ||||||
Class R Shares2 | 5.22% | 10.76% | ||||||
Class K Shares2 | 5.38% | 11.05% | ||||||
Class I Shares2 | 5.65% | 11.59% | ||||||
Class Z Shares2 | 5.66% | 11.60% | ||||||
MSCI AC World Commodity Producers Index (net) | 10.51% | 21.86% |
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, 2018.
All share classes of the Fund underperformed the benchmark for both periods, before sales charges. For both periods, strategic exposures to commodity futures, diversified inflation equities and global real estate, which strongly underperformed the benchmark, detracted the most from relative performance. Allocations to industrial metals and overlay positions such as inflation swaps contributed over both periods.
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Derivatives were used for hedging and investment purposes. For the six-month period, futures, inflation swaps, total return swaps and written options added to absolute performance; forwards and purchased options detracted. For the 12-month period, forwards, inflation swaps, total return swaps and written options contributed; futures, interest rate swaps and purchased options detracted.
MARKET REVIEW AND INVESTMENT STRATEGY
The beginning of the 12-month period ended April 30, 2018, was marked by extreme calm in markets. Characterized by broad and synchronized global growth without rising price pressures, 2017 marked a strong year for almost all major asset classes. Equities rallied strongly, with emerging markets and developed international markets leading the way. Global bond markets posted more modest, yet still positive returns. Inflation assets fared well in an absolute sense, but lagged global equities. Currency movements also played a role, as a weak domestic currency strengthened returns for US dollar-based investors. The second half of 2017 provided a much better backdrop for these assets as inflation surprises started to recover, and energy prices rebounded on evidence of sharp drawdowns in inventories. Furthermore, OPEC extended supply cuts, and the much-awaited US tax reform passed in December; both led to a bullish tailwind in inflation assets.
However, despite 2018 starting with strong performance, risk assets experienced elevated levels of volatility in February and March sending markets lower. Fears in February around accelerating inflation, monetary policy tightening by the US Federal Reserve and technical factors, combined with concerns in March about a potential trade war between the US and China that spooked investors around the globe. Inflation assets had mixed results; after a strong January, commodity futures and producers sold off sharply in February, both on risk-off sentiment and a stronger dollar, as the narrative of “global synchronized growth” was brought into question. Interestingly, gold underperformed despite the risk-off sentiment, as rapidly rising real yields offset the risk premium of safe-haven bids. The notable exception was agricultural commodities, which rallied sharply after a very weak 2017. The Fund’s Senior Investment Management Team continues to look for sources of value via asset allocation shifts, active security selection, risk overlay strategies, and currency management. The Fund uses a blend of quantitative and fundamental research in order to determine overall portfolio risk, allocate risk across major real asset classes and identify idiosyncratic opportunities.
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
(continued on next page)
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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 real estate investment trusts (“REITs”) and other real estate-related securities.
The Fund will invest in both US and non-US dollar-denominated equity or fixed-income securities. The Fund may invest in currencies for
(continued on next page)
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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 and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
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.
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DISCLOSURES AND RISKS (continued)
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. 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,
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DISCLOSURES AND RISKS (continued)
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.
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.
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DISCLOSURES AND RISKS (continued)
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, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS 1 SHARES1 | ||||||||
1 Year | 11.17% | 11.17% | ||||||
5 Years | -1.97% | -1.97% | ||||||
Since Inception2 | 0.92% | 0.92% | ||||||
CLASS 2 SHARES1 | ||||||||
1 Year | 11.44% | 11.44% | ||||||
5 Years | -1.72% | -1.72% | ||||||
Since Inception2 | 1.18% | 1.18% | ||||||
CLASS A SHARES | ||||||||
1 Year | 11.12% | 6.34% | ||||||
5 Years | -2.09% | -2.94% | ||||||
Since Inception2 | 0.84% | 0.31% | ||||||
CLASS C SHARES | ||||||||
1 Year | 10.12% | 9.12% | ||||||
5 Years | -2.81% | -2.81% | ||||||
Since Inception2 | 0.10% | 0.10% | ||||||
ADVISOR CLASS SHARES3 | ||||||||
1 Year | 11.33% | 11.33% | ||||||
5 Years | -1.84% | -1.84% | ||||||
Since Inception2 | 1.11% | 1.11% | ||||||
CLASS R SHARES3 | ||||||||
1 Year | 10.76% | 10.76% | ||||||
5 Years | -2.32% | -2.32% | ||||||
Since Inception2 | 0.60% | 0.60% | ||||||
CLASS K SHARES3 | ||||||||
1 Year | 11.05% | 11.05% | ||||||
5 Years | -2.07% | -2.07% | ||||||
Since Inception2 | 0.86% | 0.86% | ||||||
CLASS I SHARES3 | ||||||||
1 Year | 11.59% | 11.59% | ||||||
5 Years | -1.73% | -1.73% | ||||||
Since Inception2 | 1.17% | 1.17% | ||||||
CLASS Z SHARES3 | ||||||||
1 Year | 11.60% | 11.60% | ||||||
Since Inception2 | -1.02% | -1.02% |
(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 1.14%, 0.87%, 1.32%, 2.07%, 1.06%, 1.64%, 1.33%, 0.90% and 0.87% 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 exclusive of extraordinary expenses, interest expense, and 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 1.13%, 0.86%, 1.30%, 2.05%, 1.05%, 1.55%, 1.30%, 1.05% and 1.05% 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, 2019 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 Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I 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, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 7.42% | |||
5 Years | -2.65% | |||
Since Inception2 | 0.55% | |||
CLASS 2 SHARES1 | ||||
1 Year | 7.64% | |||
5 Years | -2.41% | |||
Since Inception2 | 0.80% | |||
CLASS A SHARES | ||||
1 Year | 2.72% | |||
5 Years | -3.63% | |||
Since Inception2 | -0.07% | |||
CLASS C SHARES | ||||
1 Year | 5.47% | |||
5 Years | -3.49% | |||
Since Inception2 | -0.27% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 7.51% | |||
5 Years | -2.54% | |||
Since Inception2 | 0.72% | |||
CLASS R SHARES3 | ||||
1 Year | 6.92% | |||
5 Years | -3.00% | |||
Since Inception2 | 0.23% | |||
CLASS K SHARES3 | ||||
1 Year | 7.20% | |||
5 Years | -2.75% | |||
Since Inception2 | 0.49% | |||
CLASS I SHARES3 | ||||
1 Year | 7.74% | |||
5 Years | -2.43% | |||
Since Inception2 | 0.79% | |||
CLASS Z SHARES3 | ||||
1 Year | 7.74% | |||
Since Inception2 | -1.79% |
(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 Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I 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. |
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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.
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EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,055.00 | $ | 6.32 | 1.24 | % | $ | 6.37 | 1.25 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.65 | $ | 6.21 | 1.24 | % | $ | 6.26 | 1.25 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,050.10 | $ | 10.17 | 2.00 | % | $ | 10.17 | 2.00 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,014.88 | $ | 9.99 | 2.00 | % | $ | 9.99 | 2.00 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,054.40 | $ | 5.04 | 0.99 | % | $ | 5.09 | 1.00 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.89 | $ | 4.96 | 0.99 | % | $ | 5.01 | 1.00 | % | ||||||||||||
Class R | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,052.20 | $ | 7.89 | 1.55 | % | $ | 7.89 | 1.55 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.11 | $ | 7.75 | 1.55 | % | $ | 7.75 | 1.55 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,053.80 | $ | 6.52 | 1.28 | % | $ | 6.52 | 1.28 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.45 | $ | 6.41 | 1.28 | % | $ | 6.41 | 1.28 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,056.50 | $ | 4.28 | 0.84 | % | $ | 4.33 | 0.85 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.63 | $ | 4.21 | 0.84 | % | $ | 4.26 | 0.85 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,054.60 | $ | 5.55 | 1.09 | % | $ | 5.55 | 1.09 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.39 | $ | 5.46 | 1.09 | % | $ | 5.46 | 1.09 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,055.90 | $ | 4.33 | 0.85 | % | $ | 4.33 | 0.85 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.58 | $ | 4.26 | 0.85 | % | $ | 4.26 | 0.85 | % | ||||||||||||
Class Z | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,056.60 | $ | 4.28 | 0.84 | % | $ | 4.33 | 0.85 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.63 | $ | 4.21 | 0.84 | % | $ | 4.26 | 0.85 | % |
* | Expenses are equal to the Fund’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 Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’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, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,285.6
1 | All data are as of April 30, 2018. 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 |
PORTFOLIO SUMMARY (continued)
April 30, 2018 (unaudited)
1 | All data are as of April 30, 2018. 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 0.6% or less in the following countries: Argentina, Austria, Brazil, Chile, Czech Republic, Denmark, Finland, Indonesia, Ireland, Israel, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Portugal, Singapore, South Africa, Switzerland and Turkey. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 17 |
PORTFOLIO SUMMARY (continued)
April 30, 2018 (unaudited)
TEN LARGEST HOLDINGS1
Security | U.S. $ Value | Percent of Net Assets | ||||||
U.S. Treasury Inflation Index | $ | 210,907,812 | 16.4 | % | ||||
Japanese Government CPI Linked Bond Series 21 | 120,658,551 | 9.4 | ||||||
Royal Dutch Shell PLC – Class B | 42,557,145 | 3.3 | ||||||
Vanguard Global ex-U.S. Real Estate ETF | 31,328,485 | 2.4 | ||||||
iShares MSCI Global Metals & Mining Producers ETF | 24,732,623 | 1.9 | ||||||
SPDR S&P Bank ETF | 23,824,610 | 1.9 | ||||||
Chevron Corp. | 22,378,426 | 1.8 | ||||||
Vanguard Real Estate ETF | 19,518,607 | 1.5 | ||||||
Exxon Mobil Corp. | 18,808,813 | 1.5 | ||||||
BP PLC | 17,099,590 | 1.3 | ||||||
$ | 531,814,662 | 41.4 | % |
1 | Long-term investments. |
18 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
COMMON STOCKS – 63.0% | ||||||||||||
Real Estate – 24.1% | ||||||||||||
Diversified Real Estate Activities – 1.5% | ||||||||||||
Ayala Land, Inc. | 1,988,460 | $ | 1,562,514 | |||||||||
Daito Trust Construction Co., Ltd. | 700 | 116,805 | ||||||||||
Kerry Properties Ltd. | 408,000 | 1,950,452 | ||||||||||
Mitsubishi Estate Co., Ltd. | 111,600 | 2,039,215 | ||||||||||
Mitsui Fudosan Co., Ltd. | 251,200 | 6,434,597 | ||||||||||
Pakuwon Jati Tbk PT | 3,013,500 | 127,380 | ||||||||||
Sumitomo Realty & Development Co., Ltd. | 65,000 | 2,582,009 | ||||||||||
Sun Hung Kai Properties Ltd. | 53,000 | 853,535 | ||||||||||
UOL Group Ltd. | 447,700 | 2,956,890 | ||||||||||
|
| |||||||||||
18,623,397 | ||||||||||||
|
| |||||||||||
Diversified REITs – 3.5% | ||||||||||||
Activia Properties, Inc. | 479 | 2,122,597 | ||||||||||
Armada Hoffler Properties, Inc. | 172,470 | 2,340,418 | ||||||||||
Dream Global Real Estate Investment Trust | 138,750 | 1,479,409 | ||||||||||
Empire State Realty Trust, Inc. – Class A | 148,570 | 2,588,089 | ||||||||||
Fibra Uno Administracion SA de CV | 411,593 | 681,585 | ||||||||||
Fonciere Des Regions | 22,360 | 2,500,711 | ||||||||||
GPT Group (The) | 732,361 | 2,655,622 | ||||||||||
Gramercy Property Trust | 167,302 | 3,931,597 | ||||||||||
Growthpoint Properties Ltd. | 1,383,934 | 3,230,845 | ||||||||||
H&R Real Estate Investment Trust | 113,750 | 1,826,804 | ||||||||||
Hulic Reit, Inc. | 1,038 | 1,602,078 | ||||||||||
ICADE | 40,380 | 4,012,739 | ||||||||||
Kenedix Office Investment Corp. – Class A | 282 | 1,729,883 | ||||||||||
Land Securities Group PLC | 193,760 | 2,630,327 | ||||||||||
Liberty Property Trust | 99,270 | 4,151,471 | ||||||||||
Merlin Properties Socimi SA | 188,219 | 2,904,183 | ||||||||||
Mirvac Group | 1,725,070 | 2,894,977 | ||||||||||
SA Corporate Real Estate Ltd. | 2,837,450 | 1,086,419 | ||||||||||
|
| |||||||||||
44,369,754 | ||||||||||||
|
| |||||||||||
Health Care REITs – 0.6% | ||||||||||||
Healthcare Realty Trust, Inc. | 77,870 | 2,167,122 | ||||||||||
Medical Properties Trust, Inc. | 272,460 | 3,482,039 | ||||||||||
Sabra Health Care REIT, Inc. | 119,100 | 2,180,721 | ||||||||||
|
| |||||||||||
7,829,882 | ||||||||||||
|
| |||||||||||
Hotel & Resort REITs – 0.9% | ||||||||||||
Invincible Investment Corp. | 1,570 | 700,835 | ||||||||||
MGM Growth Properties LLC – Class A | 87,250 | 2,440,382 | ||||||||||
Park Hotels & Resorts, Inc. | 117,480 | 3,381,074 | ||||||||||
RLJ Lodging Trust | 115,380 | 2,396,443 | ||||||||||
Summit Hotel Properties, Inc. | 170,349 | 2,466,654 | ||||||||||
|
| |||||||||||
11,385,388 | ||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 19 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Industrial REITs – 1.9% | ||||||||||||
Duke Realty Corp. | 174,980 | $ | 4,741,958 | |||||||||
Goodman Group | 327,322 | 2,226,946 | ||||||||||
Macquarie Mexico Real Estate Management SA de CV(a) | 107,408 | 115,092 | ||||||||||
PLA Administradora Industrial S de RL de CV(a) | 1,614,300 | 2,586,050 | ||||||||||
Prologis, Inc. | 63,940 | 4,150,345 | ||||||||||
Rexford Industrial Realty, Inc. | 93,190 | 2,846,955 | ||||||||||
Segro PLC | 286,932 | 2,546,163 | ||||||||||
STAG Industrial, Inc. | 139,800 | 3,434,886 | ||||||||||
Tritax Big Box REIT PLC | 874,090 | 1,801,312 | ||||||||||
|
| |||||||||||
24,449,707 | ||||||||||||
|
| |||||||||||
Office REITs – 2.8% | ||||||||||||
Alexandria Real Estate Equities, Inc. | 33,442 | 4,165,870 | ||||||||||
alstria office REIT-AG | 92,560 | 1,392,490 | ||||||||||
Brandywine Realty Trust | 165,750 | 2,670,232 | ||||||||||
CapitaLand Commercial Trust | 1,439,600 | 1,966,777 | ||||||||||
Champion REIT | 1,937,000 | 1,368,426 | ||||||||||
Columbia Property Trust, Inc. | 103,074 | 2,201,661 | ||||||||||
Corporate Office Properties Trust | 77,400 | 2,129,274 | ||||||||||
Hibernia REIT PLC | 443,390 | 794,589 | ||||||||||
Investa Office Fund | 561,930 | 1,850,963 | ||||||||||
Japan Prime Realty Investment Corp. | 175 | 634,688 | ||||||||||
Japan Real Estate Investment Corp. | 123 | 637,246 | ||||||||||
JBG SMITH Properties | 42,600 | 1,570,662 | ||||||||||
Kilroy Realty Corp. | 38,790 | 2,780,079 | ||||||||||
Mack-Cali Realty Corp. | 38,962 | 668,978 | ||||||||||
Nippon Building Fund, Inc. | 623 | 3,500,695 | ||||||||||
Orix JREIT, Inc. | 1,307 | 1,992,282 | ||||||||||
SL Green Realty Corp. | 33,430 | 3,267,448 | ||||||||||
Workspace Group PLC | 189,580 | 2,895,505 | ||||||||||
|
| |||||||||||
36,487,865 | ||||||||||||
|
| |||||||||||
Real Estate Development – 2.9% | ||||||||||||
Agile Group Holdings Ltd. | 186,000 | 366,902 | ||||||||||
Bumi Serpong Damai Tbk PT | 998,100 | 120,525 | ||||||||||
China Evergrande Group(a)(b) | 385,000 | 1,219,516 | ||||||||||
China Jinmao Holdings Group Ltd. | 750,000 | 424,557 | ||||||||||
China Overseas Land & Investment Ltd. | 1,368,790 | 4,586,311 | ||||||||||
China Resources Land Ltd. | 1,174,874 | 4,412,504 | ||||||||||
China SCE Property Holdings Ltd. | 5,788,000 | 2,904,489 | ||||||||||
China Vanke Co., Ltd. – Class H | 174,600 | 721,595 | ||||||||||
CIFI Holdings Group Co., Ltd. | 6,154,000 | 4,845,952 | ||||||||||
Ciputra Development Tbk PT | 1,828,887 | 143,866 | ||||||||||
CK Asset Holdings Ltd. | 921,000 | 7,950,960 | ||||||||||
Country Garden Holdings Co., Ltd. | 980,000 | 1,998,283 |
20 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Longfor Properties Co., Ltd. | 196,150 | $ | 586,632 | |||||||||
Metrovacesa SA(a)(c) | 48,880 | 878,329 | ||||||||||
Shimao Property Holdings Ltd. | 162,000 | 428,500 | ||||||||||
Summarecon Agung Tbk PT | 1,408,800 | 91,149 | ||||||||||
Sunac China Holdings Ltd. | 292,000 | 1,240,336 | ||||||||||
Times China Holdings Ltd. | 3,158,000 | 4,612,143 | ||||||||||
|
| |||||||||||
37,532,549 | ||||||||||||
|
| |||||||||||
Real Estate Operating Companies – 2.4% | ||||||||||||
Aroundtown SA | 399,030 | 3,190,678 | ||||||||||
BR Malls Participacoes SA | 422,615 | 1,317,354 | ||||||||||
CA Immobilien Anlagen AG | 76,169 | 2,643,553 | ||||||||||
Corp. Inmobiliaria Vesta SAB de CV | 76,720 | 110,145 | ||||||||||
Deutsche Wohnen SE | 121,880 | 5,752,078 | ||||||||||
Entra ASA(c) | 103,768 | 1,423,118 | ||||||||||
Fabege AB | 157,120 | 1,809,067 | ||||||||||
Hongkong Land Holdings Ltd. | 444,500 | 3,212,506 | ||||||||||
Kungsleden AB | 15,528 | 110,475 | ||||||||||
Multiplan Empreendimentos Imobiliarios SA | 11,780 | 223,683 | ||||||||||
Parque Arauco SA | 281,980 | 879,923 | ||||||||||
SM Prime Holdings, Inc. | 1,169,100 | 770,446 | ||||||||||
Vonovia SE | 147,463 | 7,388,606 | ||||||||||
Wharf Real Estate Investment Co., Ltd. | 338,000 | 2,534,239 | ||||||||||
|
| |||||||||||
31,365,871 | ||||||||||||
|
| |||||||||||
Residential REITs – 2.7% | ||||||||||||
American Campus Communities, Inc. | 50,880 | 1,989,917 | ||||||||||
American Homes 4 Rent – Class A | 197,430 | 3,988,086 | ||||||||||
Camden Property Trust | 50,910 | 4,347,714 | ||||||||||
Essex Property Trust, Inc. | 19,910 | 4,772,228 | ||||||||||
Independence Realty Trust, Inc. | 337,640 | 3,173,816 | ||||||||||
Japan Rental Housing Investments, Inc. | 2,752 | 2,140,628 | ||||||||||
Killam Apartment Real Estate Investment Trust | 290,950 | 3,213,264 | ||||||||||
Mid-America Apartment Communities, Inc. | 37,220 | 3,404,141 | ||||||||||
Sun Communities, Inc. | 51,647 | 4,847,071 | ||||||||||
UNITE Group PLC (The) | 232,115 | 2,664,786 | ||||||||||
|
| |||||||||||
34,541,651 | ||||||||||||
|
| |||||||||||
Retail REITs – 3.0% | ||||||||||||
Charter Hall Retail REIT | 754,920 | 2,237,170 | ||||||||||
Fukuoka REIT Corp. | 1,193 | 1,849,186 | ||||||||||
Japan Retail Fund Investment Corp. | 1,053 | 1,974,162 | ||||||||||
Kenedix Retail REIT Corp. | 827 | 1,750,475 | ||||||||||
Klepierre SA | 84,656 | 3,464,866 | ||||||||||
Link REIT | 693,401 | 6,128,363 | ||||||||||
National Retail Properties, Inc.(b) | 71,040 | 2,702,362 | ||||||||||
Regency Centers Corp. | 66,230 | 3,897,635 | ||||||||||
Retail Opportunity Investments Corp. | 145,130 | 2,496,236 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 21 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Simon Property Group, Inc. | 76,072 | $ | 11,893,096 | |||||||||
Westfield Corp. | 43,283 | 299,093 | ||||||||||
|
| |||||||||||
38,692,644 | ||||||||||||
|
| |||||||||||
Specialized REITs – 1.9% | ||||||||||||
American Tower Corp. | 10,030 | 1,367,691 | ||||||||||
Crown Castle International Corp. | 14,200 | 1,432,354 | ||||||||||
CubeSmart | 140,070 | 4,123,661 | ||||||||||
Digital Realty Trust, Inc. | 54,050 | 5,712,544 | ||||||||||
EPR Properties | 41,180 | 2,265,724 | ||||||||||
Equinix, Inc. | 5,470 | 2,301,721 | ||||||||||
Farmland Partners, Inc.(b) | 250,900 | 1,911,858 | ||||||||||
Gladstone Land Corp.(b) | 161,270 | 2,032,002 | ||||||||||
National Storage Affiliates Trust | 100,480 | 2,644,634 | ||||||||||
Safestore Holdings PLC | 105,000 | 789,759 | ||||||||||
|
| |||||||||||
24,581,948 | ||||||||||||
|
| |||||||||||
309,860,656 | ||||||||||||
|
| |||||||||||
Energy – 17.1% | ||||||||||||
Integrated Oil & Gas – 11.4% | ||||||||||||
BP PLC | 2,302,058 | 17,099,590 | ||||||||||
Chevron Corp. | 178,870 | 22,378,426 | ||||||||||
Eni SpA | 535,060 | 10,459,568 | ||||||||||
Exxon Mobil Corp. | 241,914 | 18,808,813 | ||||||||||
Galp Energia SGPS SA | 140,660 | 2,699,693 | ||||||||||
LUKOIL PJSC (Sponsored ADR) | 74,230 | 4,891,015 | ||||||||||
Origin Energy Ltd.(a) | 307,440 | 2,244,550 | ||||||||||
PetroChina Co., Ltd. – Class H | 8,676,000 | 6,393,077 | ||||||||||
Petroleo Brasileiro SA (Preference Shares)(a) | 464,800 | 3,047,630 | ||||||||||
Repsol SA | 229,005 | 4,370,057 | ||||||||||
Royal Dutch Shell PLC – Class B | 1,192,116 | 42,557,145 | ||||||||||
TOTAL SA | 119,429 | 7,506,314 | ||||||||||
YPF SA (Sponsored ADR) | 177,680 | 3,889,415 | ||||||||||
|
| |||||||||||
146,345,293 | ||||||||||||
|
| |||||||||||
Oil & Gas Equipment & Services – 0.6% | ||||||||||||
C&J Energy Services, Inc.(a) | 138,080 | 4,123,069 | ||||||||||
Petrofac Ltd. | 151,261 | 1,255,263 | ||||||||||
Petroleum Geo-Services ASA(a)(b) | 430,855 | 1,854,467 | ||||||||||
TMK PJSC (GDR)(c) | 126,523 | 633,880 | ||||||||||
|
| |||||||||||
7,866,679 | ||||||||||||
|
| |||||||||||
Oil & Gas Exploration & Production – 4.5% | ||||||||||||
Aker BP ASA | 108,721 | 3,566,001 | ||||||||||
Anadarko Petroleum Corp. | 117,598 | 7,916,697 | ||||||||||
Canadian Natural Resources Ltd. (Toronto) | 228,687 | 8,250,151 | ||||||||||
CNOOC Ltd. | 2,432,000 | 4,114,246 | ||||||||||
Concho Resources, Inc.(a) | 19,080 | 2,999,567 | ||||||||||
Continental Resources, Inc./OK(a) | 59,893 | 3,956,532 |
22 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Devon Energy Corp. | 165,040 | $ | 5,995,903 | |||||||||
EOG Resources, Inc. | 103,653 | 12,248,675 | ||||||||||
Gran Tierra Energy, Inc.(a) | 628,430 | 2,070,376 | ||||||||||
Inpex Corp. | 174,400 | 2,229,495 | ||||||||||
SM Energy Co. | 182,772 | 4,377,389 | ||||||||||
|
| |||||||||||
57,725,032 | ||||||||||||
|
| |||||||||||
Oil & Gas Refining & Marketing – 0.6% | ||||||||||||
Cosan SA Industria e Comercio | 100,400 | 1,140,075 | ||||||||||
JXTG Holdings, Inc. | 638,000 | 4,158,971 | ||||||||||
Tupras Turkiye Petrol Rafinerileri AS | 105,800 | 2,704,482 | ||||||||||
|
| |||||||||||
8,003,528 | ||||||||||||
|
| |||||||||||
219,940,532 | ||||||||||||
|
| |||||||||||
Materials – 6.5% | ||||||||||||
Aluminum – 0.7% | ||||||||||||
Alcoa Corp.(a) | 130,850 | 6,699,520 | ||||||||||
Aluminum Corp. of China Ltd. – Class H(a) | 4,892,000 | 2,762,938 | ||||||||||
|
| |||||||||||
9,462,458 | ||||||||||||
|
| |||||||||||
Construction Materials – 0.4% | ||||||||||||
CRH PLC | 28,963 | 1,028,517 | ||||||||||
Fletcher Building Ltd. | 395,654 | 1,752,361 | ||||||||||
Grupo Cementos de Chihuahua SAB de CV | 369,417 | 2,153,050 | ||||||||||
|
| |||||||||||
4,933,928 | ||||||||||||
|
| |||||||||||
Copper – 0.8% | ||||||||||||
Antofagasta PLC | 210,640 | 2,814,344 | ||||||||||
First Quantum Minerals Ltd. | 252,300 | 3,635,305 | ||||||||||
Freeport-McMoRan, Inc. | 101,424 | 1,542,659 | ||||||||||
Lundin Mining Corp. | 186,100 | 1,232,018 | ||||||||||
OZ Minerals Ltd. | 208,730 | 1,440,440 | ||||||||||
|
| |||||||||||
10,664,766 | ||||||||||||
|
| |||||||||||
Diversified Metals & Mining – 2.2% | ||||||||||||
Boliden AB | 140,150 | 4,856,146 | ||||||||||
Glencore PLC(a) | 2,112,126 | 10,174,098 | ||||||||||
MMC Norilsk Nickel PJSC (ADR) (London)(b) | 216,120 | 3,683,304 | ||||||||||
Orocobre Ltd.(a)(b) | 150,633 | 629,799 | ||||||||||
Rio Tinto PLC | 67,510 | 3,679,693 | ||||||||||
Sumitomo Metal Mining Co., Ltd. | 49,800 | 2,124,485 | ||||||||||
Syrah Resources Ltd.(a)(b) | 429,209 | 1,027,611 | ||||||||||
Vedanta Resources PLC | 129,820 | 1,299,222 | ||||||||||
|
| |||||||||||
27,474,358 | ||||||||||||
|
| |||||||||||
Fertilizers & Agricultural Chemicals – 0.7% | ||||||||||||
Monsanto Co. | 22,490 | 2,819,571 | ||||||||||
Mosaic Co. (The) | 227,120 | 6,120,884 | ||||||||||
|
| |||||||||||
8,940,455 | ||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 23 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Gold – 0.8% | ||||||||||||
Agnico Eagle Mines Ltd. | 156,967 | $ | 6,605,340 | |||||||||
Detour Gold Corp.(a) | 125,970 | 910,473 | ||||||||||
Evolution Mining Ltd. | 887,000 | 2,120,324 | ||||||||||
Polyus PJSC (GDR)(c) | 31,020 | 983,911 | ||||||||||
Real Gold Mining Ltd.(a)(d)(e)(f) | 811,000 | – 0 | – | |||||||||
|
| |||||||||||
10,620,048 | ||||||||||||
|
| |||||||||||
Metal & Glass Containers – 0.1% | ||||||||||||
CCL Industries, Inc. – Class B | 18,155 | 880,637 | ||||||||||
|
| |||||||||||
Paper Packaging – 0.1% | ||||||||||||
Amcor Ltd. | 50,124 | 516,526 | ||||||||||
|
| |||||||||||
Precious Metals & Minerals – 0.1% | ||||||||||||
Industrias Penoles SAB de CV | 58,080 | 1,220,447 | ||||||||||
|
| |||||||||||
Specialty Chemicals – 0.3% | ||||||||||||
Covestro AG(c) | 10,347 | 940,178 | ||||||||||
Ecolab, Inc. | 8,701 | 1,259,644 | ||||||||||
Johnson Matthey PLC | 45,689 | 2,064,886 | ||||||||||
|
| |||||||||||
4,264,708 | ||||||||||||
|
| |||||||||||
Steel – 0.3% | ||||||||||||
APERAM SA | 25,600 | 1,247,345 | ||||||||||
Yamato Kogyo Co., Ltd. | 97,800 | 2,883,015 | ||||||||||
|
| |||||||||||
4,130,360 | ||||||||||||
|
| |||||||||||
83,108,691 | ||||||||||||
|
| |||||||||||
Pharmaceuticals & Biotechnology – 1.9% | ||||||||||||
Biotechnology – 0.7% | ||||||||||||
AbbVie, Inc. | 29,178 | 2,817,136 | ||||||||||
Alexion Pharmaceuticals, Inc.(a) | 489 | 57,521 | ||||||||||
Amgen, Inc. | 14,500 | 2,529,960 | ||||||||||
Biogen, Inc.(a) | 6,769 | 1,851,999 | ||||||||||
Vertex Pharmaceuticals, Inc.(a) | 11,557 | 1,770,070 | ||||||||||
|
| |||||||||||
9,026,686 | ||||||||||||
|
| |||||||||||
Life Sciences Tools & Services – 0.3% | ||||||||||||
Agilent Technologies, Inc. | 28,973 | 1,904,685 | ||||||||||
Waters Corp.(a) | 9,801 | 1,846,606 | ||||||||||
|
| |||||||||||
3,751,291 | ||||||||||||
|
| |||||||||||
Pharmaceuticals – 0.9% | ||||||||||||
Astellas Pharma, Inc. | 50,100 | 732,774 | ||||||||||
Ipsen SA | 6,520 | 1,055,371 | ||||||||||
Johnson & Johnson | 27,779 | 3,513,766 | ||||||||||
Novo Nordisk A/S – Class B | 8,619 | 405,334 | ||||||||||
Roche Holding AG | 7,807 | 1,734,617 | ||||||||||
Sino Biopharmaceutical Ltd. | 280,000 | 589,626 |
24 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Sumitomo Dainippon Pharma Co., Ltd. | 38,300 | $ | 696,554 | |||||||||
Taisho Pharmaceutical Holdings Co., Ltd. | 6,200 | 593,034 | ||||||||||
Zoetis, Inc. | 21,338 | 1,781,296 | ||||||||||
|
| |||||||||||
11,102,372 | ||||||||||||
|
| |||||||||||
23,880,349 | ||||||||||||
|
| |||||||||||
Software & Services – 1.7% | ||||||||||||
Application Software – 0.7% | ||||||||||||
Adobe Systems, Inc.(a) | 11,105 | 2,460,868 | ||||||||||
ANSYS, Inc.(a) | 2,700 | 436,482 | ||||||||||
Dassault Systemes SE | 5,016 | 650,023 | ||||||||||
Intuit, Inc. | 11,835 | 2,186,990 | ||||||||||
Sage Group PLC (The) | 121,069 | 1,053,017 | ||||||||||
SAP SE | 14,250 | 1,583,254 | ||||||||||
|
| |||||||||||
8,370,634 | ||||||||||||
|
| |||||||||||
Data Processing & Outsourced Services – 0.1% | ||||||||||||
Automatic Data Processing, Inc. | 11,041 | 1,303,721 | ||||||||||
|
| |||||||||||
Internet Software & Services – 0.2% | ||||||||||||
Alphabet, Inc. – Class C(a) | 1,650 | 1,678,595 | ||||||||||
Facebook, Inc. – Class A(a) | 2,949 | 507,228 | ||||||||||
United Internet AG | 15,753 | 1,018,236 | ||||||||||
|
| |||||||||||
3,204,059 | ||||||||||||
|
| |||||||||||
IT Consulting & Other Services – 0.1% | ||||||||||||
Atos SE | 6,560 | 885,600 | ||||||||||
Fujitsu Ltd. | 93,000 | 563,808 | ||||||||||
|
| |||||||||||
1,449,408 | ||||||||||||
|
| |||||||||||
Systems Software – 0.6% | ||||||||||||
Check Point Software Technologies Ltd.(a) | 11,963 | 1,154,549 | ||||||||||
Microsoft Corp. | 19,863 | 1,857,588 | ||||||||||
Red Hat, Inc.(a) | 13,574 | 2,213,376 | ||||||||||
VMware, Inc. – Class A(a) | 15,815 | 2,107,507 | ||||||||||
|
| |||||||||||
7,333,020 | ||||||||||||
|
| |||||||||||
21,660,842 | ||||||||||||
|
| |||||||||||
Capital Goods – 1.6% | ||||||||||||
Aerospace & Defense – 0.2% | ||||||||||||
United Technologies Corp. | 19,563 | 2,350,494 | ||||||||||
|
| |||||||||||
Construction & Engineering – 0.3% | ||||||||||||
Kajima Corp. | 67,000 | 645,484 | ||||||||||
Shimizu Corp. | 200,300 | 1,981,732 | ||||||||||
Taisei Corp. | 13,200 | 712,086 | ||||||||||
|
| |||||||||||
3,339,302 | ||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 25 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Electrical Components & Equipment – 0.2% | ||||||||||||
ABB Ltd. (REG) | 50,723 | $ | 1,182,635 | |||||||||
Legrand SA | 13,341 | 1,038,102 | ||||||||||
Schneider Electric SE (Paris) | 8,078 | 732,225 | ||||||||||
|
| |||||||||||
2,952,962 | ||||||||||||
|
| |||||||||||
Industrial Conglomerates – 0.3% | ||||||||||||
3M Co. | 11,084 | 2,154,619 | ||||||||||
Hopewell Holdings Ltd. | 264,500 | 938,265 | ||||||||||
Jardine Strategic Holdings Ltd. | 15,800 | 597,956 | ||||||||||
|
| |||||||||||
3,690,840 | ||||||||||||
|
| |||||||||||
Industrial Machinery – 0.5% | ||||||||||||
Atlas Copco AB – Class A | 16,225 | 634,500 | ||||||||||
Atlas Copco AB – Class B | 14,621 | 518,219 | ||||||||||
Graco, Inc. | 40,990 | 1,803,150 | ||||||||||
Middleby Corp. (The)(a) | 14,041 | 1,766,920 | ||||||||||
Stanley Black & Decker, Inc. | 13,228 | 1,872,953 | ||||||||||
|
| |||||||||||
6,595,742 | ||||||||||||
|
| |||||||||||
Trading Companies & Distributors – 0.1% | ||||||||||||
Ferguson PLC | 15,629 | 1,196,354 | ||||||||||
Mitsubishi Corp. | 29,200 | 805,206 | ||||||||||
|
| |||||||||||
2,001,560 | ||||||||||||
|
| |||||||||||
20,930,900 | ||||||||||||
|
| |||||||||||
Diversified Financials – 1.3% | ||||||||||||
Asset Management & Custody Banks – 0.5% | ||||||||||||
BlackRock, Inc. – Class A | 100 | 52,150 | ||||||||||
CI Financial Corp. | 12,637 | 265,938 | ||||||||||
IGM Financial, Inc. | 28,957 | 888,816 | ||||||||||
Schroders PLC | 23,639 | 1,069,441 | ||||||||||
State Street Corp. | 20,868 | 2,082,209 | ||||||||||
T Rowe Price Group, Inc. | 18,963 | 2,158,369 | ||||||||||
|
| |||||||||||
6,516,923 | ||||||||||||
|
| |||||||||||
Consumer Finance – 0.2% | ||||||||||||
American Express Co. | 24,173 | 2,387,084 | ||||||||||
Discover Financial Services | 5,646 | 402,277 | ||||||||||
|
| |||||||||||
2,789,361 | ||||||||||||
|
| |||||||||||
Diversified Capital Markets – 0.2% | ||||||||||||
Investec PLC | 137,224 | 1,085,547 | ||||||||||
Macquarie Group Ltd. | 9,715 | 791,173 | ||||||||||
|
| |||||||||||
1,876,720 | ||||||||||||
|
| |||||||||||
Financial Exchanges & Data – 0.1% | ||||||||||||
ASX Ltd. | 16,226 | 713,340 |
26 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Singapore Exchange Ltd. | 100,500 | $ | 582,801 | |||||||||
|
| |||||||||||
1,296,141 | ||||||||||||
|
| |||||||||||
Investment Banking & Brokerage – 0.3% | ||||||||||||
Charles Schwab Corp. (The) | 42,083 | 2,343,182 | ||||||||||
Raymond James Financial, Inc. | 21,651 | 1,943,177 | ||||||||||
|
| |||||||||||
4,286,359 | ||||||||||||
|
| |||||||||||
16,765,504 | ||||||||||||
|
| |||||||||||
Banks – 1.3% | ||||||||||||
Diversified Banks – 0.9% | ||||||||||||
JPMorgan Chase & Co. | 36,262 | 3,944,580 | ||||||||||
Komercni banka as | 8,478 | 365,777 | ||||||||||
Nordea Bank AB | 108,354 | 1,102,031 | ||||||||||
Svenska Handelsbanken AB – Class A | 86,831 | 968,362 | ||||||||||
Swedbank AB – Class A | 43,922 | 954,129 | ||||||||||
Toronto-Dominion Bank (The) | 24,311 | 1,365,369 | ||||||||||
Unicaja Banco SA(a)(c) | 970,050 | 1,759,395 | ||||||||||
US Bancorp | 14,017 | 707,158 | ||||||||||
|
| |||||||||||
11,166,801 | ||||||||||||
|
| |||||||||||
Regional Banks – 0.2% | ||||||||||||
Chiba Bank Ltd. (The) | 79,000 | 637,405 | ||||||||||
Cullen/Frost Bankers, Inc. | 6,537 | 748,160 | ||||||||||
Seven Bank Ltd. | 185,400 | 622,473 | ||||||||||
SVB Financial Group(a) | 3,401 | 1,018,974 | ||||||||||
|
| |||||||||||
3,027,012 | ||||||||||||
|
| |||||||||||
Thrifts & Mortgage Finance – 0.2% | ||||||||||||
Aareal Bank AG | 47,430 | 2,372,401 | ||||||||||
|
| |||||||||||
16,566,214 | ||||||||||||
|
| |||||||||||
Retailing – 1.0% | ||||||||||||
Apparel Retail – 0.0% | ||||||||||||
Shimamura Co., Ltd. | 4,000 | 465,493 | ||||||||||
|
| |||||||||||
Automotive Retail – 0.0% | ||||||||||||
USS Co., Ltd. | 16,100 | 338,105 | ||||||||||
|
| |||||||||||
Distributors – 0.1% | ||||||||||||
Jardine Cycle & Carriage Ltd. | 22,700 | 584,044 | ||||||||||
|
| |||||||||||
General Merchandise Stores – 0.1% | ||||||||||||
Dollarama, Inc. | 7,388 | 850,459 | ||||||||||
|
| |||||||||||
Home Improvement Retail – 0.5% | ||||||||||||
Home Depot, Inc. (The) | 17,201 | 3,178,745 | ||||||||||
Kingfisher PLC | 269,251 | 1,122,892 | ||||||||||
Lowe’s Cos., Inc. | 24,753 | 2,040,390 | ||||||||||
|
| |||||||||||
6,342,027 | ||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 27 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Internet & Direct Marketing Retail – 0.2% | ||||||||||||
Amazon.com, Inc.(a) | 923 | $ | 1,445,538 | |||||||||
Expedia Group, Inc. | 10,129 | 1,166,253 | ||||||||||
|
| |||||||||||
2,611,791 | ||||||||||||
|
| |||||||||||
Specialty Stores – 0.1% | ||||||||||||
JD Sports Fashion PLC | 213,942 | 1,147,653 | ||||||||||
|
| |||||||||||
12,339,572 | ||||||||||||
|
| |||||||||||
Food Beverage & Tobacco – 0.9% | ||||||||||||
Brewers – 0.1% | ||||||||||||
Carlsberg A/S – Class B | 8,613 | 963,207 | ||||||||||
Tsingtao Brewery Co., Ltd. – Class H | 100,000 | 517,739 | ||||||||||
|
| |||||||||||
1,480,946 | ||||||||||||
|
| |||||||||||
Distillers & Vintners – 0.1% | ||||||||||||
Davide Campari-Milano SpA | 118,801 | 889,931 | ||||||||||
Treasury Wine Estates Ltd. | 4,831 | 69,006 | ||||||||||
|
| |||||||||||
958,937 | ||||||||||||
|
| |||||||||||
Packaged Foods & Meats – 0.4% | ||||||||||||
Chocoladefabriken Lindt & Spruengli AG (REG)(a) | 10 | 758,469 | ||||||||||
Danone SA | 2,459 | 199,193 | ||||||||||
Mondelez International, Inc. – Class A | 47,779 | 1,887,271 | ||||||||||
Tyson Foods, Inc. – Class A | 17,300 | 1,212,730 | ||||||||||
Yamazaki Baking Co., Ltd. | 30,700 | 672,248 | ||||||||||
|
| |||||||||||
4,729,911 | ||||||||||||
|
| |||||||||||
Soft Drinks – 0.1% | ||||||||||||
Coca-Cola HBC AG(a) | 30,479 | 1,021,071 | ||||||||||
PepsiCo, Inc. | 3,334 | 336,534 | ||||||||||
Suntory Beverage & Food Ltd. | 13,600 | 669,255 | ||||||||||
|
| |||||||||||
2,026,860 | ||||||||||||
|
| |||||||||||
Tobacco – 0.2% | ||||||||||||
Philip Morris International, Inc. | 27,574 | 2,261,068 | ||||||||||
|
| |||||||||||
11,457,722 | ||||||||||||
|
| |||||||||||
Health Care Equipment & Services – 0.6% | ||||||||||||
Health Care Distributors – 0.1% | ||||||||||||
Henry Schein, Inc.(a) | 12,564 | 954,864 | ||||||||||
|
| |||||||||||
Health Care Equipment – 0.3% | ||||||||||||
Cochlear Ltd. | 5,005 | 728,376 | ||||||||||
Stryker Corp. | 13,144 | 2,226,856 | ||||||||||
Varian Medical Systems, Inc.(a) | 7,386 | 853,748 | ||||||||||
|
| |||||||||||
3,808,980 | ||||||||||||
|
| |||||||||||
Health Care Facilities – 0.1% | ||||||||||||
Chartwell Retirement Residences | 163,730 | 1,888,579 | ||||||||||
|
|
28 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Health Care Services – 0.1% | ||||||||||||
Fresenius SE & Co. KGaA | 15,002 | $ | 1,142,466 | |||||||||
|
| |||||||||||
7,794,889 | ||||||||||||
|
| |||||||||||
Transportation – 0.6% | ||||||||||||
Air Freight & Logistics – 0.1% | ||||||||||||
FedEx Corp. | 3,130 | 773,736 | ||||||||||
Kuehne & Nagel International AG (REG) | 5,849 | 910,665 | ||||||||||
|
| |||||||||||
1,684,401 | ||||||||||||
|
| |||||||||||
Airport Services – 0.3% | ||||||||||||
Sydney Airport | 567,860 | 3,040,370 | ||||||||||
|
| |||||||||||
Highways & Railtracks – 0.1% | ||||||||||||
Transurban Group | 84,746 | 738,451 | ||||||||||
|
| |||||||||||
Trucking – 0.1% | ||||||||||||
Landstar System, Inc. | 16,734 | 1,701,011 | ||||||||||
|
| |||||||||||
7,164,233 | ||||||||||||
|
| |||||||||||
Food & Staples Retailing – 0.5% | ||||||||||||
Drug Retail – 0.1% | ||||||||||||
Jean Coutu Group PJC, Inc. (The) – Class A | 45,920 | 879,452 | ||||||||||
Tsuruha Holdings, Inc. | 4,500 | 645,930 | ||||||||||
|
| |||||||||||
1,525,382 | ||||||||||||
|
| |||||||||||
Food Distributors – 0.0% | ||||||||||||
Sysco Corp. | 2,571 | 160,790 | ||||||||||
|
| |||||||||||
Food Retail – 0.2% | ||||||||||||
Dairy Farm International Holdings Ltd. | 73,100 | 613,867 | ||||||||||
Koninklijke Ahold Delhaize NV | 48,195 | 1,162,679 | ||||||||||
Woolworths Group Ltd. | 38,812 | 811,783 | ||||||||||
|
| |||||||||||
2,588,329 | ||||||||||||
|
| |||||||||||
Hypermarkets & Super Centers – 0.2% | ||||||||||||
Walmart, Inc. | 25,814 | 2,283,507 | ||||||||||
|
| |||||||||||
6,558,008 | ||||||||||||
|
| |||||||||||
Utilities – 0.5% | ||||||||||||
Electric Utilities – 0.4% | ||||||||||||
AusNet Services | 503,942 | 650,530 | ||||||||||
Kansai Electric Power Co., Inc. (The) | 52,300 | 731,769 | ||||||||||
Kyushu Electric Power Co., Inc. | 53,900 | 667,822 | ||||||||||
Pinnacle West Capital Corp. | 14,443 | 1,162,662 | ||||||||||
Xcel Energy, Inc. | 45,476 | 2,130,096 | ||||||||||
|
| |||||||||||
5,342,879 | ||||||||||||
|
| |||||||||||
Gas Utilities – 0.1% | ||||||||||||
Hong Kong & China Gas Co., Ltd. | 316,000 | 660,265 | ||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 29 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Multi-Utilities – 0.0% | ||||||||||||
Consolidated Edison, Inc. | 5,670 | $ | 454,337 | |||||||||
|
| |||||||||||
6,457,481 | ||||||||||||
|
| |||||||||||
Consumer Services – 0.5% | ||||||||||||
Casinos & Gaming – 0.1% | ||||||||||||
Aristocrat Leisure Ltd. | 37,125 | 744,749 | ||||||||||
|
| |||||||||||
Hotels, Resorts & Cruise Lines – 0.2% | ||||||||||||
Shangri-La Asia Ltd. | 282,000 | 548,804 | ||||||||||
Wyndham Worldwide Corp. | 17,227 | 1,967,496 | ||||||||||
|
| |||||||||||
2,516,300 | ||||||||||||
|
| |||||||||||
Leisure Facilities – 0.0% | ||||||||||||
Merlin Entertainments PLC(c) | 30,805 | 155,834 | ||||||||||
|
| |||||||||||
Restaurants – 0.2% | ||||||||||||
McDonald’s Corp. | 14,536 | 2,433,908 | ||||||||||
Sodexo SA | 4,590 | 454,540 | ||||||||||
|
| |||||||||||
2,888,448 | ||||||||||||
|
| |||||||||||
6,305,331 | ||||||||||||
|
| |||||||||||
Household & Personal Products – 0.5% | ||||||||||||
Household Products – 0.2% | ||||||||||||
Colgate-Palmolive Co. | 24,085 | 1,571,064 | ||||||||||
Henkel AG & Co. KGaA | 4,317 | 513,911 | ||||||||||
|
| |||||||||||
2,084,975 | ||||||||||||
|
| |||||||||||
Personal Products – 0.3% | ||||||||||||
Estee Lauder Cos., Inc. (The) – Class A | 14,346 | 2,124,499 | ||||||||||
L’Oreal SA | 5,357 | 1,289,910 | ||||||||||
Pola Orbis Holdings, Inc. | 14,900 | 650,081 | ||||||||||
|
| |||||||||||
4,064,490 | ||||||||||||
|
| |||||||||||
6,149,465 | ||||||||||||
|
| |||||||||||
Technology Hardware & Equipment – 0.4% | ||||||||||||
Communications Equipment – 0.4% | ||||||||||||
Cisco Systems, Inc. | 71,163 | 3,151,809 | ||||||||||
F5 Networks, Inc.(a) | 13,475 | 2,197,638 | ||||||||||
|
| |||||||||||
5,349,447 | ||||||||||||
|
| |||||||||||
Media – 0.4% | ||||||||||||
Broadcasting – 0.1% | ||||||||||||
Discovery, Inc. – Class A(a)(b) | 72,217 | 1,707,932 | ||||||||||
|
| |||||||||||
Cable & Satellite – 0.2% | ||||||||||||
Eutelsat Communications SA | 47,454 | 1,027,711 | ||||||||||
Liberty Global PLC – Class A(a) | 52,645 | 1,586,720 | ||||||||||
|
| |||||||||||
2,614,431 | ||||||||||||
|
|
30 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Publishing – 0.1% | ||||||||||||
Schibsted ASA – Class B | 36,764 | $ | 989,111 | |||||||||
|
| |||||||||||
5,311,474 | ||||||||||||
|
| |||||||||||
Consumer Durables & Apparel – 0.4% | ||||||||||||
Apparel, Accessories & Luxury Goods – 0.2% | ||||||||||||
Luxottica Group SpA | 16,038 | 1,000,539 | ||||||||||
LVMH Moet Hennessy Louis Vuitton SE | 4,527 | 1,575,450 | ||||||||||
|
| |||||||||||
2,575,989 | ||||||||||||
|
| |||||||||||
Homebuilding – 0.2% | ||||||||||||
Construtora Tenda SA(a) | 155,300 | 1,130,881 | ||||||||||
Corp. GEO SAB de CV Series B(a) | 1,321 | 52 | ||||||||||
Cyrela Brazil Realty SA Empreendimentos e Participacoes | 36,100 | 143,238 | ||||||||||
Desarrolladora Homex SAB de CV(a) | 1,590 | 15 | ||||||||||
MRV Engenharia e Participacoes SA | 282,950 | 1,211,535 | ||||||||||
Urbi Desarrollos Urbanos SAB de CV(a) | 172 | 58 | ||||||||||
|
| |||||||||||
2,485,779 | ||||||||||||
|
| |||||||||||
5,061,768 | ||||||||||||
|
| |||||||||||
Automobiles & Components – 0.3% | ||||||||||||
Auto Parts & Equipment – 0.1% | ||||||||||||
Magna International, Inc. – Class A | 11,055 | 652,908 | ||||||||||
|
| |||||||||||
Automobile Manufacturers – 0.2% | ||||||||||||
Fiat Chrysler Automobiles NV(a) | 47,670 | 1,059,169 | ||||||||||
Ford Motor Co. | 197,348 | 2,218,191 | ||||||||||
General Motors Co. | 7,953 | 292,193 | ||||||||||
|
| |||||||||||
3,569,553 | ||||||||||||
|
| |||||||||||
4,222,461 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment – 0.3% | ||||||||||||
Semiconductor Equipment – 0.2% | ||||||||||||
Applied Materials, Inc. | 36,167 | 1,796,415 | ||||||||||
KLA-Tencor Corp. | 2,617 | 266,254 | ||||||||||
|
| |||||||||||
2,062,669 | ||||||||||||
|
| |||||||||||
Semiconductors – 0.1% | ||||||||||||
Maxim Integrated Products, Inc. | 9,716 | 529,522 | ||||||||||
STMicroelectronics NV | 38,209 | 834,070 | ||||||||||
|
| |||||||||||
1,363,592 | ||||||||||||
|
| |||||||||||
3,426,261 | ||||||||||||
|
| |||||||||||
Insurance – 0.2% | ||||||||||||
Life & Health Insurance – 0.1% | ||||||||||||
CNP Assurances | 37,750 | 966,919 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 31 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Legal & General Group PLC | 320,116 | $ | 1,185,625 | |||||||||
|
| |||||||||||
2,152,544 | ||||||||||||
|
| |||||||||||
Multi-line Insurance – 0.1% | ||||||||||||
Sampo Oyj – Class A | 19,385 | 1,048,372 | ||||||||||
|
| |||||||||||
3,200,916 | ||||||||||||
|
| |||||||||||
Information Technology – 0.2% | ||||||||||||
Technology Hardware, Storage & Peripherals – 0.2% | ||||||||||||
Apple, Inc. | 17,883 | 2,955,344 | ||||||||||
Ricoh Co., Ltd. | 16,200 | 158,295 | ||||||||||
|
| |||||||||||
3,113,639 | ||||||||||||
|
| |||||||||||
Commercial & Professional Services – 0.2% | ||||||||||||
Diversified Support Services – 0.0% | ||||||||||||
ISS A/S | 1,247 | 43,488 | ||||||||||
|
| |||||||||||
Research & Consulting Services – 0.2% | ||||||||||||
RELX NV | 49,006 | 1,042,707 | ||||||||||
RELX PLC | 52,708 | 1,126,528 | ||||||||||
|
| |||||||||||
2,169,235 | ||||||||||||
|
| |||||||||||
Security & Alarm Services – 0.0% | ||||||||||||
Prosegur Cia de Seguridad SA | 58,313 | 440,799 | ||||||||||
|
| |||||||||||
2,653,522 | ||||||||||||
|
| |||||||||||
Telecommunication Services – 0.0% | ||||||||||||
Integrated Telecommunication Services – 0.0% | ||||||||||||
HKT Trust & HKT Ltd. – Class SS | 471,000 | 619,688 | ||||||||||
|
| |||||||||||
Total Common Stocks | 809,899,565 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
INFLATION-LINKED SECURITIES – 25.8% | ||||||||||||
Japan – 9.4% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 12,478,613 | 120,658,551 | |||||||||
|
| |||||||||||
United States – 16.4% | ||||||||||||
U.S. Treasury Inflation Index | $ | 162,878 | 159,518,372 |
32 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
1.125%, 1/15/21 (TIPS)(g) | $ | 50,552 | $ | 51,389,440 | ||||||||
|
| |||||||||||
210,907,812 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 331,566,363 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 8.2% | ||||||||||||
Funds and Investment Trusts – 8.2%(h) | ||||||||||||
iShares Global Timber & Forestry ETF | 77,970 | 6,264,889 | ||||||||||
iShares MSCI Global Metals & Mining Producers ETF | 721,278 | 24,732,623 | ||||||||||
SPDR S&P Bank ETF(b) | 496,760 | 23,824,610 | ||||||||||
Vanguard Global ex-U.S. Real Estate ETF | 511,569 | 31,328,485 | ||||||||||
Vanguard Real Estate ETF | 256,520 | 19,518,607 | ||||||||||
|
| |||||||||||
Total Investment Companies | 105,669,214 | |||||||||||
|
| |||||||||||
Notional Amount | ||||||||||||
OPTIONS PURCHASED – PUTS – 0.0% | ||||||||||||
Options on Funds and Investment Trusts – 0.0% | ||||||||||||
SPDR S&P 500 ETF Trust | USD | 242,200 | 479,556 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
WARRANTS – 0.0% | ||||||||||||
Real Estate – 0.0% | ||||||||||||
Diversified Real Estate Activities – 0.0% | ||||||||||||
Eastern & Oriental Bhd, | 12,100 | 247 | ||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 2.1% | ||||||||||||
Investment Companies – 2.1% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – | 26,633,695 | 26,633,695 | ||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 33 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Total Investments Before Security Lending Collateral for Securities Loaned – 99.1% | $ | 1,274,248,640 | ||||||||||
|
| |||||||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED – 2.6% | ||||||||||||
Investment Companies – 2.6% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 1.51%(h)(i)(j) | 33,347,722 | 33,347,722 | ||||||||||
|
| |||||||||||
Total Investments – 101.7% | 1,307,596,362 | |||||||||||
Other assets less liabilities – (1.7)% | (22,071,474 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 1,285,524,888 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional | Original Value | Value at April 30, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||
Bcom Commodity Index Futures | 2,843 | June 2018 | USD | 284 | $ | 25,324,439 | $ | 25,444,850 | $ | 120,411 | ||||||||||||||||
Brent Crude Futures | 161 | June 2018 | USD | 161 | 11,761,343 | 11,941,370 | 180,027 | |||||||||||||||||||
Cattle Feeder Futures | 46 | May 2018 | USD | 2,300 | 3,203,162 | 3,224,025 | 20,863 | |||||||||||||||||||
Cocoa Futures | 354 | May 2018 | GBP | 4 | 8,879,594 | 9,045,245 | 165,651 | |||||||||||||||||||
Cocoa Futures | 492 | July 2018 | GBP | 5 | 12,657,467 | 12,903,252 | 245,785 | |||||||||||||||||||
Coffee C Futures | 78 | July 2018 | USD | 2,925 | 3,385,943 | 3,591,900 | 205,957 | |||||||||||||||||||
Coffee Robusta Futures | 201 | July 2018 | USD | 2 | 3,483,886 | 3,529,560 | 45,674 | |||||||||||||||||||
Copper Futures | 17 | July 2018 | USD | 425 | 1,327,743 | 1,306,450 | (21,293 | ) | ||||||||||||||||||
Corn Futures | 257 | July 2018 | USD | 1,285 | 4,980,139 | 5,149,638 | 169,499 | |||||||||||||||||||
Gasoline RBOB Futures | 148 | May 2018 | USD | 6,216 | 12,821,625 | 13,245,053 | 423,428 | |||||||||||||||||||
Gold 100 OZ Futures | 38 | June 2018 | USD | 4 | 5,120,858 | 5,012,960 | (107,898 | ) | ||||||||||||||||||
Live Cattle Futures | 24 | June 2018 | USD | 960 | 1,069,400 | 1,018,560 | (50,840 | ) | ||||||||||||||||||
LME Primary Aluminum Futures | 80 | May 2018 | USD | 2 | 4,196,712 | 4,527,000 | 330,288 | |||||||||||||||||||
LME Zinc Futures | 20 | May 2018 | USD | 1 | 1,641,153 | 1,564,375 | (76,778 | ) | ||||||||||||||||||
LME Zinc Futures | 9 | July 2018 | USD | 0 | ** | 702,928 | 703,688 | 760 | ||||||||||||||||||
Natural Gas Futures | 485 | May 2018 | USD | 4,850 | 13,435,994 | 13,400,550 | (35,444 | ) | ||||||||||||||||||
Natural Gas Futures | 227 | July 2018 | USD | 2,270 | 6,428,870 | 6,371,889 | (56,981 | ) | ||||||||||||||||||
Soybean Meal Futures | 91 | July 2018 | USD | 9 | 3,446,440 | 3,583,580 | 137,140 |
34 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Description | Number of Contracts | Expiration Month | Notional | Original Value | Value at 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 122 | June 2018 | USD | 12,200 | $ | 14,746,918 | $ | 14,594,250 | $ | (152,668 | ) | |||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 49 | June 2018 | JPY | 4,900,000 | 67,547,271 | 67,520,673 | 26,598 | |||||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 167 | June 2018 | JPY | 1,670,000 | 23,030,305 | 23,021,314 | 8,991 | |||||||||||||||||||
Cocoa Futures | 532 | July 2018 | USD | 5 | 14,698,036 | 15,029,000 | (330,964 | ) | ||||||||||||||||||
Cocoa Futures | 314 | September 2018 | USD | 3 | 8,783,039 | 8,886,200 | (103,161 | ) | ||||||||||||||||||
Cotton No.2 Futures | 102 | July 2018 | USD | 5,100 | 4,209,997 | 4,275,840 | (65,843 | ) | ||||||||||||||||||
LME Primary Aluminum Futures | 80 | May 2018 | USD | 2 | 4,645,569 | 4,527,000 | 118,569 | |||||||||||||||||||
LME Zinc Futures | 20 | May 2018 | USD | 1 | 1,591,550 | 1,564,375 | 27,175 | |||||||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 602 | June 2018 | USD | 102,000 | 116,309,218 | 115,777,969 | 531,249 | |||||||||||||||||||
|
| |||||||||||||||||||||||||
$ | 1,756,195 | |||||||||||||||||||||||||
|
|
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 | 9,838 | JPY | 1,043,000 | 6/19/18 | $ | (266,104 | ) | ||||||||||||
Bank of America, NA | TWD | 979,026 | USD | 33,768 | 6/07/18 | 622,886 | ||||||||||||||
Bank of America, NA | GBP | 526 | USD | 743 | 6/19/18 | 17,241 | ||||||||||||||
Bank of America, NA | TRY | 15,650 | USD | 3,988 | 6/19/18 | 192,103 | ||||||||||||||
Bank of America, NA | USD | 11,119 | CHF | 10,596 | 6/19/18 | (383,508 | ) | |||||||||||||
Bank of America, NA | USD | 19,295 | GBP | 13,719 | 6/19/18 | (364,939 | ) | |||||||||||||
Bank of America, NA | USD | 13,852 | TRY | 54,353 | 6/19/18 | (667,176 | ) | |||||||||||||
Barclays Bank PLC | BRL | 1,753 | USD | 504 | 5/03/18 | 3,177 | ||||||||||||||
Barclays Bank PLC | USD | 529 | BRL | 1,753 | 5/03/18 | (28,840 | ) | |||||||||||||
Barclays Bank PLC | RUB | 226,373 | USD | 3,651 | 5/17/18 | 62,587 | ||||||||||||||
Barclays Bank PLC | USD | 10,217 | RUB | 633,417 | 5/17/18 | (175,125 | ) | |||||||||||||
Barclays Bank PLC | USD | 8,747 | TWD | 254,534 | 6/07/18 | (129,662 | ) | |||||||||||||
Barclays Bank PLC | CHF | 10,615 | USD | 10,766 | 6/19/18 | 10,494 | ||||||||||||||
Barclays Bank PLC | GBP | 25,457 | USD | 35,482 | 6/19/18 | 354,576 | ||||||||||||||
Barclays Bank PLC | MXN | 85,390 | USD | 4,532 | 6/19/18 | 217 | ||||||||||||||
Barclays Bank PLC | NOK | 42,824 | USD | 5,509 | 6/19/18 | 162,327 |
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) | ||||||||||||||||
Barclays Bank PLC | USD | 1,582 | CAD | 2,033 | 6/19/18 | $ | 3,603 | |||||||||||||
Barclays Bank PLC | USD | 25,344 | MXN | 477,472 | 6/19/18 | (1,215 | ) | |||||||||||||
Barclays Bank PLC | USD | 8,419 | NOK | 65,442 | 6/19/18 | (248,063 | ) | |||||||||||||
Barclays Bank PLC | USD | 4,029 | SGD | 5,289 | 6/19/18 | (36,530 | ) | |||||||||||||
Barclays Bank PLC | CLP | 8,425,804 | USD | 14,125 | 6/21/18 | 389,758 | ||||||||||||||
BNP Paribas SA | USD | 5,836 | AUD | 7,439 | 6/19/18 | (235,119 | ) | |||||||||||||
BNP Paribas SA | USD | 20,483 | JPY | 2,234,290 | 6/19/18 | 21,224 | ||||||||||||||
Citibank, NA | USD | 769 | TWD | 22,320 | 6/07/18 | (13,522 | ) | |||||||||||||
Citibank, NA | USD | 3,899 | CHF | 3,676 | 6/19/18 | (174,918 | ) | |||||||||||||
Citibank, NA | USD | 1,106 | JPY | 117,482 | 6/19/18 | (27,464 | ) | |||||||||||||
Citibank, NA | KRW | 8,346,066 | USD | 7,849 | 7/26/18 | 35,813 | ||||||||||||||
Citibank, NA | USD | 1,813 | KRW | 1,927,712 | 7/26/18 | (8,272 | ) | |||||||||||||
Credit Suisse International | BRL | 1,753 | USD | 500 | 5/03/18 | 29 | ||||||||||||||
Credit Suisse International | USD | 504 | BRL | 1,753 | 5/03/18 | (3,177 | ) | |||||||||||||
Credit Suisse International | INR | 1,014,368 | USD | 15,551 | 5/17/18 | 315,677 | ||||||||||||||
Credit Suisse International | USD | 38,913 | INR | 2,547,030 | 5/17/18 | (658,426 | ) | |||||||||||||
Credit Suisse International | USD | 499 | BRL | 1,753 | 6/04/18 | (227 | ) | |||||||||||||
Credit Suisse International | USD | 2,317 | TWD | 67,448 | 6/07/18 | (33,960 | ) | |||||||||||||
Credit Suisse International | CAD | 38,550 | USD | 30,017 | 6/19/18 | (40,421 | ) | |||||||||||||
Credit Suisse International | CHF | 30,446 | USD | 32,385 | 6/19/18 | 1,537,348 | ||||||||||||||
Credit Suisse International | CZK | 55,829 | USD | 2,718 | 6/19/18 | 76,922 | ||||||||||||||
Credit Suisse International | EUR | 14,463 | USD | 17,951 | 6/19/18 | 422,895 | ||||||||||||||
Credit Suisse International | MXN | 327,675 | USD | 17,681 | 6/19/18 | 288,596 | ||||||||||||||
Credit Suisse International | NOK | 243,352 | USD | 31,296 | 6/19/18 | 911,076 | ||||||||||||||
Credit Suisse International | NZD | 19,204 | USD | 13,865 | 6/19/18 | 355,257 | ||||||||||||||
Credit Suisse International | PLN | 29,044 | USD | 8,457 | 6/19/18 | 176,929 | ||||||||||||||
Credit Suisse International | SEK | 383,702 | USD | 45,220 | 6/19/18 | 1,243,173 | ||||||||||||||
Credit Suisse International | USD | 6,533 | AUD | 8,611 | 6/19/18 | (49,181 | ) | |||||||||||||
Credit Suisse International | USD | 1,010 | CHF | 951 | 6/19/18 | (46,780 | ) | |||||||||||||
Credit Suisse International | USD | 18,429 | EUR | 14,904 | 6/19/18 | (367,112 | ) | |||||||||||||
Credit Suisse International | USD | 55,211 | NOK | 438,097 | 6/19/18 | (509,771 | ) | |||||||||||||
Credit Suisse International | USD | 9,949 | NZD | 13,783 | 6/19/18 | (252,937 | ) | |||||||||||||
Credit Suisse International | USD | 32,598 | SEK | 271,153 | 6/19/18 | (1,520,194 | ) | |||||||||||||
Credit Suisse International | ZAR | 94,378 | USD | 7,795 | 6/19/18 | 270,771 | ||||||||||||||
Deutsche Bank AG | HUF | 2,211,285 | USD | 8,801 | 6/19/18 | 264,454 | ||||||||||||||
Deutsche Bank AG | PLN | 17,507 | USD | 5,128 | 6/19/18 | 137,048 | ||||||||||||||
Deutsche Bank AG | COP | 33,055,206 | USD | 12,184 | 6/21/18 | 423,396 | ||||||||||||||
Deutsche Bank AG | USD | 216 | COP | 584,763 | 6/21/18 | (7,490 | ) | |||||||||||||
Goldman Sachs Bank USA | PHP | 489,025 | USD | 9,356 | 5/30/18 | (98,394 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 46,373 | PHP | 2,432,929 | 5/30/18 | 662,202 | ||||||||||||||
Goldman Sachs Bank USA | EUR | 20,855 | USD | 25,404 | 6/19/18 | 129,458 | ||||||||||||||
Goldman Sachs Bank USA | GBP | 12,994 | USD | 17,964 | 6/19/18 | 33,882 | ||||||||||||||
Goldman Sachs Bank USA | USD | 2,212 | AUD | 2,857 | 6/19/18 | (60,896 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 16,581 | CAD | 21,165 | 6/19/18 | (78,691 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 21,005 | GBP | 15,231 | 6/19/18 | 12,027 | ||||||||||||||
Goldman Sachs Bank USA | USD | 10,042 | MXN | 192,917 | 6/19/18 | 197,742 | ||||||||||||||
Goldman Sachs Bank USA | USD | 5,921 | PLN | 20,156 | 6/19/18 | (174,663 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 13,236 | TRY | 54,950 | 6/19/18 | 93,913 | ||||||||||||||
Goldman Sachs Bank USA | USD | 5,119 | TRY | 20,142 | 6/19/18 | (233,246 | ) | |||||||||||||
Goldman Sachs Bank USA | ZAR | 58,416 | USD | 4,771 | 6/19/18 | 113,627 | ||||||||||||||
Goldman Sachs Bank USA | USD | 6,536 | IDR | 90,706,464 | 7/26/18 | (82,137 | ) | |||||||||||||
JPMorgan Chase Bank, NA | EUR | 3,381 | USD | 4,163 | 6/19/18 | 65,385 | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 21,713 | GBP | 15,569 | 6/19/18 | (229,570 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 1,585 | ZAR | 19,158 | 6/19/18 | (57,373 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 526 | IDR | 7,296,674 | 7/26/18 | (6,759 | ) |
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) | ||||||||||||||||
Morgan Stanley & Co., Inc. | JPY | 14,238,880 | USD | 134,111 | 6/19/18 | $ | 3,439,001 | |||||||||||||
Morgan Stanley & Co., Inc. | SEK | 244,511 | USD | 29,793 | 6/19/18 | 1,768,867 | ||||||||||||||
Morgan Stanley & Co., Inc. | USD | 1,835 | HKD | 14,341 | 6/19/18 | (5,622 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 17,436 | JPY | 1,851,194 | 6/19/18 | (447,104 | ) | |||||||||||||
Royal Bank of Scotland PLC | USD | 13,473 | EUR | 10,862 | 6/19/18 | (309,358 | ) | |||||||||||||
Royal Bank of Scotland PLC | PEN | 102,662 | USD | 31,752 | 6/21/18 | 238,668 | ||||||||||||||
State Street Bank & Trust Co. | DKK | 17,920 | USD | 2,986 | 6/19/18 | 71,232 | ||||||||||||||
State Street Bank & Trust Co. | EUR | 600 | USD | 742 | 6/19/18 | 15,079 | ||||||||||||||
State Street Bank & Trust Co. | NZD | 1,427 | USD | 1,028 | 6/19/18 | 24,577 | ||||||||||||||
State Street Bank & Trust Co. | THB | 422,402 | USD | 13,420 | 6/19/18 | 18,774 | ||||||||||||||
State Street Bank & Trust Co. | USD | 4,223 | EUR | 3,381 | 6/19/18 | (125,747 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 1,593 | THB | 49,675 | 6/19/18 | (16,672 | ) | |||||||||||||
State Street Bank & Trust Co. | ZAR | 10,310 | USD | 866 | 6/19/18 | 44,476 | ||||||||||||||
State Street Bank & Trust Co. | MYR | 15,471 | USD | 4,002 | 7/12/18 | 90,442 | ||||||||||||||
State Street Bank & Trust Co. | USD | 5,248 | MYR | 20,642 | 7/12/18 | (28,357 | ) | |||||||||||||
UBS AG | JPY | 2,498,256 | USD | 23,447 | 6/19/18 | 520,232 | ||||||||||||||
UBS AG | USD | 2,985 | DKK | 17,920 | 6/19/18 | (69,780 | ) | |||||||||||||
UBS AG | USD | 14,167 | JPY | 1,503,318 | 6/19/18 | (370,907 | ) | |||||||||||||
UBS AG | CNY | 41,735 | USD | 6,608 | 7/19/18 | 36,448 | ||||||||||||||
UBS AG | USD | 4,420 | CNY | 27,915 | 7/19/18 | (24,379 | ) | |||||||||||||
|
| |||||||||||||||||||
$ | 7,205,821 | |||||||||||||||||||
|
|
PUT OPTIONS WRITTEN (see Note D)
Description | Counterparty | Contracts | Exercise Price | Expiration Month | Notional (000) | Premiums Received | U.S. $ Value | |||||||||||||||||||
SPDR S&P 500 ETF Trust | Morgan Stanley & Co. | 4,844 | USD | 247.00 | May 2018 | USD | 484 | $ | 329,201 | $ | (164,696 | ) |
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||
Swap | Notional (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Barclays Bank PLC | USD | 172,300 | 4/15/22 | 2.285 | % | CPI | # | Maturity/Maturity | $ | 269,917 | ||||||||||||
Citibank, NA | USD | 7,920 | 3/08/21 | 2.200 | % | CPI | # | Maturity/Maturity | 6,588 | |||||||||||||
Deutsche Bank AG | USD | 66,990 | 3/20/21 | 2.221 | % | CPI | # | Maturity/Maturity | (46,243 | ) | ||||||||||||
Deutsche Bank AG | USD | 12,504 | 3/26/25 | 2.170 | % | CPI | # | Maturity/Maturity | 129,611 | |||||||||||||
HSBC Bank USA | USD | 247,500 | 4/15/21 | 2.265 | % | CPI | # | Maturity/Maturity | 244,230 | |||||||||||||
JPMorgan Chase Bank, NA | USD | 11,499 | 3/30/25 | 2.170 | % | CPI | # | Maturity/Maturity | 120,386 | |||||||||||||
JPMorgan Chase Bank, NA | USD | 76,719 | 4/01/25 | 2.170 | % | CPI | # | Maturity/Maturity | 797,569 | |||||||||||||
|
| |||||||||||||||||||||
$ | 1,522,058 | |||||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 37 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
TOTAL RETURN SWAPS (see Note D)
Counterparty & | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||
Barclays Commodity Hedging Insights 2 Index | 208,142 | 0.02 | % | Quarterly | USD | 40,953 | 9/17/18 | $ | (1,391,677 | ) | ||||||||||||||
Barclays Commodity Strategy 1673 Index | 31,409 | 0.30 | % | Quarterly | USD | 17,469 | 9/17/18 | 628,133 | ||||||||||||||||
Barclays Commodity Strategy 1673 Index | 6,728 | 0.30 | % | Maturity | USD | 3,905 | 9/17/18 | (27,427 | ) | |||||||||||||||
Citibank, NA | ||||||||||||||||||||||||
STOXX Europe 600 banks Net Return | 48,026 | | EURIBOR Minus 0.62 | % |
| Maturity |
| EUR | 21,083 | 5/15/18 | (755,637 | ) | ||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
Goldman Sachs Commodity Trend 10% Volatility Target Excess Return Strategy | 70,633 | 0.00 | % | Quarterly | USD | 7,043 | 9/17/18 | 92,665 | ||||||||||||||||
Goldman Sachs Commodity Trend 10% Volatility Target Excess Return Strategy | 45,808 | 0.00 | % | Quarterly | USD | 4,568 | 9/17/18 | 59,922 | ||||||||||||||||
JPMorgan Chase Bank, NA | ||||||||||||||||||||||||
Bloomberg Industrial Metals Subindex 3 Month Forward | 289,407 | 0.12 | % | Maturity | USD | 60,463 | 6/15/18 | 218,666 | ||||||||||||||||
Bloomberg Petroleum Subindex 3 Month Forward | 93,200 | 0.11 | % | Maturity | USD | 39,175 | 6/15/18 | 5,115,459 | ||||||||||||||||
Bloomberg Petroleum Subindex 3 Month Forward | 34,760 | 0.11 | % | Maturity | USD | 15,423 | 6/15/18 | 1,095,860 | ||||||||||||||||
Bloomberg Precious Metals Subindex 3 Month Forward | 294,617 | 0.11 | % | Maturity | USD | 53,524 | 6/15/18 | (206,120 | ) | |||||||||||||||
Bloomberg Softs Subindex 3 Month Forward | 10,563 | 0.18 | % | Quarterly | USD | 769 | 6/15/18 | 5,430 | ||||||||||||||||
Bloomberg Softs Subindex 3 Month Forward | 307,763 | 0.18 | % | Maturity | USD | 23,452 | 6/15/18 | (886,475 | ) | |||||||||||||||
JPMorgan Cross Sectional Momentum R | 84,595 | 0.48 | % | Quarterly | USD | 18,485 | 9/17/18 | 267,122 | ||||||||||||||||
JPMorgan Cross Sectional Momentum R | 1,178 | 0.48 | % | Maturity | USD | 265 | 9/17/18 | (3,680 | ) | |||||||||||||||
JPMorgan JMABRF34 Index | 24,321 | 0.60 | % | Quarterly | USD | 42,282 | 9/17/18 | 131,671 | ||||||||||||||||
JPMorgan RCI – 24 Alpha | 60,308 | 0.50 | % | Quarterly | USD | 16,674 | 9/17/18 | 105,168 |
38 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty & | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
JPMorgan RCI – 24 Alpha | 8,091 | 0.50 | % | Maturity | USD | 2,274 | 9/17/18 | $ | (21,359 | ) | ||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||
Bloomberg Grains Subindex 3 Month Forward | 1,300,678 | 0.15 | % | Maturity | USD | 84,446 | 6/15/18 | 1,463,510 | ||||||||||||||||
Bloomberg Grains Subindex 3 Month Forward | 15,542 | 0.15 | % | Quarterly | USD | 1,020 | 6/15/18 | 6,548 | ||||||||||||||||
Bloomberg Livestock Subindex 3 Month Forward | 7,209 | 0.16 | % | Quarterly | USD | 1,020 | 6/15/18 | (12,100 | ) | |||||||||||||||
Bloomberg Livestock Subindex 3 Month Forward | 134,349 | 0.16 | % | Maturity | USD | 19,966 | 6/15/18 | (1,181,660 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
$ | 4,704,019 | |||||||||||||||||||||||
|
|
** | Notional amount less than $500. |
(a) | Non-income producing security. |
(b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(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, 2018, the aggregate market value of these securities amounted to $6,774,645 or 0.5% of net assets. |
(d) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(e) | Illiquid security. |
(f) | Fair valued by the Adviser. |
(g) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(h) | 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. |
(i) | Affiliated investments. |
(j) | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar | KRW – South Korean Won | |
BRL – Brazilian Real | MXN – Mexican Peso | |
CAD – Canadian Dollar | MYR – Malaysian Ringgit | |
CHF – Swiss Franc | NOK – Norwegian Krone | |
CLP – Chilean Peso | NZD – New Zealand Dollar | |
CNY – Chinese Yuan Renminbi | PEN – Peruvian Sol | |
COP – Colombian Peso | PHP – Philippine Peso | |
CZK – Czech Koruna | PLN – Polish Zloty | |
DKK – Danish Krone | RUB – Russian Ruble | |
EUR – Euro | SEK – Swedish Krona | |
GBP – Great British Pound | SGD – Singapore Dollar | |
HKD – Hong Kong Dollar | THB – Thailand Baht | |
HUF – Hungarian Forint | TRY – Turkish Lira | |
IDR – Indonesian Rupiah | TWD – New Taiwan Dollar | |
INR – Indian Rupee | USD – United States Dollar | |
JPY – Japanese Yen | 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 |
EURIBOR – Euro Interbank Offered Rate |
GDR – Global Depositary Receipt |
LME – London Metal Exchange |
MSCI – Morgan Stanley Capital International |
OSE – Osaka Securities Exchange |
PJSC – Public Joint Stock Company |
RBOB – Reformulated Gasoline Blend-Stock for Oxygen Blending (Unleaded Gas) |
REG – Registered Shares |
REIT – Real Estate Investment Trust |
SPDR – Standard & Poor’s Depository Receipt |
TIPS – Treasury Inflation Protected Security |
See notes to consolidated financial statements.
40 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $1,180,432,964) | $ | 1,247,614,945 | (a) | |
Affiliated issuers (cost $59,981,417—including investment of cash collateral for securities loaned of $33,347,722) | 59,981,417 | |||
Cash collateral due from broker | 7,869,941 | |||
Foreign currencies, at value (cost $11,369,233) | 11,245,430 | |||
Unrealized appreciation on forward currency exchange contracts | 15,875,609 | |||
Unrealized appreciation on total return swaps | 9,190,154 | |||
Unaffiliated dividends and interest receivable | 2,436,798 | |||
Unrealized appreciation on inflation swaps | 1,568,301 | |||
Receivable for variation margin on futures | 1,053,057 | |||
Receivable for capital stock sold | 672,525 | |||
Receivable for investment securities sold and foreign currency transactions | 364,803 | |||
Affiliated dividends receivable | 35,235 | |||
Receivable for terminated total return swaps | 56 | |||
|
| |||
Total assets | 1,357,908,271 | |||
|
| |||
Liabilities | ||||
Options written, at value (premiums received $329,201) | 164,696 | |||
Payable for collateral received on securities loaned | 33,347,722 | |||
Payable for investment securities purchased | 20,352,743 | |||
Unrealized depreciation on forward currency exchange contracts | 8,669,788 | |||
Unrealized depreciation on total return swaps | 4,486,135 | |||
Cash collateral due to broker | 3,308,000 | |||
Payable for capital stock redeemed | 1,027,646 | |||
Management fee payable | 748,544 | |||
Distribution fee payable | 138,645 | |||
Unrealized depreciation on inflation swaps | 46,243 | |||
Transfer Agent fee payable | 23,913 | |||
Administrative fee payable | 20,992 | |||
Directors’ fees payable | 3,030 | |||
Accrued expenses and other liabilities | 45,286 | |||
|
| |||
Total liabilities | 72,383,383 | |||
|
| |||
Net Assets | $ | 1,285,524,888 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 143,344 | ||
Additional paid-in capital | 1,245,597,331 | |||
Distributions in excess of net investment income | (11,174,525 | ) | ||
Accumulated net realized loss on investment and foreign currency transactions | (31,270,901 | ) | ||
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | 82,229,639 | |||
|
| |||
$ | 1,285,524,888 | |||
|
|
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 41 |
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—33 billion shares of capital stock authorized, .001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 12,561,292 | 1,380,806 | $ | 9.10 | * | ||||||
| ||||||||||||
C | $ | 1,560,767 | 171,806 | $ | 9.08 | |||||||
| ||||||||||||
Advisor | $ | 27,783,870 | 3,064,924 | $ | 9.07 | |||||||
| ||||||||||||
R | $ | 331,411 | 36,943 | $ | 8.97 | |||||||
| ||||||||||||
K | $ | 2,560,875 | 285,086 | $ | 8.98 | |||||||
| ||||||||||||
I | $ | 12,868,163 | 1,429,874 | $ | 9.00 | |||||||
| ||||||||||||
1 | $ | 684,094,273 | 76,560,526 | $ | 8.94 | |||||||
| ||||||||||||
2 | $ | 9,133 | 1,000 | $ | 9.13 | |||||||
| ||||||||||||
Z | $ | 543,755,104 | 60,413,060 | $ | 9.00 | |||||||
|
(a) | Includes securities on loan with a value of $32,849,119 (see Note E). |
* | The maximum offering price per share for Class A shares was $9.50 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, 2018 (unaudited)
Investment Income | ||||||||
Dividends | ||||||||
Unaffiliated issuers (net of foreign taxes withheld of $611,561) | $ | 14,413,537 | ||||||
Affiliated issuers | 247,275 | |||||||
Interest (net of foreign taxes withheld of $3,162) | 2,854,251 | |||||||
Securities lending income | 114,547 | $ | 17,629,610 | |||||
|
| |||||||
Expenses | ||||||||
Management fee (see Note B) | 4,738,627 | |||||||
Distribution fee—Class A | 15,153 | |||||||
Distribution fee—Class C | 8,097 | |||||||
Distribution fee—Class R | 755 | |||||||
Distribution fee—Class K | 3,048 | |||||||
Distribution fee—Class 1 | 824,860 | |||||||
Transfer agency—Class A | 10,247 | |||||||
Transfer agency—Class C | 1,416 | |||||||
Transfer agency—Advisor Class | 23,286 | |||||||
Transfer agency—Class R | 394 | |||||||
Transfer agency—Class K | 2,450 | |||||||
Transfer agency—Class I | 1,380 | |||||||
Transfer agency—Class 1 | 42,753 | |||||||
Transfer agency—Class Z | 57,232 | |||||||
Custodian | 228,269 | |||||||
Registration fees | 71,536 | |||||||
Audit and tax | 54,014 | |||||||
Administrative | 31,717 | |||||||
Legal | 25,234 | |||||||
Printing | 20,240 | |||||||
Directors’ fees | 13,903 | |||||||
Miscellaneous | 30,570 | |||||||
|
| |||||||
Total expenses before interest expense | 6,205,181 | |||||||
Interest expense | 33,042 | |||||||
|
| |||||||
Total expenses | 6,238,223 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (35,275 | ) | ||||||
|
| |||||||
Net expenses | 6,202,948 | |||||||
|
| |||||||
Net investment income | 11,426,662 | |||||||
|
|
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 43 |
CONSOLIDATED STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | $ | 38,567,693 | ||||||
Forward currency exchange contracts | (11,010,242 | ) | ||||||
Futures | (1,181,881 | ) | ||||||
Options written | 3,088,279 | |||||||
Swaps | 15,122,921 | |||||||
Foreign currency transactions | (685,076 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | 3,047,187 | |||||||
Forward currency exchange contracts | 5,433,355 | |||||||
Futures | 3,361,481 | |||||||
Options written | 164,505 | |||||||
Swaps | 1,241,769 | |||||||
Foreign currency denominated assets and liabilities | (117,720 | ) | ||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 57,032,271 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 68,458,933 | ||||||
|
|
See notes to consolidated financial statements.
44 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase in Net Assets from Operations | ||||||||
Net investment income | $ | 11,426,662 | $ | 15,285,041 | ||||
Net realized gain on investment and foreign currency transactions | 43,901,694 | 19,925,451 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 13,130,577 | 63,279,638 | ||||||
Contributions from Affiliates (see Note B) | – 0 | – | 8,946 | |||||
|
|
|
| |||||
Net increase in net assets from operations | 68,458,933 | 98,499,076 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (364,713 | ) | (309,690 | ) | ||||
Class C | (34,800 | ) | (38,521 | ) | ||||
Advisor Class | (929,574 | ) | (632,286 | ) | ||||
Class R | (9,053 | ) | (4,502 | ) | ||||
Class K | (75,813 | ) | (47,782 | ) | ||||
Class I | (431,252 | ) | (435,380 | ) | ||||
Class 1 | (21,767,350 | ) | (12,411,895 | ) | ||||
Class 2 | (317 | ) | (227 | ) | ||||
Class Z | (18,426,298 | ) | (224,457 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | (143,766,748 | ) | 745,154,738 | |||||
|
|
|
| |||||
Total increase (decrease) | (117,346,985 | ) | 829,549,074 | |||||
Net Assets | ||||||||
Beginning of period | 1,402,871,873 | 573,322,799 | ||||||
|
|
|
| |||||
End of period (including distributions in excess of net investment income of ($11,174,525) and undistributed net investment income of $19,437,983, respectively) | $ | 1,285,524,888 | $ | 1,402,871,873 | ||||
|
|
|
|
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 45 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 “Fund”), a diversified portfolio. As part of the Fund’s investment strategy, the Fund 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 Fund organized under the laws of the Cayman Islands (the “Subsidiary”). The Fund and the Subsidiary commenced operations on March 8, 2010. The Subsidiary was incorporated on February 1, 2010. The Fund is the sole shareholder of the Subsidiary and it is intended that the Fund 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, 2018, consolidated net assets of the Fund were $1,285,524,888, of which $133,480,419, or 10%, represented the Fund’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 Fund has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class 1, Class 2, Class Z, and Class T shares. Class B and Class T 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. As of April 30, 2018, 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. 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, Class 1, and Class Z shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I, and Class 2 shares
46 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven 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 Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the 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
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 47 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
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
48 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. 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,
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 49 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Real Estate | $ | 160,117,162 | $ | 149,743,494 | $ | – 0 | – | $ | 309,860,656 | |||||||
Energy | 106,727,613 | 113,212,919 | – 0 | – | 219,940,532 | |||||||||||
Materials | 39,673,724 | 43,434,967 | 0 | (a) | 83,108,691 | |||||||||||
Pharmaceuticals & Biotechnology | 18,073,039 | 5,807,310 | – 0 | – | 23,880,349 | |||||||||||
Software & Services | 15,906,904 | 5,753,938 | – 0 | – | 21,660,842 | |||||||||||
Capital Goods | 9,948,136 | 10,982,764 | – 0 | – | 20,930,900 | |||||||||||
Diversified Financials | 12,523,202 | 4,242,302 | – 0 | – | 16,765,504 | |||||||||||
Banks | 7,784,241 | 8,781,973 | – 0 | – | 16,566,214 | |||||||||||
Retailing | 8,681,385 | 3,658,187 | – 0 | – | 12,339,572 | |||||||||||
Food Beverage & Tobacco | 5,697,603 | 5,760,119 | – 0 | – | 11,457,722 | |||||||||||
Health Care Equipment & Services | 5,924,047 | 1,870,842 | – 0 | – | 7,794,889 | |||||||||||
Transportation | 2,474,747 | 4,689,486 | – 0 | – | 7,164,233 | |||||||||||
Food & Staples Retailing | 3,323,749 | 3,234,259 | – 0 | – | 6,558,008 | |||||||||||
Utilities | 3,747,095 | 2,710,386 | – 0 | – | 6,457,481 | |||||||||||
Consumer Services | 4,401,404 | 1,903,927 | – 0 | – | 6,305,331 | |||||||||||
Household & Personal Products | 3,695,563 | 2,453,902 | – 0 | – | 6,149,465 | |||||||||||
Technology Hardware & Equipment | 5,349,447 | – 0 | – | – 0 | – | 5,349,447 |
50 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Media | $ | 3,294,652 | $ | 2,016,822 | $ | – 0 | – | $ | 5,311,474 | |||||||
Consumer Durables & Apparel | 2,485,779 | 2,575,989 | – 0 | – | 5,061,768 | |||||||||||
Automobiles & Components | 3,163,292 | 1,059,169 | – 0 | – | 4,222,461 | |||||||||||
Semiconductors & Semiconductor Equipment | 2,592,191 | 834,070 | – 0 | – | 3,426,261 | |||||||||||
Insurance | – 0 | – | 3,200,916 | – 0 | – | 3,200,916 | ||||||||||
Information Technology | 2,955,344 | 158,295 | – 0 | – | 3,113,639 | |||||||||||
Commercial & Professional Services | – 0 | – | 2,653,522 | – 0 | – | 2,653,522 | ||||||||||
Telecommunication Services | – 0 | – | 619,688 | – 0 | – | 619,688 | ||||||||||
Inflation-Linked Securities | – 0 | – | 331,566,363 | – 0 | – | 331,566,363 | ||||||||||
Investment Companies | 105,669,214 | – 0 | – | – 0 | – | 105,669,214 | ||||||||||
Options Purchased – Puts | – 0 | – | 479,556 | – 0 | – | 479,556 | ||||||||||
Warrants | 247 | – 0 | – | – 0 | – | 247 | ||||||||||
Short-Term Investments | 26,633,695 | – 0 | – | – 0 | – | 26,633,695 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 33,347,722 | – 0 | – | – 0 | – | 33,347,722 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 594,191,197 | 713,405,165 | (b) | – 0 | – | 1,307,596,362 | ||||||||||
Other Financial Instruments(c): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 2,758,065 | – 0 | – | – 0 | – | 2,758,065 | (d) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 15,875,609 | – 0 | – | 15,875,609 | ||||||||||
Inflation (CPI) Swaps | – 0 | – | 1,568,301 | – 0 | – | 1,568,301 | ||||||||||
Total Return Swaps | – 0 | – | 9,190,154 | – 0 | – | 9,190,154 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (1,001,870 | ) | – 0 | – | – 0 | – | (1,001,870 | )(d) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (8,669,788 | ) | – 0 | – | (8,669,788 | ) | ||||||||
Put Options Written | – 0 | – | (164,696 | ) | – 0 | – | (164,696 | ) | ||||||||
Inflation (CPI) Swaps | – 0 | – | (46,243 | ) | – 0 | – | (46,243 | ) | ||||||||
Total Return Swaps | – 0 | – | (4,486,135 | ) | – 0 | – | (4,486,135 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(e)(f) | $ | 595,947,392 | $ | 726,672,367 | $ | – 0 | – | $ | 1,322,619,759 | |||||||
|
|
|
|
|
|
|
|
(a) | The Portfolio held securities with zero market value at period end. |
(b) | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
(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 swaps with upfront premiums, 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) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(e) | An amount of $19,161,152 was transferred from Level 1 to Level 2 due to the above mentioned foreign equity fair valuation using third party vendor modeling tools during the reporting period. |
(f) | There were deminimis transfers under 1% of net assets from Level 2 to Level 1 during the reporting period. |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 51 |
NOTES TO CONSOLIDATED 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.
Common Stocks - Materials(a) | Warrants | Total | ||||||||||
Balance as of 10/31/17 | $ | – 0 | – | $ | 11,983 | $ | 11,983 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | – 0 | – | ||||||
Realized gain (loss) | – 0 | – | 2,191 | 2,191 | ||||||||
Change in unrealized appreciation/depreciation | – 0 | – | (2,498 | ) | (2,498 | ) | ||||||
Purchases | – 0 | – | – 0 | – | – 0 | – | ||||||
Sales | – 0 | – | (11,676 | ) | (11,676 | ) | ||||||
Reclassification | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | |||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(b) | $ | – 0 | – | $ | – 0 | – | $ | – 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 statement of operations. |
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. 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
52 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 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 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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 53 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 Fund 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 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 Fund 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 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 consolidated 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 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.
54 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE B
Management Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser a management fee at an annual rate of .75% of the Fund’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 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. This fee waiver and/or expense reimbursement agreement will remain in effect until January 31, 2019. For the six months ended April 30, 2018, such reimbursement amounted to $59.
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 year ended October 31, 2017, the Adviser reimbursed the Fund $8,946 for trading losses incurred due to a trade entry error.
Pursuant to the 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, 2018, the reimbursement for such services amounted to $31,717.
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. Such compensation retained by ABIS amounted to $106,054 for the six months ended April 30, 2018.
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 charges of $205 from the sale of Class A shares and received $6 and $16 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, 2018.
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
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 55 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the Government Money Market Portfolio, the Adviser has contractually 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, 2018, such waiver amounted to $20,089.
A summary of the Fund’s transactions in AB mutual funds for the six months ended April 30, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost | Sales Proceeds (000) | Market Value 4/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 20,772 | $ | 299,831 | $ | 293,970 | $ | 26,633 | $ | 120 | ||||||||||
Government Money Market Portfolio* | 15,609 | 229,925 | 212,186 | 33,348 | 127 | |||||||||||||||
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|
|
| |||||||||||||||||
Total | $ | 59,981 | $ | 247 | ||||||||||||||||
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|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2018 amounted to $0, 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 AllianceBernstein Investments, Inc. (the “Distributor”) at an annual rate of up to .30% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to Class C shares. .50% of the Fund’s average daily net assets attributable to Class R shares, .25% of the Fund’s average daily net assets attributable to Class K shares and .25% of the Fund’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 Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $0, $15,616, $18,716 and $166,757 for Class C, Class R, Class K and Class 1 shares, respectively. While such costs may be recovered from the Fund in
56 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 418,517,785 | $ | 551,541,054 | ||||
U.S. government securities | 236,825,522 | 234,533,823 |
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 | $ | 119,300,775 | ||
Gross unrealized depreciation | (36,936,324 | ) | ||
|
| |||
Net unrealized appreciation | $ | 82,364,451 | ||
|
|
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”.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 57 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 consolidated 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 consolidated 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, 2018, 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 forward currency exchange contracts. 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 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.
58 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2018, 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 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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 59 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At April 30, 2018, the maximum payments for written put options amounted to $119,646,800. 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.
During the six months ended April 30, 2018, the Fund held purchased options for hedging and non-hedging purposes.
During the six months ended April 30, 2018, the Fund held written options for hedging and non-hedging purposes.
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions” 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 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 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
60 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the six months ended April 30, 2018, the Fund held inflation (CPI) swaps for hedging and non-hedging purposes.
Total Return Swaps:
The Fund may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty.
During the six months ended April 30, 2018, the Fund held total return swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 61 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||||
Derivative Type | Consolidated Statement of Assets and Liabilities Location | Fair Value | Consolidated Statement of Assets and Liabilities Location | Fair Value | ||||||||||
Interest rate contracts | Receivable/ Payable for variation margin on futures | $ | 566,838 | * | | Receivable/ Payable for variation margin on futures | $ | 152,668 | * | |||||
Commodity contracts | Receivable/ Payable for variation margin on futures | 2,191,227 | * | | Receivable/ Payable for variation margin on futures | 849,202 | * | |||||||
Foreign currency contracts | Unrealized |
| 15,875,609 |
| | Unrealized | |
| 8,669,788 |
| ||||
Equity contracts | Investments in securities, at value | 479,556 | ||||||||||||
Equity contracts | | Options written, at value | | 164,696 | ||||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps | 1,568,301 | | Unrealized depreciation on inflation swaps | | 46,243 | ||||||||
Equity contracts | Unrealized appreciation on total return swaps | 9,190,154 | | Unrealized depreciation on total return swaps | | 4,486,135 | ||||||||
|
|
|
| |||||||||||
Total | $ | 29,871,685 | $ | 14,368,732 | ||||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the consolidated statement of assets and liabilities. |
This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps 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 | 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 | $ | 487,215 | $ | (137,319 | ) | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (576,070 | ) | – 0 | – | |||||
Commodity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,093,026 | ) | 3,498,800 | ||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts |
| (11,010,242 | ) |
| 5,433,355 |
| |||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (883,649 | ) | (87,283 | ) | |||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 3,088,279 | 164,505 | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 1,443,639 | 2,632,231 | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 13,679,282 | (1,390,462 | ) | ||||||
|
|
|
| |||||||
Total | $ | 5,135,428 | $ | 10,113,827 | ||||||
|
|
|
|
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 Fund’s derivative transactions during the six months ended April 30, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 85,835,536 | ||
Average original value of sale contracts | $ | 161,837,163 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 729,534,186 | ||
Average principal amount of sale contracts | $ | 926,560,079 | ||
Purchased Options: | ||||
Average notional amount | $ | 515,450 | (a) | |
Options Written: | ||||
Average notional amount | $ | 1,166,400 | (a) | |
Inflation Swaps: | ||||
Average notional amount | $ | 418,966,286 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 503,560,961 |
(a) | Positions were open for two 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 consolidated statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund as of April 30, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
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 | |||||||||||||||
Bank of America, NA | $ | 832,230 | $ | (832,230 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 1,256,656 | (619,435 | ) | (70,000 | ) | – 0 | – | 567,221 | ||||||||||||
BNP Paribas SA | 21,224 | (21,224 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 42,401 | (42,401 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 5,598,673 | (3,482,186 | ) | – 0 | – | – 0 | – | 2,116,487 | ||||||||||||
Deutsche Bank AG | 954,509 | (53,733 | ) | (660,000 | ) | – 0 | – | 240,776 | ||||||||||||
Goldman Sachs Bank USA | 1,242,851 | (728,027 | ) | (460,000 | ) | – 0 | – | 54,824 | ||||||||||||
HSBC Bank USA | 244,230 | – 0 | – | (244,230 | ) | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 917,955 | (64,132 | ) | (770,000 | ) | – 0 | – | 83,823 | ||||||||||||
Morgan Stanley & Co., Inc. | 5,207,868 | (452,726 | ) | – 0 | – | – 0 | – | 4,755,142 |
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 | |||||||||||||||
Royal Bank of Scotland PLC | $ | 238,668 | $ | (238,668 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
State Street Bank & Trust Co. | 264,580 | (45,029 | ) | – 0 | – | – 0 | – | 219,551 | ||||||||||||
UBS AG | 556,680 | (465,066 | ) | – 0 | – | – 0 | – | 91,614 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 17,378,525 | $ | (7,044,857 | ) | $ | (2,204,230 | ) | $ | – 0 | – | $ | 8,129,438 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 266,104 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 266,104 | |||||||
Bank of America, NA | 1,415,623 | (832,230 | ) | – 0 | – | – 0 | – | 583,393 | ||||||||||||
Barclays Bank PLC | 619,435 | (619,435 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 235,119 | (21,224 | ) | – 0 | – | – 0 | – | 213,895 | ||||||||||||
Citibank, NA | 979,813 | (42,401 | ) | – 0 | – | (937,412 | ) | – 0 | – | |||||||||||
Credit Suisse International | 3,482,186 | (3,482,186 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 53,733 | (53,733 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs Bank USA | 728,027 | (728,027 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 64,132 | (64,132 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co., Inc. | 452,726 | (452,726 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Royal Bank of Scotland PLC | 309,358 | (238,668 | ) | – 0 | – | – 0 | – | 70,690 | ||||||||||||
State Street Bank & Trust Co. | 45,029 | (45,029 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
UBS AG | 465,066 | (465,066 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 9,116,351 | $ | (7,044,857 | ) | $ | – 0 | – | $ | (937,412 | ) | $ | 1,134,082 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||
Barclays Bank PLC | $ | 628,133 | $ | (628,133 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Goldman Sachs International | 152,587 | – 0 | – | – 0 | – | – 0 | – | 152,587 | ||||||||||||
JPMorgan Chase Bank, NA | 7,004,761 | (1,347,204 | ) | – 0 | – | – 0 | – | 5,657,557 | ||||||||||||
Morgan Stanley Capital Services LLC | 1,470,058 | (1,193,760 | ) | – 0 | – | – 0 | – | 276,298 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 9,255,539 | $ | (3,169,097 | ) | $ | – 0 | – | $ | – 0 | – | $ | 6,086,442 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||||
Barclays Bank PLC | $ | 1,419,104 | $ | (628,133 | ) | $ | – 0 | – | $ | (790,971 | ) | $ | – 0 | – | ||||||
JPMorgan Chase Bank, NA | 1,347,204 | (1,347,204 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services LLC | 1,193,760 | (1,193,760 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 125,747 | – 0 | – | – 0 | – | – 0 | – | 125,747 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 4,085,815 | $ | (3,169,097 | ) | $ | – 0 | – | $ | (790,971 | ) | $ | 125,747 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized continually by cash. The Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Fund in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Fund to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on
66 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the consolidated statement of assets and liabilities. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At April 30, 2018, the Fund had securities on loan with a value of $32,849,119 and had received cash collateral which has been invested into Government Money Market Portfolio of $33,347,722. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Fund earned securities lending income of $114,547 and $126,881 from the borrowers and Government Money Market Portfolio, respectively, for the six months ended April 30, 2018; these amounts are reflected in the consolidated statement of operations. In connection with the cash collateral investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of the Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended April 30, 2018, such waiver amounted to $15,127. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 67 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 130,846 | 171,006 | $ | 1,206,968 | $ | 1,442,288 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 37,934 | 31,975 | 330,783 | 271,464 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 1,226 | 12,155 | 11,011 | 101,981 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (116,454 | ) | (548,796 | ) | (1,044,400 | ) | (4,608,625 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 53,552 | (333,660 | ) | $ | 504,362 | $ | (2,792,892 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 609 | 9,618 | $ | 5,395 | $ | 81,032 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 3,548 | 4,093 | 30,973 | 34,707 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (1,225 | ) | (12,213 | ) | (11,011 | ) | (101,981 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (34,998 | ) | (142,206 | ) | (313,343 | ) | (1,197,112 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (32,066 | ) | (140,708 | ) | $ | (287,986 | ) | $ | (1,183,354 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 171,414 | 993,203 | $ | 1,533,040 | $ | 8,359,654 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 83,713 | 56,670 | 726,628 | 478,860 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (303,526 | ) | (1,014,816 | ) | (2,720,432 | ) | (8,538,361 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (48,399 | ) | 35,057 | $ | (460,764 | ) | $ | 300,153 | ||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 9,613 | 6,261 | $ | 85,287 | $ | 52,776 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,051 | 536 | 9,053 | 4,501 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (961 | ) | (4,225 | ) | (8,513 | ) | (35,553 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 9,703 | 2,572 | $ | 85,827 | $ | 21,724 | ||||||||||||||||||
|
68 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 55,165 | 71,290 | $ | 491,858 | $ | 595,688 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 8,805 | 5,695 | 75,813 | 47,782 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (36,173 | ) | (51,419 | ) | (317,313 | ) | (430,763 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 27,797 | 25,566 | $ | 250,358 | $ | 212,707 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 46,795 | 173,303 | $ | 413,689 | $ | 1,455,308 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 50,087 | 51,893 | 431,253 | 435,380 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (563,368 | ) | (243,462 | ) | (5,028,575 | ) | (2,034,442 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (466,486 | ) | (18,266 | ) | $ | (4,183,633 | ) | $ | (143,754 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 6,511,082 | 26,258,027 | $ | 57,293,235 | $ | 218,420,428 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 2,141,761 | 1,153,504 | 18,333,476 | 9,620,222 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (6,199,842 | ) | (15,599,644 | ) | (54,619,295 | ) | (129,652,987 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,453,001 | 11,811,887 | $ | 21,007,416 | $ | 98,387,663 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 791,572 | 98,160,962 | $ | 7,046,396 | $ | 824,387,060 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 2,140,105 | 26,752 | 18,426,298 | 224,457 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (20,960,567 | ) | (20,802,361 | ) | (186,155,022 | ) | (174,259,026 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (18,028,890 | ) | 77,385,353 | $ | (160,682,328 | ) | $ | 650,352,491 | ||||||||||||||||
|
There were no transactions in capital shares for Class 2 for the six months ended April 30, 2018 and the year ended October 31, 2017.
On March 17, 2017, the Fund received subscriptions-in-kind in the amount of $647,230,029 from an AB mutual fund.
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
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 69 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 the Fund 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 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 consolidated statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
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 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.
70 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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.
Real Estate Risk—The Fund’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 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 net asset value, or NAV.
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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 71 |
NOTES TO CONSOLIDATED 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 consolidated statement of operations. The Fund did not utilize the Facility during the six months ended April 30, 2018.
NOTE I
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 were as follows:
2017 | 2016 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 14,104,740 | $ | 10,007,572 | ||||
|
|
|
| |||||
Total distributions paid | $ | 14,104,740 | $ | 10,007,572 | ||||
|
|
|
|
As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 36,028,379 | ||
Accumulated capital and other losses | (63,370,121 | )(a) | ||
Unrealized appreciation/(depreciation) | (87,869,055 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (115,210,797 | ) | |
|
|
(a) | As of October 31, 2017, the Fund had a net capital loss carryforward of $63,370,121. |
(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 unrealized gains/losses on certain derivative instruments, 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.
72 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of October 31, 2017, the Fund had a net capital loss carryforward of $63,370,121 which will expire as follows:
Short-Term | Long-Term | Expiration | ||
$ 6,012,702 | n/a | 2019 | ||
26,084,216 | $31,273,203 | no expiration |
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 Fund’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 Ended (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.90 | $ 8.24 | $ 8.13 | $ 10.52 | $ 11.04 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | .09 | .10 | .06 | .12 | .10 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .41 | .76 | .11 | (2.26 | ) | (.50 | ) | (.13 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .48 | .85 | .21 | (2.20 | ) | (.38 | ) | (.03 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.19 | ) | (.10 | ) | (.19 | ) | (.14 | ) | (.26 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 9.10 | $ 8.90 | $ 8.24 | $ 8.13 | $ 10.52 | $ 11.04 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.50 | % | 10.45 | % | 2.75 | % | (21.16 | )% | (3.45 | )% | (.27 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $12,561 | $11,819 | $13,682 | $16,611 | $28,434 | $64,800 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | 1.24 | %^ | 1.27 | % | 1.30 | % | 1.30 | % | 1.23 | % | 1.05 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | 1.25 | %^ | 1.28 | % | 1.36 | % | 1.47 | % | 1.30 | % | 1.34 | % | ||||||||||||
Net investment income(b) | 1.53 | %^ | 1.05 | % | 1.23 | % | .62 | % | 1.03 | % | .86 | % | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.83 | $ 8.17 | $ 8.03 | $ 10.40 | $ 10.90 | $ 11.18 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss)(a)(b) | .03 | .02 | .04 | (.01 | ) | .04 | .02 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .40 | .76 | .12 | (2.23 | ) | (.49 | ) | (.12 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .43 | .78 | .16 | (2.24 | ) | (.45 | ) | (.10 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.18 | ) | (.12 | ) | (.02 | ) | (.13 | ) | (.05 | ) | (.18 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 9.08 | $ 8.83 | $ 8.17 | $ 8.03 | $ 10.40 | $ 10.90 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.01 | % | 9.73 | % | 2.07 | %‡ | (21.75 | )% | (4.13 | )% | (.92 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $1,561 | $1,801 | $2,814 | $4,202 | $8,531 | $13,063 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | 2.00 | %^ | 2.02 | % | 2.03 | % | 2.00 | % | 1.93 | % | 1.75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | 2.00 | %^ | 2.03 | % | 2.11 | % | 2.16 | % | 2.02 | % | 2.04 | % | ||||||||||||
Net investment income (loss)(b) | .78 | %^ | .27 | % | .51 | % | (.07 | )% | .34 | % | .16 | % | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.89 | $ 8.22 | $ 8.13 | $ 10.56 | $ 11.09 | $ 11.37 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .08 | .11 | .12 | .09 | .15 | .13 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .40 | .77 | .11 | (2.27 | ) | (.50 | ) | (.12 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .48 | .88 | .23 | (2.18 | ) | (.35 | ) | .01 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.21 | ) | (.14 | ) | (.25 | ) | (.18 | ) | (.29 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 9.07 | $ 8.89 | $ 8.22 | $ 8.13 | $ 10.56 | $ 11.09 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.44 | % | 10.87 | % | 3.00 | % | (20.95 | )% | (3.20 | )% | .12 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $27,785 | $27,670 | $25,307 | $30,541 | $58,399 | $64,911 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | .99 | %^ | 1.02 | % | 1.04 | % | 1.00 | % | .94 | % | .75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | 1.00 | %^ | 1.02 | % | 1.10 | % | 1.17 | % | 1.02 | % | 1.04 | % | ||||||||||||
Net investment income(b) | 1.78 | %^ | 1.31 | % | 1.51 | % | .95 | % | 1.33 | % | 1.18 | % | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.79 | $ 8.14 | $ 8.06 | $ 10.51 | $ 11.04 | $ 11.32 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .05 | .07 | .07 | .04 | .15 | .08 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .40 | .76 | .11 | (2.24 | ) | (.55 | ) | (.13 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .45 | .83 | .18 | (2.20 | ) | (.40 | ) | (.05 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.27 | ) | (.18 | ) | (.10 | ) | (.25 | ) | (.13 | ) | (.23 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.97 | $ 8.79 | $ 8.14 | $ 8.06 | $ 10.51 | $ 11.04 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.22 | % | 10.29 | % | 2.41 | %‡ | (21.37 | )% | (3.66 | )% | (.47 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $331 | $239 | $201 | $162 | $182 | $38 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | 1.55 | %^ | 1.54 | % | 1.54 | % | 1.50 | % | 1.44 | % | 1.25 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | 1.59 | %^ | 1.60 | % | 1.66 | % | 1.64 | % | 1.55 | % | 1.65 | % | ||||||||||||
Net investment income(b) | 1.22 | %^ | .81 | % | .91 | % | .42 | % | 1.36 | % | .76 | % | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.80 | $ 8.15 | $ 8.07 | $ 10.50 | $ 11.03 | $ 11.32 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | .09 | .10 | .06 | .12 | .10 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .39 | .75 | .11 | (2.25 | ) | (.49 | ) | (.12 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .46 | .84 | .21 | (2.19 | ) | (.37 | ) | (.02 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.19 | ) | (.13 | ) | (.24 | ) | (.16 | ) | (.27 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.98 | $ 8.80 | $ 8.15 | $ 8.07 | $ 10.50 | $ 11.03 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.38 | % | 10.48 | % | 2.81 | % | (21.19 | )% | (3.39 | )% | (.19 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $2,561 | $2,265 | $1,888 | $1,668 | $2,174 | $1,684 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | 1.28 | %^ | 1.28 | % | 1.29 | % | 1.25 | % | 1.19 | % | 1.00 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | 1.28 | %^ | 1.29 | % | 1.35 | % | 1.34 | % | 1.24 | % | 1.33 | % | ||||||||||||
Net investment income(b) | 1.50 | %^ | 1.05 | % | 1.23 | % | .67 | % | 1.10 | % | .95 | % | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.54 | $ 11.07 | $ 11.36 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .09 | (b) | .12 | (b) | .12 | (b) | .09 | .15 | .13 | (b) | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .40 | .77 | .11 | (2.25 | ) | (.49 | ) | (.13 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .49 | .89 | .23 | (2.16 | ) | (.34 | ) | – 0 | – | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.23 | ) | (.17 | ) | (.27 | ) | (.19 | ) | (.29 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 9.00 | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.54 | $ 11.07 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.65 | % | 10.98 | % | 3.03 | %‡ | (20.97 | )% | (3.09 | )% | .04 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $12,868 | $16,753 | $15,646 | $14,508 | $21,341 | $19,303 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | .84 | %^ | .85 | % | .91 | % | .96 | % | .91 | % | .75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | .85 | %^ | .86 | % | .92 | % | .96 | % | .91 | % | .97 | % | ||||||||||||
Net investment income | 1.95 | %(b)^ | 1.48 | %(b) | 1.61 | %(b) | .99 | % | 1.37 | % | 1.17 | %(b) | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.76 | $ 8.11 | $ 8.05 | $ 10.46 | $ 11.00 | $ 11.29 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .07 | (b) | .10 | (b) | .11 | (b) | .07 | .13 | .10 | (b) | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .41 | .76 | .10 | (2.24 | ) | (.50 | ) | (.12 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .48 | .86 | .21 | (2.17 | ) | (.37 | ) | (.02 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.21 | ) | (.15 | ) | (.24 | ) | (.17 | ) | (.27 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 8.94 | $ 8.76 | $ 8.11 | $ 8.05 | $ 10.46 | $ 11.00 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.46 | % | 10.69 | % | 2.82 | %‡ | (21.12 | )% | (3.35 | )% | (.19 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $684,094 | $649,421 | $505,143 | $474,631 | $513,633 | $420,593 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | 1.09 | %^ | 1.09 | % | 1.15 | % | 1.16 | % | 1.14 | % | 1.00 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | 1.09 | %^ | 1.10 | % | 1.16 | % | 1.16 | % | 1.14 | % | 1.16 | % | ||||||||||||
Net investment income | 1.69 | %(b)^ | 1.24 | %(b) | 1.38 | %(b) | .79 | % | 1.16 | % | .95 | %(b) | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.96 | $ 8.29 | $ 8.22 | $ 10.68 | $ 11.19 | $ 11.48 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a) | .09 | (b) | .13 | (b) | .13 | (b) | .09 | .15 | .13 | (b) | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .40 | .77 | .11 | (2.28 | ) | (.50 | ) | (.12 | ) | |||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .49 | .90 | .24 | (2.19 | ) | (.35 | ) | .01 | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends | ||||||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.23 | ) | (.17 | ) | (.27 | ) | (.16 | ) | (.30 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 9.13 | $ 8.96 | $ 8.29 | $ 8.22 | $ 10.68 | $ 11.19 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | 5.59 | % | 10.96 | % | 3.17 | % | (20.85 | )% | (3.12 | )% | .05 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period | $9 | $9 | $8 | $8 | $11 | $11 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | .85 | %^ | .82 | % | .90 | % | .92 | % | .89 | % | .75 | % | ||||||||||||
Expenses, before waivers/reimbursements(e)† | .85 | %^ | .83 | % | .90 | % | .92 | % | .89 | % | 1.93 | % | ||||||||||||
Net investment income | 1.93 | %(b)^ | 1.50 | %(b) | 1.60 | %(b) | .92 | % | 1.36 | % | 1.16 | %(b) | ||||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | 54 | % | ||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % | .00 | % |
See footnote summary on page 83.
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 (unaudited) | Year Ended October 31, | January 31, 2014(f) to October 31, 2014 | ||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.55 | $ 10.53 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a) | .09 | (b) | .13 | (b) | .12 | (b) | .07 | .13 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .40 | .76 | .11 | (2.24 | ) | (.11 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | .49 | .89 | .23 | (2.17 | ) | .02 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.23 | ) | (.17 | ) | (.27 | ) | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 9.00 | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.55 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | 5.66 | % | 10.98 | % | 3.09 | % | (20.94 | )% | .19 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $543,755 | $692,895 | $8,634 | $3,166 | $10 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)† | .84 | %^ | .82 | % | .92 | % | .96 | % | .88 | %^ | ||||||||||
Expenses, before waivers/reimbursements(e)† | .85 | %^ | .83 | % | .92 | % | .96 | % | .88 | %^ | ||||||||||
Net investment income | 1.96 | %(b)^ | 1.60 | %(b) | 1.56 | %(b) | .92 | % | 1.59 | %^ | ||||||||||
Portfolio turnover rate | 58 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | %^ | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 83.
82 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED 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 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 Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bear proportionate shares of the 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 Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the six months ended April 30, 2018 and year ended October 31, 2017, such waiver amounted to 0.01% (annualized) and 0.01%, respectively, for the Fund. |
(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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 83 |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1) , Chairman Michael J. Downey(1) William H. Foulk, Jr.(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
Vinod Chathlani(2), Vice President Daniel J. Loewy(2) , Vice President Leon Zhu(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. Chathlani, Loewy and Zhu are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
84 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
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 October 31-November 2, 2017 (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), who acted as their independent fee consultant, 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 review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 85 |
their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The 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 2015 and 2016 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
86 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
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 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 performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer universe”) selected by the 15(c) service provider, 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, 2017 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 the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors 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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 87 |
The directors also considered the Adviser’s fee schedule for other 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 Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser 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 this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; (iv) must service, and be marketed to, retail investors and financial intermediaries; and (v) requires a larger sales support infrastructure. 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.
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 the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment
88 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
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. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, 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 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 and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 89 |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
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-0152-0418
APR 04.30.18
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 “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 BOND INFLATION STRATEGY | 1 |
SEMI-ANNUAL REPORT
June 11, 2018
This report provides management’s discussion of fund performance for AB Bond Inflation Strategy for the semi-annual reporting period ended April 30, 2018.
The Fund’s investment objective is to maximize real return without assuming what the Adviser considers to be undue risk.
NAV RETURNS AS OF APRIL 30, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB BOND INFLATION STRATEGY | ||||||||
Class 1 Shares1 | 0.10% | 0.39% | ||||||
Class 2 Shares1 | 0.05% | 0.48% | ||||||
Class A Shares | 0.01% | 0.30% | ||||||
Class C Shares | -0.43% | -0.59% | ||||||
Advisor Class Shares2 | 0.10% | 0.43% | ||||||
Class R Shares2 | -0.06% | 0.06% | ||||||
Class K Shares2 | -0.01% | 0.28% | ||||||
Class I Shares2 | 0.11% | 0.53% | ||||||
Class Z Shares2 | 0.05% | 0.48% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | -0.17% | -0.15% |
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 Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays 1-10 Year Treasury Inflation-Protected Securities (“TIPS”) Index, for the six- and 12-month periods ended April 30, 2018.
During the six-month period, all share classes except Class C shares outperformed the benchmark, before sales charges. Sector allocation contributed relative to the benchmark, mostly because of exposure to commercial mortgage-backed securities (“CMBS”) and agency risk-sharing bonds. The Fund’s position in corporates (both investment-grade and high-yield) was also positive. Currency selection detracted from returns, particularly a short position in the euro and a long position in the Brazilian real.
2 | AB BOND INFLATION STRATEGY | abfunds.com |
During the 12-month period, all share classes except Class C shares outperformed the benchmark, before sales charges. Sector selection contributed to performance, primarily because of exposures to corporates (both high-yield and investment-grade), CMBS and agency risk-sharing transactions. Currency positioning was negative due to a short position in the Canadian dollar and long positions in the Australian dollar, Brazilian real and Turkish lira.
During both periods, the Fund utilized currency forwards to hedge currency risk and actively manage currency positions. Credit default swaps were utilized for hedging and investment purposes, which contributed for the six-month period and detracted for the 12-month period. Treasury futures and interest rate swaps were utilized to manage duration, country exposure and yield-curve positioning. Consumer Price Index (“CPI”) swaps were used to hedge inflation and for investment purposes, which had no material impact on returns. Variance swaps were used for hedging purposes in the six-month period, which had no material impact on performance.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets were volatile during the six-month period. Emerging-market debt had mixed returns, with some segments of the market helped by increasing oil prices and an improving global growth story, while the rise in global rates weighed on others. Investment-grade credit and high-yield markets fell in the period, trailing the positive returns of emerging-market local-currency government bonds and developed-market treasuries. US, Canadian, Australian and German treasury yields rose, while the UK and Japanese curves flattened and treasury yields in other developed markets moved in different directions. The passage of US tax reform buoyed market sentiment, while in Europe, despite some formal progress on Brexit, investor anxiety increased around a bifurcated outlook for the negotiation process. The US Federal Reserve (the “Fed”) raised interest rates twice in the period, and began to formally reduce its balance sheet, as universally anticipated by markets. The European Central Bank confirmed that its newly reduced pace of asset purchases would continue through September 2018, and further if necessary. At the end of the period, a severe spike in volatility shook a broad swath of capital markets. US Treasury yields rose dramatically, driven by higher inflation forecasts and expectations for continued rate increases from the Fed. Additionally, President Trump’s announcement of tariffs on Chinese imports weighed on capital markets worldwide, as investors feared the possible onset of a global trade war.
INVESTMENT POLICIES
The Fund seeks real return. Real return is the rate of return after adjusting
(continued on next page)
abfunds.com | AB BOND INFLATION STRATEGY | 3 |
for inflation. The Fund 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 Fund 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 Fund invests at least 80% of its net assets in fixed-income securities. While the Fund 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”).
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 Fund 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 Fund may invest in derivatives, such as options, futures contracts, forwards or swaps. The Fund intends to use leverage for investment purposes. To do this, the Fund 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 Fund’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 Fund’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
(continued on next page)
4 | AB BOND INFLATION STRATEGY | abfunds.com |
the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.
The Fund may 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 Fund may invest in fixed-income securities of any maturity and duration. If the rating of a fixed-income security falls below investment-grade, the Fund 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 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 and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
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.
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 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. Although the Fund 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 Fund, 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 Fund’s investments or reduce its returns.
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, 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.
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.
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 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”.
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. 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, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS 1 SHARES2 | 0.51% | |||||||||||
1 Year | 0.39% | 0.39% | ||||||||||
5 Years | 0.39% | 0.39% | ||||||||||
Since Inception3 | 2.62% | 2.62% | ||||||||||
CLASS 2 SHARES2 | 0.61% | |||||||||||
1 Year | 0.48% | 0.48% | ||||||||||
5 Years | 0.47% | 0.47% | ||||||||||
Since Inception3 | 2.70% | 2.70% | ||||||||||
CLASS A SHARES | 0.25% | |||||||||||
1 Year | 0.30% | -3.93% | ||||||||||
5 Years | 0.22% | -0.65% | ||||||||||
Since Inception3 | 2.42% | 1.88% | ||||||||||
CLASS C SHARES | -0.48% | |||||||||||
1 Year | -0.59% | -1.58% | ||||||||||
5 Years | -0.52% | -0.52% | ||||||||||
Since Inception3 | 1.67% | 1.67% | ||||||||||
ADVISOR CLASS SHARES4 | 0.51% | |||||||||||
1 Year | 0.43% | 0.43% | ||||||||||
5 Years | 0.48% | 0.48% | ||||||||||
Since Inception3 | 2.69% | 2.69% | ||||||||||
CLASS R SHARES4 | -0.13% | |||||||||||
1 Year | 0.06% | 0.06% | ||||||||||
5 Years | 0.01% | 0.01% | ||||||||||
Since Inception3 | 2.22% | 2.22% | ||||||||||
CLASS K SHARES4 | 0.33% | |||||||||||
1 Year | 0.28% | 0.28% | ||||||||||
5 Years | 0.23% | 0.23% | ||||||||||
Since Inception3 | 2.45% | 2.45% | ||||||||||
CLASS I SHARES4 | 0.50% | |||||||||||
1 Year | 0.53% | 0.53% | ||||||||||
5 Years | 0.50% | 0.50% | ||||||||||
Since Inception3 | 2.72% | 2.72% | ||||||||||
CLASS Z SHARES4 | 0.60% | |||||||||||
1 Year | 0.48% | 0.48% | ||||||||||
Since Inception3 | 2.10% | 2.10% |
(footnotes continued on next page)
abfunds.com | AB BOND INFLATION STRATEGY | 9 |
HISTORICAL PERFORMANCE (continued)
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 1.04%, 0.94%, 1.34%, 2.09%, 1.10%, 1.67%, 1.37%, 0.99% 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 limit the Fund’s annual operating expenses (exclusive of extraordinary expenses, interest expense and acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest) 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, 2019 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, 2018. |
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 dates: 1/26/2010 for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares; 12/11/2014 for Class Z shares. |
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 Fund. |
10 | AB BOND INFLATION STRATEGY | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 1.23% | |||
5 Years | 0.46% | |||
Since Inception2 | 2.66% | |||
CLASS 2 SHARES1 | ||||
1 Year | 1.23% | |||
5 Years | 0.56% | |||
Since Inception2 | 2.74% | |||
CLASS A SHARES | ||||
1 Year | -3.22% | |||
5 Years | -0.58% | |||
Since Inception2 | 1.92% | |||
CLASS C SHARES | ||||
1 Year | -0.72% | |||
5 Years | -0.45% | |||
Since Inception2 | 1.71% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 1.27% | |||
5 Years | 0.56% | |||
Since Inception2 | 2.73% | |||
CLASS R SHARES3 | ||||
1 Year | 0.82% | |||
5 Years | 0.09% | |||
Since Inception2 | 2.26% | |||
CLASS K SHARES3 | ||||
1 Year | 0.93% | |||
5 Years | 0.29% | |||
Since Inception2 | 2.48% | |||
CLASS I SHARES3 | ||||
1 Year | 1.28% | |||
5 Years | 0.57% | |||
Since Inception2 | 2.76% | |||
CLASS Z SHARES3 | ||||
1 Year | 1.22% | |||
Since Inception2 | 2.18% |
(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 dates: 1/26/2010 for Class 1, Class 2, Class A, Class C, Advisor Class, Class R, Class K and Class I shares; 12/11/2014 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. |
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.
abfunds.com | AB BOND INFLATION STRATEGY | 13 |
EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,000.10 | $ | 5.90 | 1.19 | % | $ | 5.90 | 1.19 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.89 | $ | 5.96 | 1.19 | % | $ | 5.96 | 1.19 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 995.70 | $ | 9.55 | 1.93 | % | $ | 9.55 | 1.93 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,015.22 | $ | 9.64 | 1.93 | % | $ | 9.64 | 1.93 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,001.00 | $ | 4.61 | 0.93 | % | $ | 4.66 | 0.94 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.18 | $ | 4.66 | 0.93 | % | $ | 4.71 | 0.94 | % | ||||||||||||
Class R | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 999.40 | $ | 7.09 | 1.43 | % | $ | 7.09 | 1.43 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.70 | $ | 7.15 | 1.43 | % | $ | 7.15 | 1.43 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 999.90 | $ | 6.00 | 1.21 | % | $ | 6.00 | 1.21 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.79 | $ | 6.06 | 1.21 | % | $ | 6.06 | 1.21 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,001.10 | $ | 4.71 | 0.95 | % | $ | 4.76 | 0.96 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.08 | $ | 4.76 | 0.95 | % | $ | 4.81 | 0.96 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,001.00 | $ | 5.11 | 1.03 | % | $ | 5.11 | 1.03 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.69 | $ | 5.16 | 1.03 | % | $ | 5.16 | 1.03 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,000.50 | $ | 4.61 | 0.93 | % | $ | 4.61 | 0.93 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.18 | $ | 4.66 | 0.93 | % | $ | 4.66 | 0.93 | % | ||||||||||||
Class Z | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,000.50 | $ | 4.61 | 0.93 | % | $ | 4.66 | 0.94 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.18 | $ | 4.66 | 0.93 | % | $ | 4.71 | 0.94 | % |
* | 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. |
+ | In connection with the Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’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). |
14 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $596.8
Total Investments ($mil): $754.2
INFLATION PROTECTION BREAKDOWN1
U.S. Inflation-Protected Exposure | 99.4% | |||
Non-U.S. Inflation-Protected Exposure | 0.8 | |||
Non-Inflation Exposure | -0.2 | |||
100.0% |
SECTOR BREAKDOWN OF NET PORTFOLIO ASSETS, EXCLUDING TREASURY SECURITIES, TIPS, INTEREST RATE DERIVATIVES AND NET CASH EQUIVALENTS1
Corporates–Investment Grade | 12.1% | |||
Commercial Mortgage-Backed Securities | 7.3% | |||
Collateralized Mortgage Obligations | 4.3% | |||
Asset-Backed Securities | 4.0% | |||
Corporates–Non-Investment Grade | 1.7% | |||
Emerging Markets–Corporate Bonds | 0.9% | |||
Governments–Sovereign Bonds | 0.5% | |||
Quasi-Sovereigns | 0.1% |
SECTOR BREAKDOWN OF TOTAL PORTFOLIO INVESTMENTS, EXCLUDING DERIVATIVES2
Inflation-Linked Securities | 72.0% | |||
Corporates–Investment Grade | 9.6% | |||
Commercial Mortgage-Backed Securities | 5.3% | |||
Collateralized Mortgage Obligations | 3.4% | |||
Asset-Backed Securities | 3.2% | |||
Corporates–Non-Investment Grade | 2.7% | |||
Emerging Markets–Corporate Bonds | 0.7% | |||
Emerging Markets–Treasuries | 0.5% | |||
Governments–Sovereign Bonds | 0.4% | |||
Governments–Treasuries | 0.4% | |||
Short-Term | 1.8% |
1 | All data are as of April 30, 2018. The Fund’s sector and inflation protection exposure breakdowns are expressed as an approximate percentage of the Fund’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 Fund’s sector breakdown is expressed, based on the Adviser’s internal classification, as a percentage of total investments and may vary over time. The Fund 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 Fund (see “Portfolio of Investments” section of the report for additional details). Derivative transactions may result in a form of leverage for the Fund. The Fund uses leverage for investment purposes by entering into reverse repurchase agreements. As a result, the Fund’s total investments will generally exceed its net assets. |
abfunds.com | AB BOND INFLATION STRATEGY | 15 |
PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
INFLATION-LINKED SECURITIES ��� 91.0% | ||||||||||||
Japan – 0.8% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 482,516 | $ | 4,683,255 | ||||||||
|
| |||||||||||
United States – 90.2% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 66,943 | 64,966,955 | |||||||||
0.125%, 4/15/20-7/15/24 (TIPS)(a) | 161,460 | 158,469,911 | ||||||||||
0.375%, 7/15/23 (TIPS)(a)(b) | 13,089 | 12,951,493 | ||||||||||
0.375%, 7/15/25 (TIPS)(a) | 44,903 | 43,969,953 | ||||||||||
0.375%, 7/15/27 (TIPS) | 34,233 | 33,189,734 | ||||||||||
0.625%, 7/15/21 (TIPS)(a) | 23,967 | 24,101,548 | ||||||||||
0.625%, 4/15/23-1/15/26 (TIPS) | 100,147 | 99,728,660 | ||||||||||
1.375%, 1/15/20 (TIPS)(b) | 1,511 | 1,535,875 | ||||||||||
1.75%, 1/15/28 (TIPS) | 7,034 | 7,677,815 | ||||||||||
1.875%, 7/15/19 (TIPS) | 5,381 | 5,498,613 | ||||||||||
2.00%, 1/15/26 (TIPS) | 11,209 | 12,290,146 | ||||||||||
2.375%, 1/15/25 (TIPS) | 8,006 | 8,888,205 | ||||||||||
2.375%, 1/15/27 (TIPS)(a) | 49,475 | 56,292,882 | ||||||||||
2.50%, 1/15/29 (TIPS) | 7,300 | 8,583,640 | ||||||||||
|
| |||||||||||
538,145,430 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 542,828,685 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 12.1% | ||||||||||||
Financial Institutions – 6.0% | ||||||||||||
Banking – 5.0% | ||||||||||||
ABN AMRO Bank NV | 200 | 202,572 | ||||||||||
Banco Santander SA | EUR | 400 | 525,798 | |||||||||
3.50%, 4/11/22 | U.S.$ | 600 | 592,422 | |||||||||
Bank of America Corp. | 1,155 | 1,122,799 | ||||||||||
3.824%, 1/20/28 | 965 | 939,273 | ||||||||||
Bank of Nova Scotia (The) | 344 | 337,798 | ||||||||||
Banque Federative du Credit Mutuel SA | 555 | 548,223 | ||||||||||
Barclays PLC | 700 | 690,144 | ||||||||||
BB&T Corp. | 480 | 475,637 |
16 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
BNP Paribas SA | U.S.$ | 534 | $ | 527,640 | ||||||
3.80%, 1/10/24(c) | 332 | 328,803 | ||||||||
Series E | EUR | 199 | 246,808 | |||||||
BPCE SA | U.S.$ | 470 | 461,996 | |||||||
5.70%, 10/22/23(c) | 213 | 226,655 | ||||||||
Capital One Financial Corp. | 1,241 | 1,184,410 | ||||||||
Citigroup, Inc. | 835 | 796,807 | ||||||||
3.875%, 3/26/25 | 655 | 636,909 | ||||||||
Compass Bank | 955 | 921,136 | ||||||||
Cooperatieve Rabobank UA | 396 | 394,337 | ||||||||
Credit Agricole SA/London | 565 | 559,791 | ||||||||
Credit Suisse Group Funding Guernsey Ltd. | 1,285 | 1,278,074 | ||||||||
Goldman Sachs Group, Inc. (The) | 382 | 368,065 | ||||||||
3.584% (LIBOR 3 Month + 1.60%), 11/29/23(d) | 406 | 423,105 | ||||||||
3.85%, 7/08/24 | 1,000 | 994,790 | ||||||||
HSBC Bank USA NA | 535 | 552,757 | ||||||||
HSBC Holdings PLC | 597 | 587,764 | ||||||||
4.041%, 3/13/28 | 880 | 861,080 | ||||||||
Intesa Sanpaolo SpA | 510 | 476,340 | ||||||||
JPMorgan Chase & Co. | 322 | 312,253 | ||||||||
3.22%, 3/01/25 | 1,180 | 1,136,588 | ||||||||
3.782%, 2/01/28 | 518 | 501,999 | ||||||||
4.25%, 10/15/20 | 55 | 56,435 | ||||||||
KeyBank NA/Cleveland OH | 833 | 821,796 | ||||||||
Lloyds Banking Group PLC | 317 | 315,092 | ||||||||
Manufacturers & Traders Trust Co. | 947 | 934,121 | ||||||||
Morgan Stanley | 1,200 | 1,139,244 | ||||||||
Series G | 456 | 484,609 |
abfunds.com | AB BOND INFLATION STRATEGY | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
National Australia Bank Ltd./New York | U.S.$ | 400 | $ | 395,816 | ||||||||
Nationwide Building Society | 820 | 781,107 | ||||||||||
PNC Bank NA | 250 | 247,275 | ||||||||||
3.80%, 7/25/23 | 940 | 944,907 | ||||||||||
Santander Holdings USA, Inc. | 1,190 | 1,163,403 | ||||||||||
Santander UK PLC | 505 | 519,347 | ||||||||||
UBS AG/Stamford CT | 465 | 521,177 | ||||||||||
UBS Group Funding Switzerland AG | 1,153 | 1,146,474 | ||||||||||
US Bancorp | 427 | 432,098 | ||||||||||
Wells Fargo & Co. | 759 | 739,190 | ||||||||||
|
| |||||||||||
29,854,864 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
Synchrony Financial | 1,250 | 1,162,400 | ||||||||||
|
| |||||||||||
Insurance – 0.5% | ||||||||||||
American International Group, Inc. | 665 | 668,431 | ||||||||||
Coventry Health Care, Inc. | 415 | 437,580 | ||||||||||
Hartford Financial Services Group, Inc. (The) | 5 | 5,210 | ||||||||||
MetLife, Inc. | 90 | 106,084 | ||||||||||
Nationwide Financial Services, Inc. | 360 | 377,474 | ||||||||||
Nationwide Mutual Insurance Co. | 125 | 197,023 | ||||||||||
New York Life Global Funding | 905 | 889,036 | ||||||||||
|
| |||||||||||
2,680,838 | ||||||||||||
|
| |||||||||||
REITS – 0.3% | ||||||||||||
American Tower Corp. | 398 | 399,270 |
18 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Trust F/1401 | U.S.$ | 640 | $ | 639,200 | ||||||||
Welltower, Inc. | 708 | 694,760 | ||||||||||
|
| |||||||||||
1,733,230 | ||||||||||||
|
| |||||||||||
35,431,332 | ||||||||||||
|
| |||||||||||
Industrial – 5.6% | ||||||||||||
Basic – 0.4% | ||||||||||||
Anglo American Capital PLC | 200 | 198,318 | ||||||||||
Eastman Chemical Co. | 227 | 226,925 | ||||||||||
Minsur SA | 314 | 332,055 | ||||||||||
Sociedad Quimica y Minera de Chile SA | 393 | 387,596 | ||||||||||
Vale Overseas Ltd. | 515 | 594,439 | ||||||||||
Yamana Gold, Inc. | 403 | 408,767 | ||||||||||
|
| |||||||||||
2,148,100 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
Embraer Netherlands Finance BV | 590 | 623,925 | ||||||||||
General Electric Co. | 191 | 188,998 | ||||||||||
|
| |||||||||||
812,923 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.2% | ||||||||||||
CBS Corp. | 300 | 288,756 | ||||||||||
Cox Communications, Inc. | 163 | 155,592 | ||||||||||
Time Warner Cable LLC | 235 | 200,037 | ||||||||||
5.00%, 2/01/20 | 35 | 35,908 | ||||||||||
8.75%, 2/14/19 | 25 | 26,084 | ||||||||||
Time Warner, Inc. | 587 | 606,136 | ||||||||||
|
| |||||||||||
1,312,513 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.6% | ||||||||||||
AT&T, Inc. | 120 | 114,260 | ||||||||||
3.90%, 8/14/27 | 950 | 960,289 | ||||||||||
4.125%, 2/17/26 | 431 | 426,681 |
abfunds.com | AB BOND INFLATION STRATEGY | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Crown Castle Towers LLC | U.S.$ | 538 | $ | 553,806 | ||||||||
Rogers Communications, Inc. | CAD | 55 | 44,592 | |||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 1,150 | 1,159,649 | |||||||||
Verizon Communications, Inc. | 574 | 559,782 | ||||||||||
|
| |||||||||||
3,819,059 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.3% | ||||||||||||
Ford Motor Credit Co. LLC | 400 | 396,724 | ||||||||||
5.875%, 8/02/21 | 640 | 680,320 | ||||||||||
General Motors Co. | 425 | 426,407 | ||||||||||
|
| |||||||||||
1,503,451 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.3% | ||||||||||||
Baxalta, Inc. | 700 | 692,055 | ||||||||||
Bunge Ltd. Finance Corp. | 81 | 85,681 | ||||||||||
CVS Health Corp. | 685 | 682,568 | ||||||||||
4.30%, 3/25/28 | 685 | 677,534 | ||||||||||
Danone SA | 600 | 588,444 | ||||||||||
Gilead Sciences, Inc. | 1,360 | 1,349,256 | ||||||||||
Mylan NV | EUR | 549 | 689,776 | |||||||||
Reynolds American, Inc. | U.S.$ | 570 | 609,153 | |||||||||
Sigma Alimentos SA de CV | 209 | 198,289 | ||||||||||
Tyson Foods, Inc. | 199 | 198,051 | ||||||||||
3.95%, 8/15/24 | 650 | 649,038 | ||||||||||
Zimmer Biomet Holdings, Inc. | 570 | 564,830 | ||||||||||
Zoetis, Inc. | 509 | 511,026 | ||||||||||
|
| |||||||||||
7,495,701 | ||||||||||||
|
| |||||||||||
Energy – 1.6% | ||||||||||||
Cenovus Energy, Inc. | 33 | 31,672 | ||||||||||
5.70%, 10/15/19 | 159 | 163,716 |
20 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Ecopetrol SA | U.S.$ | 292 | $ | 281,926 | ||||||||
Energy Transfer Partners LP | 510 | 530,242 | ||||||||||
Energy Transfer Partners LP/Regency Energy Finance Corp. | 115 | 115,516 | ||||||||||
Enterprise Products Operating LLC | 771 | 754,886 | ||||||||||
5.20%, 9/01/20 | 335 | 349,576 | ||||||||||
Hess Corp. | 563 | 545,913 | ||||||||||
Kinder Morgan Energy Partners LP | 104 | 105,163 | ||||||||||
5.00%, 10/01/21 | 1,200 | 1,246,404 | ||||||||||
Marathon Petroleum Corp. | 280 | 293,289 | ||||||||||
Noble Energy, Inc. | 491 | 488,295 | ||||||||||
4.15%, 12/15/21 | 561 | 569,875 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 621 | 587,460 | ||||||||||
Sabine Pass Liquefaction LLC | 418 | 430,214 | ||||||||||
TransCanada PipeLines Ltd. | 930 | 1,082,101 | ||||||||||
Valero Energy Corp. | 476 | 500,014 | ||||||||||
Williams Partners LP | 1,250 | 1,218,625 | ||||||||||
4.125%, 11/15/20 | 300 | 304,146 | ||||||||||
|
| |||||||||||
9,599,033 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
Alfa SAB de CV | 600 | 614,250 | ||||||||||
|
| |||||||||||
Services – 0.2% | ||||||||||||
Expedia Group, Inc. | 886 | 807,305 | ||||||||||
S&P Global, Inc. | 611 | 632,947 | ||||||||||
|
| |||||||||||
1,440,252 | ||||||||||||
|
| |||||||||||
Technology – 0.7% | ||||||||||||
Agilent Technologies, Inc. | 7 | 7,260 |
abfunds.com | AB BOND INFLATION STRATEGY | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | U.S.$ | 190 | $ | 184,638 | ||||||||
3.875%, 1/15/27 | 407 | 388,583 | ||||||||||
Dell International LLC / EMC Corp. | 456 | 464,810 | ||||||||||
Dell International LLC/EMC Corp. | 387 | 406,985 | ||||||||||
6.02%, 6/15/26(c) | 138 | 146,665 | ||||||||||
Hewlett Packard Enterprise Co. | 871 | 858,728 | ||||||||||
KLA-Tencor Corp. | 639 | 660,528 | ||||||||||
Lam Research Corp. | 250 | 246,275 | ||||||||||
Motorola Solutions, Inc. | 92 | 108,308 | ||||||||||
Seagate HDD Cayman | 398 | 386,100 | ||||||||||
VMware, Inc. | 389 | 373,938 | ||||||||||
|
| |||||||||||
4,232,818 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 565 | 556,525 | ||||||||||
|
| |||||||||||
33,534,625 | ||||||||||||
|
| |||||||||||
Utility – 0.5% | ||||||||||||
Electric – 0.5% | ||||||||||||
Abu Dhabi National Energy Co. PJSC | 1,210 | 1,199,267 | ||||||||||
Berkshire Hathaway Energy Co. | 332 | 415,867 | ||||||||||
CMS Energy Corp. | 144 | 151,273 | ||||||||||
Exelon Generation Co. LLC | 736 | 733,255 | ||||||||||
Israel Electric Corp., Ltd. | 620 | 636,275 | ||||||||||
|
| |||||||||||
3,135,937 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.0% | ||||||||||||
NiSource, Inc. | 12 | 12,304 | ||||||||||
|
| |||||||||||
3,148,241 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 72,114,198 | |||||||||||
|
| |||||||||||
22 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 6.7% | ||||||||||||
Non-Agency Fixed Rate CMBS – 5.4% | ||||||||||||
BHMS Commercial Mortgage Trust | U.S.$ | 1,070 | $ | 1,050,988 | ||||||||
CCUBS Commercial Mortgage Trust | 1,210 | 1,184,499 | ||||||||||
CFCRE Commercial Mortgage Trust | 730 | 710,366 | ||||||||||
CGRBS Commercial Mortgage Trust | 885 | 881,450 | ||||||||||
Citigroup Commercial Mortgage Trust | 191 | 184,902 | ||||||||||
Series 2015-GC27, Class A5 | 1,382 | 1,346,449 | ||||||||||
Series 2015-GC35, Class A4 | 450 | 455,148 | ||||||||||
Series 2016-C1, Class A4 | 775 | 751,636 | ||||||||||
Series 2016-GC36, Class A5 | 565 | 562,462 | ||||||||||
Commercial Mortgage Trust | 250 | 241,498 | ||||||||||
Series 2015-CR24, Class A5 | 590 | 591,374 | ||||||||||
Series 2015-CR25, Class A4 | 1,155 | 1,162,996 | ||||||||||
Series 2015-PC1, Class A5 | 745 | 757,110 | ||||||||||
CSAIL Commercial Mortgage Trust | 475 | 470,741 | ||||||||||
Series 2015-C3, Class A4 | 395 | 396,213 | ||||||||||
Series 2015-C4, Class A4 | 1,853 | 1,866,666 | ||||||||||
GS Mortgage Securities Corp. II | 701 | 697,687 |
abfunds.com | AB BOND INFLATION STRATEGY | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
GS Mortgage Securities Trust | U.S.$ | 436 | $ | 418,583 | ||||||
Series 2014-GC18, Class D | 581 | 508,125 | ||||||||
Series 2018-GS9, Class A4 | 1,150 | 1,173,887 | ||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 143 | 142,919 | ||||||||
Series 2006-LDP9, Class AM | 181 | 182,551 | ||||||||
Series 2011-C5, Class D | 129 | 126,324 | ||||||||
JPMBB Commercial Mortgage Securities Trust | 22,363 | 962,671 | ||||||||
Series 2015-C30, Class A5 | 585 | 591,777 | ||||||||
Series 2015-C31, Class A3 | 990 | 1,000,932 | ||||||||
Series 2015-C32, Class C | 545 | 537,099 | ||||||||
Series 2015-C33, Class A4 | 1,150 | 1,157,468 | ||||||||
LB-UBS Commercial Mortgage Trust | 222 | 168,726 | ||||||||
Series 2018-C8, Class A4 | 990 | 1,004,588 | ||||||||
Series 2018-C9, Class A4 | 1,800 | 1,843,339 | ||||||||
LSTAR Commercial Mortgage Trust | 47 | 46,341 | ||||||||
Series 2015-3, Class A2 | 527 | 521,316 | ||||||||
Morgan Stanley Bank of America Merrill | 11,126 | 674,955 | ||||||||
Morgan Stanley Capital I Trust | 320 | 313,724 | ||||||||
Series 2016-UB12, Class A4 | 870 | 862,790 |
24 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
UBS-Barclays Commercial Mortgage Trust | U.S.$ | 2,309 | $ | 2,257,460 | ||||||||
Wells Fargo Commercial Mortgage Trust | 1,160 | 1,146,696 | ||||||||||
Series 2015-SG1, Class C | 537 | 520,744 | ||||||||||
Series 2016-LC25, Class C | 330 | 314,647 | ||||||||||
Series 2016-NXS6, Class A4 | 900 | 849,630 | ||||||||||
Series 2016-NXS6, Class C | 525 | 515,418 | ||||||||||
WF-RBS Commercial Mortgage Trust | 494 | 492,302 | ||||||||||
Series 2014-C20, Class A2 | 602 | 602,233 | ||||||||||
|
| |||||||||||
32,249,430 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 1.3% | ||||||||||||
Ashford Hospitality Trust, Inc. | 1,175 | 1,175,000 | ||||||||||
BAMLL Commercial Mortgage Securities Trust | 1,755 | 1,761,922 | ||||||||||
BX Trust | 1,150 | 1,151,430 | ||||||||||
Credit Suisse Mortgage Trust | 185 | 186,734 | ||||||||||
Great Wolf Trust | 745 | 746,620 | ||||||||||
H/2 Asset Funding NRE | 244 | 244,231 |
abfunds.com | AB BOND INFLATION STRATEGY | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | U.S.$ | 613 | $ | 614,945 | ||||||||
Morgan Stanley Capital I Trust | 214 | 213,884 | ||||||||||
Series 2015-XLF2, Class SNMA | 195 | 194,574 | ||||||||||
RETL | 612 | 614,485 | ||||||||||
Starwood Retail Property Trust | 1,002 | 1,001,694 | ||||||||||
|
| |||||||||||
7,905,519 | ||||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 40,154,949 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 4.3% | ||||||||||||
Risk Share Floating Rate – 3.1% | ||||||||||||
Bellemeade Re II Ltd. | 131 | 133,655 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 1,700 | 1,887,031 | ||||||||||
Series 2014-DN3, Class M3 | 927 | 1,015,319 | ||||||||||
Series 2014-HQ3, Class M3 | 307 | 342,077 | ||||||||||
Series 2015-DNA1, Class M3 | 260 | 289,731 |
26 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2015-DNA2, Class M2 | U.S.$ | 489 | $ | 497,626 | ||||||
Series 2015-DNA3, Class M3 | 281 | 337,749 | ||||||||
Series 2015-HQA1, Class M2 | 350 | 356,579 | ||||||||
Series 2015-HQA2, Class M3 | 276 | 324,094 | ||||||||
Series 2016-DNA1, Class M3 | 324 | 391,248 | ||||||||
Series 2016-HQA1, Class M3 | 600 | 739,367 | ||||||||
Series 2018-HQA1, Class M2 | 87 | 87,979 | ||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 452 | 482,889 | ||||||||
Series 2014-C04, Class 1M2 | 460 | 525,391 | ||||||||
Series 2014-C04, Class 2M2 | 144 | 162,228 | ||||||||
Series 2015-C01, Class 1M2 | 323 | 355,444 | ||||||||
Series 2015-C01, Class 2M2 | 286 | 310,543 | ||||||||
Series 2015-C02, Class 1M2 | 425 | 467,063 | ||||||||
Series 2015-C02, Class 2M2 | 318 | 342,642 | ||||||||
Series 2015-C03, Class 1M2 | 557 | 635,920 |
abfunds.com | AB BOND INFLATION STRATEGY | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2015-C03, Class 2M2 | U.S.$ | 555 | $ | 618,058 | ||||||||
Series 2015-C04, Class 1M2 | 1,071 | 1,246,281 | ||||||||||
Series 2015-C04, Class 2M2 | 533 | 600,746 | ||||||||||
Series 2016-C01, Class 1M2 | 587 | 706,151 | ||||||||||
Series 2016-C01, Class 2M2 | 446 | 533,316 | ||||||||||
Series 2016-C02, Class 1M2 | 505 | 604,442 | ||||||||||
Series 2016-C03, Class 2M2 | 1,834 | 2,151,263 | ||||||||||
Series 2016-C05, Class 2M2 | 1,165 | 1,306,593 | ||||||||||
Series 2018-C01, Class 1M2 | 1,085 | 1,110,433 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 72 | 72,061 | ||||||||||
|
| |||||||||||
18,633,919 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 1.2% | ||||||||||||
Federal Home Loan Mortgage Corp. REMICs | 5,632 | 835,743 | ||||||||||
Series 4693, Class SL | 2,912 | 531,904 | ||||||||||
Series 4727, Class SA | 3,348 | 614,352 |
28 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Federal National Mortgage Association REMICs | U.S.$ | 1,501 | $ | 276,180 | ||||||||
Series 2014-17, Class SA | 3,794 | 623,691 | ||||||||||
Series 2014-78, Class SE | 2,664 | 430,590 | ||||||||||
Series 2014-92, Class SX | 3,337 | 551,065 | ||||||||||
Series 2016-77, Class DS | 3,085 | 519,027 | ||||||||||
Series 2017-62, Class AS | 2,961 | 525,168 | ||||||||||
Series 2017-81, Class SA | 3,116 | 570,698 | ||||||||||
Series 2017-97, Class LS | 3,214 | 588,803 | ||||||||||
Government National Mortgage Association | 2,111 | 394,672 | ||||||||||
Series 2017-134, Class MS | 2,033 | 392,176 | ||||||||||
|
| |||||||||||
6,854,069 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 25,487,988 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 4.0% | ||||||||||||
Autos - Fixed Rate – 2.0% | ||||||||||||
Ally Auto Receivables Trust | 66 | 66,136 | ||||||||||
Ally Master Owner Trust | 707 | 706,759 |
abfunds.com | AB BOND INFLATION STRATEGY | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Americredit Automobile Receivables Trust | U.S.$ | 128 | $ | 127,987 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 289 | 289,160 | ||||||||
Series 2018-1A, Class A | 1,760 | 1,759,565 | ||||||||
Bank of The West Auto Trust | 8 | 7,746 | ||||||||
California Republic Auto Receivables Trust | 104 | 104,079 | ||||||||
Chrysler Capital Auto Receivables Trust | 88 | 88,042 | ||||||||
CPS Auto Receivables Trust | 711 | 706,182 | ||||||||
Exeter Automobile Receivables Trust | 250 | 264,218 | ||||||||
Series 2016-3A, Class A | 74 | 73,914 | ||||||||
Series 2017-2A, Class A | 330 | 329,214 | ||||||||
Series 2017-3A, Class A | 643 | 638,627 | ||||||||
Flagship Credit Auto Trust | 325 | 349,779 | ||||||||
Series 2016-4, Class D | 330 | 329,934 | ||||||||
Series 2017-2, Class A | 557 | 553,669 | ||||||||
Series 2017-4, Class A | 288 | 285,348 | ||||||||
Ford Credit Auto Owner Trust | 728 | 722,483 | ||||||||
GMF Floorplan Owner Revolving Trust | 599 | 598,450 |
30 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Hertz Vehicle Financing II LP | U.S.$ | 625 | $ | 618,550 | ||||||||
Series 2015-1A, Class B | 489 | 487,260 | ||||||||||
Series 2015-2A, Class A | 508 | 506,480 | ||||||||||
Series 2015-3A, Class A | 1,000 | 983,061 | ||||||||||
Series 2016-1A, Class A | 737 | 732,945 | ||||||||||
Santander Drive Auto Receivables Trust | 418 | 416,625 | ||||||||||
|
| |||||||||||
11,746,213 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 1.2% | ||||||||||||
CLUB Credit Trust | 610 | 608,022 | ||||||||||
CNH Equipment Trust | 493 | 490,141 | ||||||||||
Marlette Funding Trust | 28 | 27,948 | ||||||||||
Series 2017-1A, Class A | 207 | 206,591 | ||||||||||
Series 2017-2A, Class A | 412 | 410,662 | ||||||||||
Series 2017-3A, Class A | 317 | 315,901 | ||||||||||
Series 2017-3A, Class B | 297 | 293,728 | ||||||||||
Series 2018-1A, Class A | 697 | 695,173 | ||||||||||
Prosper Marketplace Issuance Trust | 285 | 283,749 | ||||||||||
SBA Tower Trust | 851 | 851,502 | ||||||||||
SoFi Consumer Loan Program LLC | 156 | 156,172 | ||||||||||
Series 2016-3, Class A | 416 | 414,315 |
abfunds.com | AB BOND INFLATION STRATEGY | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2017-2, Class A | U.S.$ | 402 | $ | 401,808 | ||||||||
Series 2017-5, Class A2 | 855 | 840,628 | ||||||||||
Series 2017-6, Class A2 | 990 | 981,719 | ||||||||||
|
| |||||||||||
6,978,059 | ||||||||||||
|
| |||||||||||
Credit Cards - Fixed Rate – 0.5% | ||||||||||||
GE Capital Credit Card Master Note Trust | 1,084 | 1,081,534 | ||||||||||
Synchrony Credit Card Master Note Trust | 209 | 207,913 | ||||||||||
World Financial Network Credit Card Master Trust | 313 | 312,001 | ||||||||||
Series 2018-A, Class A | 1,675 | 1,666,028 | ||||||||||
|
| |||||||||||
3,267,476 | ||||||||||||
|
| |||||||||||
Autos - Floating Rate – 0.3% | ||||||||||||
BMW Floorplan Master Owner Trust | 1,037 | 1,037,654 | ||||||||||
Ford Credit Floorplan Master Owner Trust | 692 | 695,758 | ||||||||||
|
| |||||||||||
1,733,412 | ||||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 23,725,160 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 3.4% | ||||||||||||
Industrial – 2.1% | ||||||||||||
Basic – 0.2% | ||||||||||||
NOVA Chemicals Corp. | 391 | 392,181 | ||||||||||
SPCM SA | 500 | 484,705 | ||||||||||
|
| |||||||||||
876,886 | ||||||||||||
|
|
32 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Communications - Media – 0.4% | ||||||||||||
Altice France SA/France | EUR | 231 | $ | 285,232 | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | U.S.$ | 656 | 631,472 | |||||||||
5.00%, 2/01/28(c) | 702 | 646,044 | ||||||||||
CSC Holdings LLC | 145 | 152,618 | ||||||||||
Sirius XM Radio, Inc. | 897 | 856,680 | ||||||||||
|
| |||||||||||
2,572,046 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.2% | ||||||||||||
CenturyLink, Inc. | 70 | 71,371 | ||||||||||
Sprint Capital Corp. | 1,000 | 1,029,730 | ||||||||||
|
| |||||||||||
1,101,101 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Adient Global Holdings Ltd. | 321 | 300,694 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.2% | ||||||||||||
International Game Technology PLC | 360 | 378,410 | ||||||||||
6.50%, 2/15/25(c) | 460 | 490,990 | ||||||||||
KB Home | 345 | 347,974 | ||||||||||
|
| |||||||||||
1,217,374 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
HCA, Inc. | 459 | 456,742 | ||||||||||
Tenet Healthcare Corp. | 967 | 939,885 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 385 | 346,596 | ||||||||||
|
| |||||||||||
1,743,223 | ||||||||||||
|
| |||||||||||
Energy – 0.6% | ||||||||||||
Antero Resources Corp. | 146 | 147,005 | ||||||||||
Diamond Offshore Drilling, Inc. | 575 | 413,770 | ||||||||||
Nabors Industries, Inc. | 671 | 659,056 | ||||||||||
5.75%, 2/01/25(c) | 614 | 583,650 |
abfunds.com | AB BOND INFLATION STRATEGY | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
PDC Energy, Inc. | U.S.$ | 643 | $ | 647,745 | ||||||||
SM Energy Co. | 41 | 41,221 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 618 | 607,803 | ||||||||||
5.875%, 3/15/28(c) | 640 | 621,639 | ||||||||||
|
| |||||||||||
3,721,889 | ||||||||||||
|
| |||||||||||
Technology – 0.1% | ||||||||||||
Western Digital Corp. | 480 | 473,534 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.0% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 270 | 258,471 | ||||||||||
|
| |||||||||||
12,265,218 | ||||||||||||
|
| |||||||||||
Financial Institutions – 1.2% | ||||||||||||
Banking – 1.0% | ||||||||||||
Banco Bilbao Vizcaya Argentaria SA | 600 | 580,128 | ||||||||||
Bank of America Corp. | 761 | 759,432 | ||||||||||
Series Z | 91 | 96,457 | ||||||||||
Barclays Bank PLC | 137 | 157,668 | ||||||||||
Barclays PLC | 562 | 562,433 | ||||||||||
CIT Group, Inc. | 579 | 591,310 | ||||||||||
Citigroup, Inc. | 257 | 262,019 | ||||||||||
Goldman Sachs Group, Inc. (The) | 650 | 623,623 | ||||||||||
Intesa Sanpaolo SpA | EUR | 200 | 296,466 | |||||||||
Series E | 164 | 214,619 | ||||||||||
Royal Bank of Scotland Group PLC | 150 | 180,078 | ||||||||||
8.625%, 8/15/21(e) | U.S.$ | 480 | 525,734 | |||||||||
Series U | 600 | 604,590 |
34 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Standard Chartered PLC | U.S.$ | 400 | $ | 377,324 | ||||||||
7.50%, 4/02/22(c)(e) | 380 | 401,375 | ||||||||||
|
| |||||||||||
6,233,256 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
Navient Corp. | 722 | 722,361 | ||||||||||
6.625%, 7/26/21 | 415 | 430,940 | ||||||||||
7.25%, 1/25/22 | 54 | 57,266 | ||||||||||
|
| |||||||||||
1,210,567 | ||||||||||||
|
| |||||||||||
7,443,823 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
AES Corp./VA | 562 | 565,383 | ||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 20,274,424 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.8% | ||||||||||||
Industrial – 0.7% | ||||||||||||
Capital Goods – 0.0% | ||||||||||||
Odebrecht Finance Ltd. | 426 | 109,695 | ||||||||||
7.125%, 6/26/42(c) | 368 | 99,986 | ||||||||||
|
| |||||||||||
209,681 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
MTN Mauritius Investment Ltd. | 328 | 331,690 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
BRF GmbH | 328 | 288,640 | ||||||||||
BRF SA | 312 | 282,360 | ||||||||||
MARB BondCo PLC | 200 | 191,000 | ||||||||||
Marfrig Holdings Europe BV | 335 | 338,350 | ||||||||||
Minerva Luxembourg SA | 218 | 207,100 |
abfunds.com | AB BOND INFLATION STRATEGY | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Teva Pharmaceutical Finance Netherlands III BV | U.S.$ | 543 | $ | 433,042 | ||||||||
Virgolino de Oliveira Finance SA | 655 | 41,468 | ||||||||||
|
| |||||||||||
1,781,960 | ||||||||||||
|
| |||||||||||
Energy – 0.2% | ||||||||||||
Petrobras Global Finance BV | 802 | 761,683 | ||||||||||
6.125%, 1/17/22 | 24 | 25,399 | ||||||||||
6.25%, 3/17/24 | 565 | 591,273 | ||||||||||
Ultrapar International SA | 330 | 330,619 | ||||||||||
|
| |||||||||||
1,708,974 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg SARL | 458 | 448,895 | ||||||||||
|
| |||||||||||
4,481,200 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Genneia SA | 366 | 392,535 | ||||||||||
Terraform Global Operating LLC | 222 | 224,837 | ||||||||||
|
| |||||||||||
617,372 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 5,098,572 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 0.7% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentina POM Politica Monetaria | ARS | 8,700 | 441,607 | |||||||||
|
| |||||||||||
Brazil – 0.6% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 12,270 | 3,580,561 | |||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 4,022,168 | |||||||||||
|
| |||||||||||
36 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.5% | ||||||||||||
Mexico – 0.1% | ||||||||||||
Mexico Government International Bond | U.S.$ | 650 | $ | 629,850 | ||||||||
|
| |||||||||||
Qatar – 0.2% | ||||||||||||
Qatar Government International Bond | 909 | 905,228 | ||||||||||
|
| |||||||||||
Saudi Arabia – 0.2% | ||||||||||||
Saudi Government International Bond | 1,459 | 1,438,734 | ||||||||||
|
| |||||||||||
Total Governments – Sovereign Bonds | 2,973,812 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 0.5% | ||||||||||||
Singapore – 0.5% | ||||||||||||
Singapore Government Bond | SGD | 3,962 | 2,890,485 | |||||||||
|
| |||||||||||
QUASI-SOVEREIGNS – 0.1% | ||||||||||||
Quasi-Sovereign Bonds – 0.1% | ||||||||||||
Chile – 0.1% | ||||||||||||
Corp. Nacional del Cobre de Chile | U.S.$ | 385 | 366,478 | |||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.0% | ||||||||||||
Egypt – 0.0% | ||||||||||||
Egypt Government International Bond | 255 | 261,694 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.0% | ||||||||||||
Financials – 0.0% | ||||||||||||
Insurance – 0.0% | ||||||||||||
Mt Logan Re Ltd. (Preference Shares)(f)(l) | 260 | 253,925 | ||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
SHORT-TERM INVESTMENTS – 2.3% | ||||||||||||
Governments – Treasuries – 2.3% | ||||||||||||
Japan – 2.3% | ||||||||||||
Japan Treasury Discount Bill | JPY | 1,050,500 | $ | 9,614,787 | ||||||||
Series 748 | 448,000 | 4,099,020 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 13,713,807 | |||||||||||
|
| |||||||||||
Total Investments – 126.4% | 754,166,345 | |||||||||||
Other assets less liabilities – (26.4)% | (157,379,953 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 596,786,392 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at April 30, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 679 | June 2018 | USD | 67,900 | $ | 77,361,342 | $ | 77,071,805 | $ | (289,537 | ) | |||||||||||||
Sold Contracts |
| |||||||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 12 | June 2018 | JPY | 1,200,000 | 16,553,165 | 16,535,675 | 17,490 | |||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 92 | June 2018 | JPY | 920,000 | 12,697,084 | 12,682,400 | 14,684 | |||||||||||||||||
Euro-BOBL Futures | 139 | June 2018 | EUR | 13,900 | 21,888,126 | 21,989,182 | (101,056 | ) | ||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 189 | June 2018 | USD | 37,800 | 40,160,637 | 40,076,860 | 83,777 | |||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 860 | June 2018 | USD | 86,000 | 103,263,926 | 102,877,500 | 386,426 | |||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 22 | June 2018 | USD | 2,200 | 3,438,749 | 3,456,750 | (18,001 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | 93,783 | |||||||||||||||||||||||
|
|
38 | AB BOND INFLATION STRATEGY | 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) | ||||||||||||
Australia and New Zealand Banking Group Ltd. | NZD | 1,789 | USD | 1,293 | 6/07/18 | $ | 34,673 | |||||||||
Bank of America, NA | CAD | 6,023 | USD | 4,769 | 6/12/18 | 74,199 | ||||||||||
Barclays Bank PLC | BRL | 557 | USD | 168 | 5/03/18 | 9,158 | ||||||||||
Barclays Bank PLC | USD | 160 | BRL | 557 | 5/03/18 | (1,009 | ) | |||||||||
BNP Paribas SA | NZD | 3,046 | USD | 2,169 | 6/07/18 | 26,021 | ||||||||||
BNP Paribas SA | GBP | 2,703 | USD | 3,845 | 6/13/18 | 116,325 | ||||||||||
Citibank, NA | BRL | 966 | USD | 277 | 5/03/18 | 1,750 | ||||||||||
Citibank, NA | USD | 283 | BRL | 966 | 5/03/18 | (6,961 | ) | |||||||||
Citibank, NA | BRL | 6,932 | USD | 1,997 | 6/04/18 | 24,166 | ||||||||||
Citibank, NA | USD | 2,339 | TWD | 67,555 | 6/07/18 | (51,928 | ) | |||||||||
Citibank, NA | USD | 2,332 | CNY | 14,657 | 6/28/18 | (21,204 | ) | |||||||||
Citibank, NA | USD | 1,630 | KRW | 1,732,776 | 7/26/18 | (7,434 | ) | |||||||||
Goldman Sachs Bank USA | USD | 2,278 | MYR | 8,937 | 7/12/18 | (18,764 | ) | |||||||||
HSBC Bank USA | EUR | 2,865 | USD | 3,555 | 5/30/18 | 88,239 | ||||||||||
HSBC Bank USA | CHF | 1,411 | USD | 1,479 | 6/28/18 | 47,637 | ||||||||||
JPMorgan Chase Bank, NA | USD | 1,752 | PLN | 5,927 | 5/16/18 | (63,048 | ) | |||||||||
JPMorgan Chase Bank, NA | TWD | 133,526 | USD | 4,599 | 6/07/18 | 78,640 | ||||||||||
JPMorgan Chase Bank, NA | AUD | 1,897 | USD | 1,468 | 6/07/18 | 39,563 | ||||||||||
JPMorgan Chase Bank, NA | USD | 1,353 | AUD | 1,720 | 6/07/18 | (58,121 | ) | |||||||||
JPMorgan Chase Bank, NA | AUD | 2,970 | CAD | 2,953 | 6/07/18 | 65,439 | ||||||||||
JPMorgan Chase Bank, NA | CHF | 1,678 | USD | 1,754 | 6/28/18 | 51,856 | ||||||||||
Morgan Stanley Capital Services, Inc. | SGD | 3,819 | USD | 2,895 | 5/17/18 | 13,656 | ||||||||||
Morgan Stanley Capital Services, Inc. | USD | 1,452 | GBP | 1,011 | 6/13/18 | (57,342 | ) | |||||||||
Morgan Stanley Capital Services, Inc. | JPY | 1,798,737 | USD | 16,847 | 6/18/18 | 341,337 | ||||||||||
Royal Bank of Scotland PLC | USD | 2,664 | CAD | 3,362 | 6/12/18 | (43,248 | ) | |||||||||
Standard Chartered Bank | BRL | 409 | USD | 117 | 5/03/18 | 107 | ||||||||||
Standard Chartered Bank | USD | 117 | BRL | 409 | 5/03/18 | (741 | ) | |||||||||
Standard Chartered Bank | USD | 1,039 | INR | 68,160 | 5/17/18 | (15,477 | ) | |||||||||
Standard Chartered Bank | USD | 117 | BRL | 409 | 6/04/18 | (161 | ) | |||||||||
State Street Bank & Trust Co. | USD | 801 | EUR | 646 | 5/30/18 | (18,407 | ) | |||||||||
State Street Bank & Trust Co. | JPY | 223,855 | USD | 2,059 | 6/18/18 | 5,039 | ||||||||||
|
| |||||||||||||||
$ | 653,960 | |||||||||||||||
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
CDX-NAIG Series 30, 5 Year Index, 6/20/23* | (1.00 | )% | Quarterly | 0.61 | % | USD | 8,750 | $ | (171,946 | ) | $ | (153,640 | ) | $ | (18,306 | ) |
* | Termination date |
abfunds.com | AB BOND INFLATION STRATEGY | 39 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
EUR | 3,540 | 4/10/20 | 0.151% | 6 Month EURIBOR | Annual/ Semi-Annual | $ | (904 | ) | $ | 87 | $ | (991 | ) | |||||||||
SEK | 38,290 | 3/31/22 | 3 Month STIBOR | 0.341% | Quarterly/Annual | 11,362 | 18 | 11,344 | ||||||||||||||
NZD | 7,090 | 3/31/22 | 3 Month BKBM | 2.936% | Quarterly/Semi-Annual | 73,111 | – 0 | – | 73,111 | |||||||||||||
USD | 2,610 | 1/14/24 | 2.980% | 3 Month LIBOR | Semi-Annual/Quarterly | (27,451 | ) | – 0 | – | (27,451 | ) | |||||||||||
USD | 2,300 | 2/14/24 | 2.889% | 3 Month LIBOR | Semi-Annual/Quarterly | 144 | – 0 | – | 144 | |||||||||||||
USD | 3,280 | 4/28/24 | 2.817% | 3 Month LIBOR | Semi-Annual/ Quarterly | 21,396 | – 0 | – | 21,396 | |||||||||||||
USD | 4,670 | 5/06/24 | 2.736% | 3 Month LIBOR | Semi-Annual/ Quarterly | 9,290 | – 0 | – | 9,290 | |||||||||||||
USD | 1,890 | 5/29/24 | 3 Month LIBOR | 2.628% | Quarterly/ Semi-Annual | (18,275 | ) | – 0 | – | (18,275 | ) | |||||||||||
USD | 3,330 | 7/02/24 | 2.632% | 3 Month LIBOR | Semi-Annual/ Quarterly | 35,838 | – 0 | – | 35,838 | |||||||||||||
USD | 2,370 | 7/10/24 | 2.674% | 3 Month LIBOR | Semi-Annual/ Quarterly | 19,812 | – 0 | – | 19,812 | |||||||||||||
USD | 1,160 | 6/09/25 | 2.488% | 3 Month LIBOR | Semi-Annual/ Quarterly | 27,224 | – 0 | – | 27,224 | |||||||||||||
USD | 2,106 | 8/04/25 | 2.293% | 3 Month LIBOR | Semi-Annual/ Quarterly | 89,773 | – 0 | – | 89,773 | |||||||||||||
USD | 5,400 | 10/04/26 | 1.487% | 3 Month LIBOR | Semi-Annual/ Quarterly | 611,854 | – 0 | – | 611,854 | |||||||||||||
USD | 7,030 | 4/04/27 | 2.436% | 3 Month LIBOR | Semi-Annual/ Quarterly | 306,440 | – 0 | – | 306,440 | |||||||||||||
USD | 2,190 | 7/12/27 | 2.355% | 3 Month LIBOR | Semi-Annual/Quarterly | 100,668 | – 0 | – | 100,668 | |||||||||||||
USD | 3,380 | 3/28/28 | 2.920% | 3 Month LIBOR | Semi-Annual/Quarterly | 22,547 | – 0 | – | 22,547 |
40 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
USD | 1,490 | 11/10/35 | 2.631% | 3 Month LIBOR | Semi-Annual/ Quarterly | $ | 77,152 | $ | – 0 | – | $ | 77,152 | ||||||||||
CAD | 43,440 | 4/06/20 | 3 Month CDOR | 2.181% | Semi-Annual/Semi-Annual | (28,100 | ) | – 0 | – | (28,100 | ) | |||||||||||
EUR | 28,310 | 4/10/20 | -0.149% | 6 Month EURIBOR | Annual/Semi-Annual | (8,862 | ) | 693 | (9,555 | ) | ||||||||||||
EUR | 11,810 | 4/11/20 | -0.148% | 6 Month EURIBOR | Annual/Semi-Annual | (3,802 | ) | (287 | ) | (3,515 | ) | |||||||||||
USD | 1,080 | 11/08/26 | 1.657% | 3 Month LIBOR | Semi-Annual/Quarterly | 102,219 | – 0 | – | 102,219 | |||||||||||||
USD | 1,080 | 11/09/26 | 1.672% | 3 Month LIBOR | Semi-Annual/Quarterly | 100,977 | – 0 | – | 100,977 | |||||||||||||
|
|
|
|
|
| |||||||||||||||||
$ | 1,522,413 | $ | 511 | $ | 1,521,902 | |||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied at | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | )% | Quarterly | 0.41 | % | USD | 466 | $ | (26,935 | ) | $ | (6,512 | ) | $ | (20,423 | ) | ||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | ) | Quarterly | 0.41 | USD | 534 | (30,865 | ) | (7,737 | ) | (23,128 | ) | ||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 30 | (58 | ) | 381 | (439 | ) | |||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 2,785 | (5,446 | ) | 35,100 | (40,546 | ) | |||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 26 | (51 | ) | 239 | (290 | ) | |||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 354 | (692 | ) | 4,810 | (5,502 | ) | |||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 3,469 | (6,784 | ) | 36,982 | (43,766 | ) |
abfunds.com | AB BOND INFLATION STRATEGY | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied at | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | )% | Monthly | 0.47 | % | USD | 1,041 | $ | (2,036 | ) | $ | 11,003 | $ | (13,039 | ) | |||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 387 | (756 | ) | 5,216 | (5,972 | ) | |||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 226 | (442 | ) | 2,159 | (2,601 | ) | |||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 418 | (818 | ) | 5,483 | (6,301 | ) | |||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 836 | (1,635 | ) | 10,967 | (12,602 | ) | |||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 723 | (90,062 | ) | (92,875 | ) | 2,813 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 547 | (68,138 | ) | (87,163 | ) | 19,025 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 67 | (8,346 | ) | (11,202 | ) | 2,856 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 209 | (26,017 | ) | (32,330 | ) | 6,313 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 248 | (30,893 | ) | (34,140 | ) | 3,247 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 210 | (26,159 | ) | (29,595 | ) | 3,436 | ||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 1,145 | (29,973 | ) | (26,431 | ) | (3,542 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 122 | (15,197 | ) | (15,435 | ) | 238 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 130 | (16,194 | ) | (10,943 | ) | (5,251 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 169 | (21,052 | ) | (14,528 | ) | (6,524 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 326 | (40,609 | ) | (32,285 | ) | (8,324 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 471 | (58,671 | ) | (31,627 | ) | (27,044 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 226 | (28,133 | ) | (34,801 | ) | 6,668 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 138 | (17,191 | ) | (9,904 | ) | (7,287 | ) |
42 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied at | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 6.47 | % | USD | 130 | $ | (16,193 | ) | $ | (17,003 | ) | $ | 810 | |||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 436 | (54,312 | ) | (32,468 | ) | (21,844 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 662 | (82,463 | ) | (48,158 | ) | (34,305 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 247 | (30,768 | ) | (27,620 | ) | (3,148 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 714 | (88,940 | ) | (42,539 | ) | (46,401 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 150 | (18,684 | ) | (19,619 | ) | 935 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 217 | (27,031 | ) | (25,764 | ) | (1,267 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 218 | (27,156 | ) | (25,873 | ) | (1,283 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 464 | (57,799 | ) | (39,615 | ) | (18,184 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 30 | (3,737 | ) | (3,650 | ) | (87 | ) | |||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 1,300 | (161,937 | ) | (159,385 | ) | (2,552 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 1,000 | (124,400 | ) | (137,419 | ) | 13,019 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 710 | (88,443 | ) | (84,857 | ) | (3,586 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 178 | (22,173 | ) | (15,965 | ) | (6,208 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 15 | (1,868 | ) | (1,395 | ) | (473 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 30 | (3,737 | ) | (2,842 | ) | (895 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 30 | (3,737 | ) | (3,076 | ) | (661 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 166 | (20,678 | ) | (18,357 | ) | (2,321 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 598 | (74,491 | ) | (95,416 | ) | 20,925 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 371 | (46,214 | ) | (62,941 | ) | 16,727 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 517 | (64,401 | ) | (88,972 | ) | 24,571 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 15 | (1,868 | ) | (2,365 | ) | 497 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 59 | (7,349 | ) | (6,611 | ) | (738 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 322 | (40,110 | ) | (45,487 | ) | 5,377 |
abfunds.com | AB BOND INFLATION STRATEGY | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied at | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Morgan Stanley & Co. International PLC | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 6.47 | % | USD | 1,100 | $ | (136,932 | ) | $ | (168,740 | ) | $ | 31,808 | |||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 191 | (23,792 | ) | (13,980 | ) | (9,812 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (1,782,366 | ) | $ | (1,555,285 | ) | $ | (227,081 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | 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 | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Bank of America, NA | USD | 23,640 | 7/15/21 | 1.765 | % | CPI | # | Maturity | $ | 521,785 | ||||||||||
Barclays Bank PLC | USD | 20,750 | 7/15/20 | 1.527 | % | CPI | # | Maturity | 455,651 | |||||||||||
Barclays Bank PLC | USD | 6,950 | 1/15/21 | 1.490 | % | CPI | # | Maturity | 169,038 | |||||||||||
Deutsche Bank AG | USD | 5,190 | 7/15/21 | 2.152 | % | CPI | # | Maturity | 36,238 | |||||||||||
|
| |||||||||||||||||||
$ | 1,182,712 | |||||||||||||||||||
|
|
# | 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 | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Morgan Stanley Capital Services LLC | USD | 595 | 3/06/42 | 2.804 | % | 3 Month LIBOR | Semi- Annual/ Quarterly | $ | 21,624 |
VARIANCE SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Volatility Strike Price | Payment Frequency | Notional Amount (000) | Market Value | Upfront Premiums (Paid) Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||
AUD/JPY, 1/14/20* | $ | 11.12 | Maturity | AUD | 65 | $ | (31 | ) | $ | – 0 | – | $ | (31 | ) | ||||||||
AUD/JPY, 3/3/20* | 12.75 | Maturity | AUD | 33 | (157 | ) | – 0 | – | (157 | ) | ||||||||||||
Goldman Sachs Bank USA |
| |||||||||||||||||||||
AUD/JPY, 3/10/20* | 12.90 | Maturity | AUD | 15 | (78 | ) | – 0 | – | (78 | ) | ||||||||||||
AUD/JPY, 3/11/20* | 12.80 | Maturity | AUD | 18 | (86 | ) | – 0 | – | (86 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||
$ | (352 | ) | $ | – 0 | – | $ | (352 | ) | ||||||||||||||
|
|
|
|
|
|
* | Termination date |
44 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Interest Rate | Maturity | U.S. $ Value at April 30, 2018 | |||||||||
HSBC Bank USA | 1.87 | % | 1/16/19 | $ | 6,159,659 | |||||||
HSBC Bank USA | 1.93 | % | 7/03/18 | 20,625,585 | ||||||||
HSBC Bank USA | 1.95 | % | 7/12/18 | 14,374,337 | ||||||||
HSBC Bank USA+ | 1.87 | % | — | 52,350,672 | ||||||||
JPMorgan Chase Bank | 1.89 | % | 4/23/20 | 15,738,924 | ||||||||
JPMorgan Chase Bank | 1.93 | % | 7/19/18 | 46,976,467 | ||||||||
JPMorgan Chase Bank+ | 1.89 | % | — | 5,121,640 | ||||||||
|
| |||||||||||
$ | 161,347,284 | |||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on April 30, 2018 |
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:
Overnight and Continuous | Up to 30 Days | 31-90 Days | Greater than 90 Days | Total | ||||||||||||||||
Inflation-Linked Securities | $ | 57,472,312 | $ | – 0 | – | $ | 81,976,389 | $ | 21,898,583 | $ | 161,347,284 |
(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, 2018, the aggregate market value of these securities amounted to $63,460,869 or 10.6% of net assets. |
(d) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at April 30, 2018. |
(e) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(f) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(g) | IO – Interest Only. |
abfunds.com | AB BOND INFLATION STRATEGY | 45 |
PORTFOLIO OF INVESTMENTS (continued)
(h) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.08% of net assets as of April 30, 2018, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Bellemeade Re II Ltd. | 4/29/16 | $ | 131,393 | $ | 133,655 | 0.02 | % | |||||||||
H/2 Asset Funding NRE | 6/19/15 | 244,231 | 244,231 | 0.04 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | 363,153 | 41,468 | 0.01 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 71,574 | 72,061 | 0.01 | % |
(i) | Inverse interest only security. |
(j) | Non-income producing security. |
(k) | Defaulted matured security. |
(l) | Restricted and illiquid security. |
Restricted & Illiquid | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Mt Logan Re Ltd. (Preference Shares) | 12/30/14 | $ | 260,000 | $ | 253,925 | 0.04 | % |
Currency Abbreviations:
ARS – Argentine Peso
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CHF – Swiss Franc
CNY – Chinese Yuan Renminbi
EUR – Euro
GBP – Great British Pound
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
MYR – Malaysian Ringgit
NZD – New Zealand Dollar
PLN – Polish Zloty
SEK – Swedish Krona
SGD – Singapore Dollar
TWD – New Taiwan Dollar
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
ARPP7DRR – Argentina Central Bank 7-Day Repo Reference Rate
BKBM – Bank Bill Benchmark (New Zealand)
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
46 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CDOR – Canadian Dealer Offered Rate
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
CPI – Consumer Price Index
EURIBOR – Euro Interbank Offered Rate
LIBOR – London Interbank Offered Rates
OSE – Osaka Securities Exchange
PJSC – Public Joint Stock Company
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 | 47 |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value (cost $762,343,522) | $ | 754,166,345 | ||
Cash collateral due from broker | 2,090,866 | |||
Foreign currencies, at value (cost $305,260) | 255,327 | |||
Receivable for investment securities sold | 67,056,449 | |||
Receivable for capital stock sold | 2,512,509 | |||
Interest receivable | 2,419,697 | |||
Unrealized appreciation on inflation swaps | 1,182,712 | |||
Unrealized appreciation on forward currency exchange contracts | 1,017,805 | |||
Unrealized appreciation on credit default swaps | 159,265 | |||
Unrealized appreciation on interest rate swaps | 21,624 | |||
Affiliated dividends receivable | 1,710 | |||
|
| |||
Total assets | 830,884,309 | |||
|
| |||
Liabilities | ||||
Due to custodian | 16,998,136 | |||
Payable for reverse repurchase agreements | 161,347,284 | |||
Payable for investment securities purchased | 52,082,999 | |||
Upfront premiums received on credit default swaps | 1,555,285 | |||
Cash collateral due to broker | 500,000 | |||
Payable for capital stock redeemed | 396,214 | |||
Unrealized depreciation on credit default swaps | 386,346 | |||
Unrealized depreciation on forward currency exchange contracts | 363,845 | |||
Advisory fee payable | 152,790 | |||
Payable for variation margin on futures | 130,819 | |||
Payable for variation margin on centrally cleared swaps | 54,168 | |||
Distribution fee payable | 40,424 | |||
Transfer Agent fee payable | 26,246 | |||
Administrative fee payable | 20,511 | |||
Directors’ fees payable | 3,353 | |||
Unrealized depreciation on variance swaps | 352 | |||
Payable for terminated variance swaps | 211 | |||
Accrued expenses | 38,934 | |||
|
| |||
Total liabilities | 234,097,917 | |||
|
| |||
Net Assets | $ | 596,786,392 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 55,879 | ||
Additional paid-in capital | 608,066,883 | |||
Undistributed net investment income | 4,324,597 | |||
Accumulated net realized loss on investment and foreign currency transactions | (10,652,012 | ) | ||
Net unrealized depreciation on investments and foreign currency denominated assets and liabilities | (5,008,955 | ) | ||
|
| |||
$ | 596,786,392 | |||
|
|
See notes to financial statements.
48 | AB BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 54,117,918 | 5,026,016 | $ | 10.77 | * | ||||||
| ||||||||||||
C | $ | 3,612,197 | 343,219 | $ | 10.52 | |||||||
| ||||||||||||
Advisor | $ | 141,105,779 | 13,083,623 | $ | 10.78 | |||||||
| ||||||||||||
R | $ | 5,963,889 | 554,921 | $ | 10.75 | |||||||
| ||||||||||||
K | $ | 10,917,786 | 1,015,745 | $ | 10.75 | |||||||
| ||||||||||||
I | $ | 2,229,441 | 208,772 | $ | 10.68 | |||||||
| ||||||||||||
1 | $ | 300,621,193 | 28,288,878 | $ | 10.63 | |||||||
| ||||||||||||
2 | $ | 57,773,862 | 5,438,871 | $ | 10.62 | |||||||
| ||||||||||||
Z | $ | 20,444,327 | 1,918,942 | $ | 10.65 | |||||||
|
* | The maximum offering price per share for Class A shares was $11.25 which reflects a sales charge of 4.25%. |
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 49 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2018 (unaudited)
Investment Income | ||||||||
Interest | $ | 9,955,520 | ||||||
Dividends | ||||||||
Affiliated issuers | 28,836 | |||||||
Unaffiliated issuers | 11,094 | $ | 9,995,450 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 1,333,802 | |||||||
Distribution fee—Class A | 51,872 | |||||||
Distribution fee—Class C | 18,160 | |||||||
Distribution fee—Class R | 13,975 | |||||||
Distribution fee—Class K | 4,109 | |||||||
Distribution fee—Class 1 | 141,050 | |||||||
Transfer agency—Class A | 27,266 | |||||||
Transfer agency—Class C | 2,502 | |||||||
Transfer agency—Advisor Class | 81,676 | |||||||
Transfer agency—Class R | 6,927 | |||||||
Transfer agency—Class K | 3,287 | |||||||
Transfer agency—Class I | 766 | |||||||
Transfer agency—Class 1 | 18,721 | |||||||
Transfer agency—Class 2 | 3,664 | |||||||
Transfer agency—Class Z | 1,872 | |||||||
Custodian | 108,823 | |||||||
Registration fees | 64,614 | |||||||
Audit and tax | 50,873 | |||||||
Printing | 39,285 | |||||||
Administrative | 28,656 | |||||||
Legal | 22,913 | |||||||
Directors’ fees | 14,226 | |||||||
Miscellaneous | 10,536 | |||||||
|
| |||||||
Total expenses before interest expense | 2,049,575 | |||||||
Interest expense | 1,161,448 | |||||||
|
| |||||||
Total expenses | 3,211,023 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (491,807 | ) | ||||||
|
| |||||||
Net expenses | 2,719,216 | |||||||
|
| |||||||
Net investment income | 7,276,234 | |||||||
|
|
See notes to financial statements.
50 | 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 | $ | (1,190,219 | ) | |||||
Forward currency exchange contracts | (654,805 | ) | ||||||
Futures | 2,675,878 | |||||||
Swaps | 70,069 | |||||||
Foreign currency transactions | (135,131 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (10,967,911 | ) | ||||||
Forward currency exchange contracts | 695,940 | |||||||
Futures | (359,980 | ) | ||||||
Swaps | 3,081,036 | |||||||
Foreign currency denominated assets and liabilities | (40,695 | ) | ||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (6,825,818 | ) | ||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 450,416 | ||||||
|
|
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 51 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 7,276,234 | $ | 9,429,313 | ||||
Net realized gain on investment and foreign currency transactions | 765,792 | 36,678 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (7,591,610 | ) | (3,298,144 | ) | ||||
Contributions from Affiliates (see Note B) | – 0 | – | 957 | |||||
|
|
|
| |||||
Net increase in net assets from operations | 450,416 | 6,168,804 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (201,574 | ) | (438,322 | ) | ||||
Class C | (15,097 | ) | (42,144 | ) | ||||
Advisor Class | (786,797 | ) | (1,782,646 | ) | ||||
Class R | (27,641 | ) | (8,105 | ) | ||||
Class K | (17,134 | ) | (44,541 | ) | ||||
Class I | (8,092 | ) | (10,229 | ) | ||||
Class 1 | (1,876,869 | ) | (5,080,600 | ) | ||||
Class 2 | (391,717 | ) | (1,188,735 | ) | ||||
Class Z | (132,718 | ) | (299,386 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 107,491,148 | 168,272,863 | ||||||
|
|
|
| |||||
Total increase | 104,483,925 | 165,546,959 | ||||||
Net Assets | ||||||||
Beginning of period | 492,302,467 | 326,755,508 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $4,324,597 and $506,002, respectively) | $ | 596,786,392 | $ | 492,302,467 | ||||
|
|
|
|
See notes to financial statements.
52 | AB BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 2018 (unaudited)
Cash flows from operating activities | ||||||||
Net increase in net assets from operations | $ | 450,416 | ||||||
Reconciliation of net increase in net assets from operations to net decrease in cash from operating activities | ||||||||
Purchases of long-term investments | $ | (264,119,988 | ) | |||||
Purchases of short-term investments | (128,432,048 | ) | ||||||
Proceeds from disposition of long-term investments | 112,017,575 | |||||||
Proceeds from disposition of short-term investments | 127,299,078 | |||||||
Net realized gain on investment transactions and foreign currency transactions | (765,792 | ) | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 7,591,610 | |||||||
Net accretion of bond discount and amortization of bond premium | 2,743,288 | |||||||
Inflation index adjustment | (6,742,351 | ) | ||||||
Increase in receivable for investments sold | (58,410,174 | ) | ||||||
Increase in interest receivable | (456,686 | ) | ||||||
Decrease in affiliated dividends receivable | 231 | |||||||
Increase in cash collateral due from broker | (348,310 | ) | ||||||
Increase in payable for investments purchased | 51,062,920 | |||||||
Increase in cash collateral due to broker | 500,000 | |||||||
Increase in advisory fee payable | 52,506 | |||||||
Decrease in administrative fee payable | (2,371 | ) | ||||||
Increase in Transfer Agent fee payable | 1,553 | |||||||
Increase in distribution fee payable | 7,574 | |||||||
Increase in directors’ fee payable | 919 | |||||||
Decrease in accrued expenses | (263,417 | ) | ||||||
Proceeds on swaps, net | 738,953 | |||||||
Proceeds for exchange-traded derivatives settlements | 4,170,352 | |||||||
|
| |||||||
Total adjustments | (153,354,578 | ) | ||||||
|
| |||||||
Net cash provided by (used in) from operating activities | (152,904,162 | ) | ||||||
Cash flows from financing activities | ||||||||
Subscriptions of capital stock, net | 96,745,883 | |||||||
Increase in due to custodian | 16,998,136 | |||||||
Cash dividends paid (net of dividend reinvestments)* | (674,143 | ) | ||||||
Increase in reverse repurchase agreements | 39,718,114 | |||||||
|
| |||||||
Net cash provided by (used in) from financing activities | 152,787,990 | |||||||
Effect of exchange rate on cash | (830,631 | ) | ||||||
|
| |||||||
Net decrease in cash | (946,803 | ) | ||||||
Cash at beginning of period | 1,202,130 | |||||||
|
| |||||||
Cash at end of period | $ | 255,327 | ||||||
|
| |||||||
* Reinvestment of dividends | $ | 2,783,496 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Interest expense paid during the period | $ | 1,002,771 |
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 BOND INFLATION STRATEGY | 53 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 “Fund”), a diversified portfolio. The Fund has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class T, Class 1 and Class 2. Class B and Class T 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 eleven 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.
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”).
54 | AB 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 determination may include, but are not limited to, information obtained by
abfunds.com | AB BOND INFLATION STRATEGY | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows
56 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
abfunds.com | AB BOND INFLATION STRATEGY | 57 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of April 30, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Inflation-Linked Securities | $ | – 0 | – | $ | 542,828,685 | $ | – 0 | – | $ | 542,828,685 | ||||||
Corporates – Investment Grade | – 0 | – | 72,114,198 | – 0 | – | 72,114,198 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 34,589,802 | 5,565,147 | 40,154,949 | |||||||||||
Collateralized Mortgage Obligations | – 0 | – | 25,487,988 | – 0 | – | 25,487,988 | ||||||||||
Asset-Backed Securities | – 0 | – | 17,237,242 | 6,487,918 | 23,725,160 | |||||||||||
Corporates – Non-Investment Grade | – 0 | – | 20,274,424 | – 0 | – | 20,274,424 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 5,057,104 | 41,468 | 5,098,572 | |||||||||||
Emerging Markets – Treasuries | – 0 | – | 4,022,168 | – 0 | – | 4,022,168 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 2,973,812 | – 0 | – | 2,973,812 | ||||||||||
Governments – Treasuries | – 0 | – | 2,890,485 | – 0 | – | 2,890,485 | ||||||||||
Quasi-Sovereigns | – 0 | – | 366,478 | – 0 | – | 366,478 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 261,694 | – 0 | – | 261,694 | ||||||||||
Common Stocks | – 0 | – | – 0 | – | 253,925 | 253,925 | ||||||||||
Short-Term Investments | – 0 | – | 13,713,807 | – 0 | – | 13,713,807 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | – 0 | – | 741,817,887 | 12,348,458 | 754,166,345 | |||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 502,377 | – 0 | – | – 0 | – | 502,377 | (b) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 1,017,805 | – 0 | – | 1,017,805 | ||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 1,609,807 | – 0 | – | 1,609,807 | (b) | |||||||||
Inflation (CPI) Swaps | – 0 | – | 1,182,712 | – 0 | – | 1,182,712 | ||||||||||
Interest Rate Swaps | – 0 | – | 21,624 | – 0 | – | 21,624 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (408,594 | ) | – 0 | – | – 0 | – | (408,594 | )(b) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (363,845 | ) | – 0 | – | (363,845 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (171,946 | ) | – 0 | – | (171,946 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (87,394 | ) | – 0 | – | (87,394 | )(b) | ||||||||
Credit Default Swaps | – 0 | – | (1,782,366 | ) | – 0 | – | (1,782,366 | ) | ||||||||
Variance Swaps | – 0 | – | (352 | ) | – 0 | – | (352 | ) | ||||||||
Reverse Repurchase Agreements | (161,347,284 | ) | – 0 | – | – 0 | – | (161,347,284 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | (161,253,501 | ) | $ | 743,243,932 | $ | 12,348,458 | $ | 594,338,889 | |||||||
|
|
|
|
|
|
|
|
58 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(c) | 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.
Commercial Mortgage-Backed Securities | Asset-Backed Securities | Emerging Markets - Corporate Bonds | ||||||||||
Balance as of 10/31/17 | $ | 4,607,155 | $ | 6,237,183 | $ | – 0 | – | |||||
Accrued discounts/(premiums) | 2,356 | (4 | ) | – 0 | – | |||||||
Realized gain (loss) | (45,260 | ) | 3 | – 0 | – | |||||||
Change in unrealized appreciation/depreciation | (5,881 | ) | (57,985 | ) | 7,900 | |||||||
Purchases/Payups | 1,755,000 | 1,779,949 | – 0 | – | ||||||||
Sales/Paydowns | (748,223 | ) | (1,471,228 | ) | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | 33,568 | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 5,565,147 | $ | 6,487,918 | $ | 41,468 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(a) | $ | (56,370 | ) | $ | (57,563 | ) | $ | 7,900 | ||||
|
|
|
|
|
| |||||||
Common Stocks | Total | |||||||||||
Balance as of 10/31/17 | $ | 271,107 | $ | 11,115,445 | ||||||||
Accrued discounts/(premiums) | – 0 | – | 2,352 | |||||||||
Realized gain (loss) | – 0 | – | (45,257 | ) | ||||||||
Change in unrealized appreciation/depreciation | (17,182 | ) | (73,148 | ) | ||||||||
Purchases/Payups | – 0 | – | 3,534,949 | |||||||||
Sales/Paydowns | – 0 | – | (2,219,451 | ) | ||||||||
Transfers in to Level 3 | – 0 | – | 33,568 | (b) | ||||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | ||||||||
|
|
|
| |||||||||
Balance as of 4/30/18 | $ | 253,925 | $ | 12,348,458 | ||||||||
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(a) | $ | (17,182 | ) | $ | (123,215 | ) | ||||||
|
|
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 59 |
NOTES TO FINANCIAL STATEMENTS (continued)
(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. |
The following presents information about significant unobservable inputs related to the Portfolio’s Level 3 investments at April 30, 2018. Securities priced (i) by third party vendors or (ii) by brokers, which approximates fair value, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/18 | Valuation Technique | Unobservable Input | Range / Weighted Average | |||||||
Common Stocks | $ | 253,925 | Market Approach | NAV Equivalent | $976.63 / N/A |
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 NAV Equivalent in isolation would be expected to result in a significantly lower (higher) 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. 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
60 | AB 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. 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, 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 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
abfunds.com | AB BOND INFLATION STRATEGY | 61 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 Fund 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 Fund’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, 2019 and then may
62 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
be extended for additional one-year terms. For the six months ended April 30, 2018, such reimbursement amounted to $486,607.
Pursuant to the 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, 2018, the reimbursement for such services amounted to $28,656.
During the year ended October 31, 2017, the Adviser reimbursed the Fund $957 for trading losses incurred due to a trade entry error.
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. Such compensation retained by ABIS amounted to $72,446 for the six months ended April 30, 2018.
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 charges of $1,625 from the sale of Class A shares and received $7 and $1 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, 2018.
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 contractually 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, 2018, such waiver amounted to $5,200.
A summary of the Fund’s transactions in AB mutual funds for the six months ended April 30, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | – 0 | – | $ | 100,981 | $ | 100,981 | $ | – 0 | – | $ | 29 |
abfunds.com | AB BOND INFLATION STRATEGY | 63 |
NOTES TO FINANCIAL STATEMENTS (continued)
Brokerage commissions paid on investment transactions for the six months ended April 30, 2018 amounted to $12,309, 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 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 .30% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to Class C shares, .50% of the Fund’s average daily net assets attributable to Class R shares, .25% of the Fund’s average daily net assets attributable to Class K shares and .10% of the Fund’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 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 Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $247,769, $27,957, $20,473 and $1,481,373 for Class C, Class R, Class K and Class 1 shares, respectively. 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 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, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 67,737,104 | $ | 26,818,759 | ||||
U.S. government securities | 196,382,884 | 76,268,636 |
64 | AB BOND INFLATION STRATEGY | abfunds.com |
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 | $ | 7,469,007 | ||
Gross unrealized depreciation | (12,417,942 | ) | ||
|
| |||
Net unrealized depreciation | $ | (4,948,935 | ) | |
|
|
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”.
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.
abfunds.com | AB BOND INFLATION STRATEGY | 65 |
NOTES TO FINANCIAL STATEMENTS (continued)
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, 2018, 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 forward currency exchange contracts. 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 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, 2018, the Fund held forward currency exchange contracts for hedging and non-hedging purposes.
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral
66 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund
abfunds.com | AB BOND INFLATION STRATEGY | 67 |
NOTES TO FINANCIAL STATEMENTS (continued)
agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2018, the Fund held interest rate swaps for hedging and non-hedging purposes.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Fund against an unexpected change in
68 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the six months ended April 30, 2018, the Fund held inflation (CPI) swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty. As of April 30, 2018, the Fund 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 Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/
abfunds.com | AB BOND INFLATION STRATEGY | 69 |
NOTES TO FINANCIAL STATEMENTS (continued)
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, 2018, the Fund held credit default swaps for hedging and 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, 2018, the Fund held variance swaps for hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
70 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 502,377 | * | Receivable/Payable for variation margin on futures | $ | 408,594 | * | ||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 18,306 | * | |||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps |
| 1,609,788 | * | Receivable/Payable for variation margin on centrally cleared swaps |
| 87,886 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
|
1,017,805 |
|
Unrealized depreciation on forward currency exchange contracts |
|
363,845 |
| ||||
Interest rate contracts | Unrealized appreciation on interest rate swaps |
| 21,624 |
| ||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps |
| 1,182,712 |
| ||||||||
Credit contracts | Unrealized appreciation on credit default swaps | 159,265 | Unrealized depreciation on credit default swaps | 386,346 | ||||||||
Equity contracts | Unrealized depreciation on variance swaps | 352 | ||||||||||
|
|
|
| |||||||||
Total | $ | 4,493,571 | $ | 1,265,329 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
abfunds.com | AB BOND INFLATION STRATEGY | 71 |
NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) on | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | 2,308,337 | $ | (359,980 | ) | ||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | (654,805 | ) | 695,940 | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (333,810 | ) | 2,576,170 | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 173,113 | 505,218 | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | – 0 | – | (352 | ) | |||||
|
|
|
| |||||||
Total | $ | 1,492,835 | $ | 3,416,996 | ||||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 48,558,673 | ||
Average original value of sale contracts | $ | 181,337,841 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 18,514,233 | ||
Average principal amount of sale contracts | $ | 54,465,471 | ||
Interest Rate Swaps: | ||||
Average notional amount | $ | 595,000 | ||
Inflation Swaps: | ||||
Average notional amount | $ | 56,530,000 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 122,316,433 |
72 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 10,572,000 | ||
Average notional amount of sale contracts | $ | 13,278,857 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 8,750,000 | (a) | |
Average notional amount of sale contracts | $ | 2,554,000 | (b) | |
Variance Swaps: | ||||
Average notional amount | $ | 880,977 | (b) |
(a) | Positions were open for 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 OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund as of April 30, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 34,673 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 34,673 | |||||||
Bank of America, NA | 595,984 | – 0 | – | – 0 | – | – 0 | – | 595,984 | ||||||||||||
Barclays Bank PLC | 633,847 | (1,009 | ) | – 0 | – | (614,380 | ) | 18,458 | ||||||||||||
BNP Paribas SA | 142,346 | – 0 | – | – 0 | – | – 0 | – | 142,346 | ||||||||||||
Citibank, NA | 25,916 | (25,916 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 36,238 | (36,238 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 135,876 | – 0 | – | – 0 | – | – 0 | – | 135,876 | ||||||||||||
JPMorgan Chase Bank, NA | 235,498 | (121,169 | ) | – 0 | – | – 0 | – | 114,329 | ||||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC/Morgan Stanley Capital Services, Inc. | 376,617 | (78,966 | ) | – 0 | – | – 0 | – | 297,651 | ||||||||||||
Standard Chartered Bank | 107 | (107 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 5,039 | (5,039 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 2,222,141 | $ | (268,444 | ) | $ | – 0 | – | $ | (614,380 | ) | $ | 1,339,317 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 73 |
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 | |||||||||||||||
Barclays Bank PLC | $ | 1,009 | $ | (1,009 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Citibank, NA | 145,327 | (25,916 | ) | – 0 | – | – 0 | – | 119,411 | ||||||||||||
Citigroup Global Markets, Inc. | 249,673 | – 0 | – | – 0 | – | (249,673 | ) | – 0 | – | |||||||||||
Credit Suisse International | 232,517 | – 0 | – | – 0 | – | (222,703 | ) | 9,814 | ||||||||||||
Deutsche Bank AG | 416,783 | (36,238 | ) | – 0 | – | (380,545 | ) | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 681,532 | – 0 | – | – 0 | – | (652,590 | ) | 28,942 | ||||||||||||
JPMorgan Chase Bank, NA | 121,169 | (121,169 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC/Morgan Stanley Capital Services, Inc. | 220,519 | (78,966 | ) | – 0 | – | – 0 | – | 141,553 | ||||||||||||
Royal Bank of Scotland PLC | 43,248 | – 0 | – | – 0 | – | 43,248 | ||||||||||||||
Standard Chartered Bank | 16,379 | (107 | ) | – 0 | – | – 0 | – | 16,272 | ||||||||||||
State Street Bank & Trust Co. | 18,407 | (5,039 | ) | – 0 | – | – 0 | – | 13,368 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 2,146,563 | $ | (268,444 | ) | $ | – 0 | – | $ | (1,505,511 | ) | $ | 372,608 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
See Note D.3 for additional disclosure of netting arrangements regarding reverse repurchase agreements.
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
74 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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. 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 such the return of such excess collateral may be delayed or denied. For the six months ended April 30, 2018, the average amount of reverse repurchase agreements outstanding was $156,570,401 and the daily weighted average interest rate was 1.54%. At April 30, 2018, the Fund had reverse repurchase agreements outstanding in the amount of $161,347,284 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, 2018:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged†* | Net Amount of RVP Liabilities | |||||||||
HSBC Bank USA | $ | 93,510,253 | $ | (93,470,025 | ) | $ | 40,228 | |||||
JPMorgan Chase Bank | 67,837,031 | (67,837,031 | ) | – 0 | – | |||||||
|
|
|
|
|
| |||||||
Total | $ | 161,347,284 | $ | (161,307,056 | ) | $ | 40,228 | |||||
|
|
|
|
|
|
† | Including accrued interest. |
* | The actual collateral pledged may be more than the amount reported due to overcollateralization. |
abfunds.com | AB BOND INFLATION STRATEGY | 75 |
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, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 2,954,234 | 2,481,469 | $ | 31,868,174 | $ | 26,845,725 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 16,162 | 35,592 | 174,546 | 385,023 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 4,730 | 49,291 | 50,853 | 535,791 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (508,742 | ) | (1,537,273 | ) | (5,482,049 | ) | (16,618,288 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,466,384 | 1,029,079 | $ | 26,611,524 | $ | 11,148,251 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 49,108 | 328,784 | $ | 516,372 | $ | 3,470,916 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,158 | 3,156 | 12,250 | 33,459 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (4,837 | ) | (50,356 | ) | (50,853 | ) | (535,791 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (44,093 | ) | (173,499 | ) | (465,341 | ) | (1,842,937 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,336 | 108,085 | $ | 12,428 | $ | 1,125,647 | ||||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 5,814,959 | 10,938,589 | $ | 62,770,566 | $ | 118,327,539 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 58,645 | 135,408 | 634,009 | 1,468,124 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,708,027 | ) | (3,825,785 | ) | (29,245,133 | ) | (41,472,690 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 3,165,577 | 7,248,212 | $ | 34,159,442 | $ | 78,322,973 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 122,429 | 481,679 | $ | 1,317,633 | $ | 5,202,527 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 2,561 | 750 | 27,616 | 8,105 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (66,023 | ) | (23,935 | ) | (709,806 | ) | (258,683 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 58,967 | 458,494 | $ | 635,443 | $ | 4,951,949 | ||||||||||||||||||
|
76 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 861,904 | 133,650 | $ | 9,249,181 | $ | 1,443,483 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,590 | 4,128 | 17,134 | 44,541 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (116,352 | ) | (90,288 | ) | (1,250,798 | ) | (972,679 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 747,142 | 47,490 | $ | 8,015,517 | $ | 515,345 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 160,945 | 80,147 | $ | 1,719,163 | $ | 861,654 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 756 | 953 | 8,092 | 10,229 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (12,680 | ) | (53,204 | ) | (135,188 | ) | (573,108 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 149,021 | 27,896 | $ | 1,592,067 | $ | 298,775 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 4,556,387 | 9,138,261 | $ | 48,493,902 | $ | 97,715,632 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 137,955 | 379,658 | 1,470,516 | 4,056,730 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,068,005 | ) | (4,826,214 | ) | (22,023,138 | ) | (51,530,783 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,626,337 | 4,691,705 | $ | 27,941,280 | $ | 50,241,579 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||
Shares sold | 1,269,935 | 3,117,939 | $ | 13,522,312 | $ | 33,181,588 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 28,788 | 92,146 | 306,615 | 984,648 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (924,437 | ) | (1,593,693 | ) | (9,837,576 | ) | (17,030,914 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 374,286 | 1,616,392 | $ | 3,991,351 | $ | 17,135,322 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 675,875 | 667,140 | $ | 7,216,894 | $ | 7,136,819 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 12,425 | 27,950 | 132,718 | 299,386 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (264,116 | ) | (270,196 | ) | (2,817,516 | ) | (2,903,183 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 424,184 | 424,894 | $ | 4,532,096 | $ | 4,533,022 | ||||||||||||||||||
|
NOTE F
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
abfunds.com | AB BOND INFLATION STRATEGY | 77 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Fund’s assets can decline as can the value of the Fund’s distributions. The risk is significantly greater for fixed-income securities with longer maturities. Although the Fund 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 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.
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 Fund’s investments or reduce its returns.
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
78 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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 go down.
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.
NOTE G
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, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 were as follows:
2017 | 2016 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 8,894,708 | $ | 7,812,213 | ||||
|
|
|
| |||||
Total taxable distributions | $ | 8,894,708 | $ | 7,812,213 | ||||
|
|
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital and other losses | $ | (10,706,541 | )(a) | |
Unrealized appreciation/(depreciation) | 2,646,407 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (8,060,134 | )(c) | |
|
|
(a) | At October 31, 2017, the Fund had a net capital loss carryforward of $10,706,541. During the fiscal year, the Fund utilized of $847,498 of capital loss carry forwards to offset current year net realized gains. |
(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 recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
(c) | Other differences between book-basis and tax-basis components of accumulated earnings/(deficit) are 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, 2017, the Fund had a net short-term capital loss carryforward of $3,041,617 and a net long-term capital loss carryforward of $7,664,924, which may be carried forward for an indefinite period.
NOTE I
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 J
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.
80 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.83 | $ 10.92 | $ 10.44 | $ 10.77 | $ 10.81 | $ 11.36 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .14 | .21 | .18 | .08 | .17 | .09 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.14 | ) | (.11 | ) | .51 | (.31 | ) | (.04 | ) | (.57 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | – 0 | – | .10 | .69 | (.23 | ) | .13 | (.48 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.06 | ) | (.19 | ) | (.21 | ) | (.10 | ) | (.17 | ) | (.07 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.06 | ) | (.19 | ) | (.21 | ) | (.10 | ) | (.17 | ) | (.07 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.77 | $ 10.83 | $ 10.92 | $ 10.44 | $ 10.77 | $ 10.81 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .01 | % | .91 | % | 6.63 | % | (2.18 | )% | 1.16 | % | (4.23 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $54,118 | $27,718 | $16,712 | $13,660 | $15,860 | $23,358 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.19 | %^ | 1.01 | % | .98 | % | .88 | % | .81 | % | .80 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.45 | %^ | 1.34 | % | 1.42 | % | 1.36 | % | 1.15 | % | 1.18 | % | ||||||||||||
Net investment income(b) | 2.69 | %^ | 1.95 | % | 1.71 | % | .75 | % | 1.57 | % | .80 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
abfunds.com | AB BOND INFLATION STRATEGY | 81 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.61 | $ 10.71 | $ 10.27 | $ 10.64 | $ 10.71 | $ 11.28 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .09 | .13 | .10 | .00 | (c) | .07 | .00 | (c) | ||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.14 | ) | (.11 | ) | .50 | (.31 | ) | (.01 | ) | (.56 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.05 | ) | .02 | .60 | (.31 | ) | .06 | (.56 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.04 | ) | (.12 | ) | (.16 | ) | (.06 | ) | (.13 | ) | (.01 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.04 | ) | (.12 | ) | (.16 | ) | (.06 | ) | (.13 | ) | (.01 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.52 | $ 10.61 | $ 10.71 | $ 10.27 | $ 10.64 | $ 10.71 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.43 | )% | .16 | % | 5.86 | % | (2.93 | )% | .50 | % | (4.98 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $3,612 | $3,627 | $2,505 | $2,679 | $3,596 | $5,845 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.93 | %^ | 1.76 | % | 1.72 | % | 1.58 | % | 1.51 | % | 1.51 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 2.20 | %^ | 2.09 | % | 2.16 | % | 2.07 | % | 1.86 | % | 1.86 | % | ||||||||||||
Net investment income(b) | 1.75 | %^ | 1.26 | % | .96 | % | .06 | % | .70 | % | .01 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
82 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.84 | $ 10.93 | $ 10.46 | $ 10.79 | $ 10.82 | $ 11.39 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .15 | .25 | .22 | .13 | .19 | .06 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.14 | ) | (.13 | ) | .49 | (.33 | ) | (.03 | ) | (.52 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .12 | .71 | (.20 | ) | .16 | (.46 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.07 | ) | (.21 | ) | (.24 | ) | (.13 | ) | (.19 | ) | (.11 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.07 | ) | (.21 | ) | (.24 | ) | (.13 | ) | (.19 | ) | (.11 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.78 | $ 10.84 | $ 10.93 | $ 10.46 | $ 10.79 | $ 10.82 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .10 | % | 1.15 | % | 6.87 | % | (1.90 | )% | 1.50 | % | (4.06 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $141,106 | $107,545 | $29,186 | $18,343 | $16,144 | $7,969 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .93 | %^ | .77 | % | .73 | % | .58 | % | .52 | % | .51 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.20 | %^ | 1.10 | % | 1.16 | % | 1.06 | % | .86 | % | .87 | % | ||||||||||||
Net investment income(b) | 2.88 | %^ | 2.31 | % | 2.04 | % | 1.23 | % | 1.77 | % | .54 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
abfunds.com | AB BOND INFLATION STRATEGY | 83 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.82 | $ 10.89 | $ 10.44 | $ 10.78 | $ 10.81 | $ 11.34 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss)(a)(b) | .12 | .21 | .29 | (.08 | ) | .14 | .06 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.14 | ) | (.12 | ) | .37 | (.19 | ) | (.02 | ) | (.57 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.02 | ) | .09 | .66 | (.27 | ) | .12 | (.51 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.16 | ) | (.21 | ) | (.07 | ) | (.15 | ) | (.02 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.05 | ) | (.16 | ) | (.21 | ) | (.07 | ) | (.15 | ) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.75 | $ 10.82 | $ 10.89 | $ 10.44 | $ 10.78 | $ 10.81 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.06 | )% | .80 | %† | 6.41 | % | (2.49 | )% | 1.10 | % | (4.51 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $5,964 | $5,364 | $408 | $20 | $230 | $209 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.43 | %^ | 1.29 | % | 1.24 | % | 1.06 | % | 1.01 | % | 1.01 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.81 | %^ | 1.67 | % | 1.71 | % | 1.50 | % | 1.40 | % | 1.44 | % | ||||||||||||
Net investment income (loss)(b) | 2.27 | %^ | 2.08 | % | 2.71 | % | (.68 | )% | 1.26 | % | .49 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
84 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.81 | $ 10.89 | $ 10.42 | $ 10.77 | $ 10.80 | $ 11.35 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .15 | .21 | .20 | .07 | .17 | .09 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.15 | ) | (.11 | ) | .49 | (.31 | ) | (.03 | ) | (.57 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | – 0 | – | .10 | .69 | (.24 | ) | .14 | (.48 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.06 | ) | (.18 | ) | (.22 | ) | (.11 | ) | (.17 | ) | (.07 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.06 | ) | (.18 | ) | (.22 | ) | (.11 | ) | (.17 | ) | (.07 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.75 | $ 10.81 | $ 10.89 | $ 10.42 | $ 10.77 | $ 10.80 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.01 | )% | .96 | % | 6.66 | % | (2.24 | )% | 1.31 | % | (4.26 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $10,918 | $2,903 | $2,409 | $1,616 | $2,219 | $1,981 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.21 | %^ | 1.01 | % | .98 | % | .83 | % | .76 | % | .76 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.56 | %^ | 1.37 | % | 1.36 | % | 1.17 | % | 1.07 | % | 1.12 | % | ||||||||||||
Net investment income(b) | 2.88 | %^ | 1.95 | % | 1.87 | % | .70 | % | 1.57 | % | .80 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
abfunds.com | AB BOND INFLATION STRATEGY | 85 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.74 | $ 10.84 | $ 10.38 | $ 10.73 | $ 10.77 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income (loss)(a)(b) | .17 | .24 | .22 | (.06 | ) | .22 | .10 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.16 | ) | (.12 | ) | .50 | (.14 | ) | (.06 | ) | (.55 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .12 | .72 | (.20 | ) | .16 | (.45 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.07 | ) | (.22 | ) | (.26 | ) | (.15 | ) | (.20 | ) | (.11 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.07 | ) | (.22 | ) | (.26 | ) | (.15 | ) | (.20 | ) | (.11 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.68 | $ 10.74 | $ 10.84 | $ 10.38 | $ 10.73 | $ 10.77 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .11 | % | 1.15 | % | 6.98 | % | (1.88 | )% | 1.52 | % | (4.00 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,229 | $642 | $345 | $265 | $841 | $2,631 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .95 | %^ | .76 | % | .72 | % | .57 | % | .51 | % | .50 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.21 | %^ | .99 | % | 1.03 | % | .76 | % | .69 | % | .83 | % | ||||||||||||
Net investment income (loss)(b) | 3.29 | %^ | 2.25 | % | 2.08 | % | (.50 | )% | 2.06 | % | 1.10 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
86 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.69 | $ 10.80 | $ 10.35 | $ 10.71 | $ 10.76 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .14 | .22 | .20 | .10 | .19 | .12 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.13 | ) | (.11 | ) | .51 | (.32 | ) | (.04 | ) | (.58 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .11 | .71 | (.22 | ) | .15 | (.46 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.07 | ) | (.22 | ) | (.26 | ) | (.14 | ) | (.20 | ) | (.11 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.07 | ) | (.22 | ) | (.26 | ) | (.14 | ) | (.20 | ) | (.11 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.63 | $ 10.69 | $ 10.80 | $ 10.35 | $ 10.71 | $ 10.76 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .10 | % | 1.01 | % | 6.89 | % | (2.04 | )% | 1.38 | % | (4.08 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $300,621 | $274,366 | $226,408 | $253,402 | $288,565 | $315,187 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.03 | %^ | .86 | % | .82 | % | .68 | % | .61 | % | .60 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.17 | %^ | 1.04 | % | 1.03 | % | .87 | % | .77 | % | .81 | % | ||||||||||||
Net investment income(b) | 2.67 | %^ | 2.10 | % | 1.86 | % | .98 | % | 1.75 | % | 1.05 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
abfunds.com | AB BOND INFLATION STRATEGY | 87 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.69 | $ 10.79 | $ 10.35 | $ 10.71 | $ 10.75 | $ 11.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .15 | .24 | .20 | .11 | .20 | .12 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.14 | ) | (.11 | ) | .51 | (.32 | ) | (.03 | ) | (.58 | ) | |||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .13 | .71 | (.21 | ) | .17 | (.46 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.08 | ) | (.23 | ) | (.27 | ) | (.15 | ) | (.21 | ) | (.12 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.08 | ) | (.23 | ) | (.27 | ) | (.15 | ) | (.21 | ) | (.12 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.62 | $ 10.69 | $ 10.79 | $ 10.35 | $ 10.71 | $ 10.75 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .05 | % | 1.21 | % | 6.92 | % | (1.95 | )% | 1.55 | % | (4.06 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $57,774 | $54,118 | $37,207 | $40,897 | $47,314 | $46,554 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .93 | %^ | .76 | % | .72 | % | .58 | % | .51 | % | .51 | % | ||||||||||||
Expenses, before waivers/reimbursements(e) | 1.07 | %^ | .94 | % | .93 | % | .77 | % | .67 | % | .71 | % | ||||||||||||
Net investment income(b) | 2.78 | %^ | 2.24 | % | 1.93 | % | 1.09 | % | 1.87 | % | 1.05 | % | ||||||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 41 | % | 51 | % | 77 | % | 93 | % |
See footnote summary on pages 89-90.
88 | 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 October 31, | December 11, 2014(f) to October 31, | ||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.72 | $ 10.82 | $ 10.38 | $ 10.62 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(a)(b) | .14 | .24 | .25 | .19 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.14 | ) | (.11 | ) | .46 | (.28 | ) | |||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | – 0 | – | .13 | .71 | (.09 | ) | ||||||||||
|
| |||||||||||||||
Less: Dividends | ||||||||||||||||
Dividends from net investment income | (.07 | ) | (.23 | ) | (.27 | ) | (.15 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.65 | $ 10.72 | $ 10.82 | $ 10.38 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | .05 | % | 1.19 | % | 6.89 | % | (.86 | )% | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $20,444 | $16,019 | $11,576 | $3,821 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .93 | %^ | .76 | % | .73 | % | .61 | %^ | ||||||||
Expenses, before waivers/reimbursements(e) | 1.08 | %^ | .94 | % | .95 | % | .84 | %^ | ||||||||
Net investment income(b) | 2.72 | %^ | 2.22 | % | 2.40 | % | 2.09 | %^ | ||||||||
Portfolio turnover rate** | 16 | % | 42 | % | 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. |
abfunds.com | AB BOND INFLATION STRATEGY | 89 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(e) | The expense ratios presented below exclude interest expense: |
Six Months Ended (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Net of waivers/reimbursements | .75 | %^ | .75 | % | .76 | % | .80 | % | .79 | % | .75 | % | ||||||||||||
Before waivers/reimbursements | 1.01 | %^ | 1.07 | % | 1.20 | % | 1.28 | % | 1.13 | % | 1.12 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Net of waivers/reimbursements | 1.50 | %^ | 1.50 | % | 1.50 | % | 1.50 | % | 1.48 | % | 1.45 | % | ||||||||||||
Before waivers/reimbursements | 1.77 | %^ | 1.82 | % | 1.94 | % | 1.99 | % | 1.84 | % | 1.81 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .50 | % | .49 | % | .45 | % | ||||||||||||
Before waivers/reimbursements | .76 | %^ | .83 | % | .93 | % | .98 | % | .84 | % | .82 | % | ||||||||||||
Class R | ||||||||||||||||||||||||
Net of waivers/reimbursements | 1.00 | %^ | 1.00 | % | 1.00 | % | 1.00 | % | .99 | % | .95 | % | ||||||||||||
Before waivers/reimbursements | 1.38 | %^ | 1.38 | % | 1.47 | % | 1.44 | % | 1.38 | % | 1.39 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Net of waivers/reimbursements | .75 | %^ | .75 | % | .75 | % | .75 | % | .74 | % | .70 | % | ||||||||||||
Before waivers/reimbursements | 1.10 | %^ | 1.10 | % | 1.13 | % | 1.09 | % | 1.05 | % | 1.06 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .50 | % | .49 | % | .45 | % | ||||||||||||
Before waivers/reimbursements | .75 | %^ | .72 | % | .81 | % | .69 | % | .67 | % | .78 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Net of waivers/reimbursements | .60 | %^ | .60 | % | .60 | % | .60 | % | .59 | % | .55 | % | ||||||||||||
Before waivers/reimbursements | .74 | %^ | .77 | % | .81 | % | .79 | % | .74 | % | .76 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .50 | % | .49 | % | .45 | % | ||||||||||||
Before waivers/reimbursements | .64 | %^ | .67 | % | .71 | % | .69 | % | .64 | % | .66 | % | ||||||||||||
Class Z(g) | ||||||||||||||||||||||||
Net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .50 | %^ | N/A | N/A | ||||||||||||||
Before waivers/reimbursements | .65 | %^ | .68 | % | .72 | % | .73 | %^ | N/A | N/A |
(f) | Commencement of distribution. |
(g) | Commenced distribution on December 11, 2014. |
** | The Fund accounts for dollar roll transactions as purchases and sales. |
† | 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 financial statements.
90 | AB BOND INFLATION STRATEGY | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Michael Canter(2), Vice President Shawn E. Keegan(2), Vice President Janaki Rao(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 Fund’s portfolio are made by the Adviser’s U.S. Core Fixed-Income Team. Messrs. Canter, Keegan, Rao and Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
abfunds.com | AB BOND INFLATION STRATEGY | 91 |
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 October 31-November 2, 2017 (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), who acted as their independent fee consultant, 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 review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the
92 | AB BOND INFLATION STRATEGY | abfunds.com |
investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The 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 2015 and 2016 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 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
abfunds.com | AB BOND INFLATION STRATEGY | 93 |
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 performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing 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, 2017 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 the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors 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 other 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 Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser 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.
94 | AB BOND INFLATION STRATEGY | 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 this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; (iv) must service, and be marketed to, retail investors and financial intermediaries; and (v) requires a larger sales support infrastructure. 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 the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s 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 BOND INFLATION STRATEGY | 95 |
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.
96 | AB BOND INFLATION STRATEGY | 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
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
abfunds.com | AB BOND INFLATION STRATEGY | 97 |
NOTES
98 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES
abfunds.com | AB BOND INFLATION STRATEGY | 99 |
NOTES
100 | AB BOND INFLATION STRATEGY | abfunds.com |
AB BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
BIS-0152-0418
APR 04.30.18
SEMI-ANNUAL REPORT
AB FLEXFEETM 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 FlexFee 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 FLEXFEE HIGH YIELD PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
June 13, 2018
This report provides management’s discussion of fund performance for AB FlexFee High Yield Portfolio (formerly AB High Yield Portfolio) for the semi-annual reporting period ended April 30, 2018.
Effective February 26, 2018, the Fund implemented a performance-based, or fulcrum, advisory fee. Accordingly, performance information shown prior to February 26, 2018 does not reflect performance fee adjustments and would have been different if the Fund had been managed under the performance (fulcrum) fee arrangement.
The Fund’s investment objective is to seek to maximize total return consistent with prudent investment management.
NAV RETURNS AS OF APRIL 30, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB FLEXFEE HIGH YIELD PORTFOLIO1 | ||||||||
Advisor Class Shares | 0.68% | 3.46% | ||||||
Primary benchmark:2 Markit iBoxx USD Liquid High Yield Index | -0.48% | 2.57% | ||||||
Bloomberg Barclays US Corporate HY 2% Issuer Capped Index | -0.17% | 3.27% |
1 | 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, 2018, by 0.00% and 0.02%, respectively. |
2 | Effective February 26, 2018, the broad-based index used for comparison with the Fund’s performance has changed from the Bloomberg Barclays US Corporate HY 2% Issuer Capped Index to the Markit iBoxx USD Liquid High Yield Index in connection with the implementation of a performance (fulcrum) fee arrangement for the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its primary benchmark, the Markit iBoxx USD Liquid High Yield Index, for the six- and 12-month periods ended April 30, 2018. The table also includes the Bloomberg Barclays US Corporate High Yield (“HY”) 2% Issuer Capped Index.
The Fund outperformed the primary benchmark for both periods. The Fund’s new advisory fee, which is performance-based, was being accrued at its mid-point rate. (The actual advisory fee payable by the Fund for its current performance period will be determined based on the Fund’s performance relative to the benchmark as of the end of such period, which runs from February 26, 2018 through December 31, 2018.) Due to the limited history against the new benchmark, performance attribution is discussed versus the prior primary benchmark, the Bloomberg Barclays US Corporate HY 2% Issuer Capped Index.
2 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
During the six-month period, the Fund outperformed the Bloomberg Barclays US Corporate HY 2% Issuer Capped Index. Industry allocation contributed to relative performance, mostly because of an overweight in the other finance sector. Security selection was also positive due to selections within the technology and energy sectors, while selections in other finance, media, consumer non-cyclicals and natural gas detracted. The Fund’s overall yield-curve positioning contributed, particularly its shorter-than-benchmark duration, which added to returns as rates rose over the period, though an overweight to the long end of the curve detracted.
During the 12-month period, the Fund outperformed the Bloomberg Barclays US Corporate HY 2% Issuer Capped Index. Yield-curve positioning contributed to performance. The Fund’s shorter duration added to returns as rates rose over the period, as did an underweight along the short and intermediate parts of the curve where rates rose the most. An overweight to 10- and 20-year maturities detracted. Industry allocation was positive, primarily due to an overweight in other finance. The Fund’s exposures to cash and treasuries detracted, as risk assets performed well in the period. Security selection was positive within the technology and basic industries sectors, while selection in media and other finance detracted.
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. Purchased swaptions were used in an effort to manage risk through synthetics across portfolios.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets were volatile during the six-month period. Emerging-market debt had mixed returns, with some segments of the market helped by increasing oil prices and an improving global growth story, while the rise in global rates weighed on others. Investment-grade credit and high-yield markets fell in the period, trailing the positive returns of emerging-market local-currency government bonds and developed-market treasuries. US, Canadian, Australian and German treasury yields rose, while the UK and Japanese curves flattened and treasury yields in other developed markets moved in different directions. The passage of US tax reform buoyed market sentiment, while in Europe, despite some formal progress on Brexit, investor anxiety increased around a bifurcated outlook for the negotiation process. The US Federal Reserve (the “Fed”) raised interest rates twice in the period, and began to formally reduce its balance
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 3 |
sheet, as universally anticipated by markets. The European Central Bank confirmed that its newly reduced pace of asset purchases would continue through September 2018, and further if necessary. At the end of the period, a severe spike in volatility shook a broad swath of capital markets. US Treasury yields rose dramatically, driven by higher inflation forecasts and expectations for continued rate increases from the Fed. Additionally, President Trump’s announcement of tariffs on Chinese imports weighed on capital markets worldwide, as investors feared the possible onset of a global trade war.
The Fund’s Senior Investment Management Team (the “Team”) continues to seek to maximize total return, utilizing a high-yield strategy with a global, multi-sector approach. The Team invests in corporate bonds from US and non-US issuers and government bonds from developed and emerging markets, primarily focusing on lower-rated bonds (but may also invest in investment-grade bonds).
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
4 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
(continued on next page)
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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 5 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Markit iBoxx USD Liquid High Yield Index and the Bloomberg Barclays US Corporate HY 2% Issuer Capped Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Markit iBoxx USD Liquid High Yield Index consists of liquid USD high-yield bonds, selected to provide a balanced representation of the broad USD high-yield corporate bond universe. The Bloomberg Barclays US Corporate HY 2% Issuer Capped Index is the 2% Issuer Capped component of the US Corporate HY 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.
6 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
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 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.
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.
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,
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 7 |
DISCLOSURES AND RISKS (continued)
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.
Performance information prior to July 26, 2016 shown in this report reflects the historical performance of the AB High Yield Portfolio, a series of the AB Pooling Portfolios (the “Accounting Survivor”), adjusted to reflect the expense ratio of Advisor Class shares of the Fund as of July 26, 2016. Upon completion of a reorganization of the Accounting Survivor into the Fund on July 26, 2016, the Fund assumed the performance and financial history of the Accounting Survivor. At the time of the reorganization, the Accounting Survivor and the Fund had substantially similar investment objectives and strategies.
Effective February 26, 2018, the Fund implemented a performance-based, or fulcrum, advisory fee. Accordingly, performance information shown prior to February 26, 2018 does not reflect performance fee adjustments and would have been different if the Fund had been managed under the performance (fulcrum) fee arrangement. Effective February 26, 2018, all previously offered shares of the Fund, including Class Z shares, were converted to Advisor Class shares.
All fees and expenses related to the operation of the Fund have been deducted. Performance assumes reinvestment of distributions and does not account for taxes.
8 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
ADVISOR CLASS SHARES2 | 4.25% | |||||||||||
1 Year | 3.46% | 3.46% | ||||||||||
5 Years | 4.80% | 4.80% | ||||||||||
10 Years | 8.40% | 8.40% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratio as 2.42% for Advisor Class shares, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratio exclusive of the Fund’s advisory fees, 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 0.10% for Advisor Class shares. These waivers/reimbursements may not be terminated before December 31, 2019. 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 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 ratio shown above may differ from the expense ratio 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, 2018. |
2 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 9 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2018 (unaudited)
SEC Returns (reflects applicable | ||||
ADVISOR CLASS SHARES | ||||
1 Year | 3.40% | |||
5 Years | 5.06% | |||
10 Years | 8.78% |
10 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
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 11/1/2017 | Ending Account Value 4/30/2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,006.80 | $ | 2.09 | 0.42 | % | $ | 2.14 | 0.43 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.71 | $ | 2.11 | 0.42 | % | $ | 2.16 | 0.43 | % |
* | 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). |
+ | In connection with the Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’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). |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 11 |
PORTFOLIO SUMMARY
April 30, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $27.9
1 | All data are as of April 30, 2018. 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). |
12 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – 71.7% | ||||||||||||
Industrial – 63.2% | ||||||||||||
Basic – 5.3% | ||||||||||||
AK Steel Corp. | U.S.$ | 13 | $ | 13,086 | ||||||||
Aleris International, Inc. | 12 | 12,350 | ||||||||||
Allegheny Technologies, Inc. | 12 | 12,211 | ||||||||||
ArcelorMittal | 22 | 23,116 | ||||||||||
7.00%, 3/01/41 | 46 | 52,631 | ||||||||||
7.25%, 10/15/39 | 91 | 107,811 | ||||||||||
Berry Global, Inc. | 8 | 8,069 | ||||||||||
CF Industries, Inc. | 10 | 8,373 | ||||||||||
5.375%, 3/15/44 | 22 | 19,164 | ||||||||||
7.125%, 5/01/20 | 14 | 14,918 | ||||||||||
Cleveland-Cliffs, Inc. | 28 | 27,018 | ||||||||||
Crown Americas LLC/Crown Americas Capital Corp. VI | 41 | �� | 39,568 | |||||||||
ERP Iron Ore, LLC | 7 | 7,003 | ||||||||||
Flex Acquisition Co., Inc. | 7 | 7,047 | ||||||||||
FMG Resources (August 2006) Pty Ltd. | 6 | 5,957 | ||||||||||
5.125%, 5/15/24(a) | 42 | 41,641 | ||||||||||
Freeport-McMoRan, Inc. | 28 | 27,647 | ||||||||||
3.55%, 3/01/22 | 123 | 119,110 | ||||||||||
3.875%, 3/15/23 | 31 | 30,067 | ||||||||||
5.45%, 3/15/43 | 25 | 22,653 | ||||||||||
Graphic Packaging International LLC | 26 | 26,394 | ||||||||||
Grinding Media, Inc./Moly-Cop AltaSteel Ltd. | 39 | 41,521 | ||||||||||
Hexion, Inc. | 71 | 66,651 | ||||||||||
Huntsman International LLC | 40 | 40,836 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Joseph T Ryerson & Son, Inc. | U.S.$ | 91 | $ | 100,450 | ||||||||
Lundin Mining Corp. | 10 | 10,721 | ||||||||||
Magnetation LLC/Mag Finance Corp. | 60 | 1 | ||||||||||
Momentive Performance Materials, Inc. | 57 | 60,127 | ||||||||||
8.875%, 10/15/20(b)(d)(f)(i) | 47 | – 0 | – | |||||||||
NOVA Chemicals Corp. | 5 | 5,015 | ||||||||||
Novelis Corp. | 8 | 7,948 | ||||||||||
Nufarm Australia Ltd./Nufarm Americas, Inc. | 20 | 19,915 | ||||||||||
Pactiv LLC | 41 | 45,642 | ||||||||||
Peabody Energy Corp. | 93 | – 0 | – | |||||||||
6.00%, 3/31/22(a) | 45 | 46,473 | ||||||||||
Plastipak Holdings, Inc. | 37 | 35,965 | ||||||||||
PQ Corp. | 8 | 7,931 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu | 35 | 35,168 | ||||||||||
Sealed Air Corp. | 33 | 33,555 | ||||||||||
6.875%, 7/15/33(a) | 70 | 77,975 | ||||||||||
SPCM SA | 58 | 56,389 | ||||||||||
Steel Dynamics, Inc. | 4 | 4,452 | ||||||||||
Teck Resources Ltd. | 36 | 33,950 | ||||||||||
5.40%, 2/01/43 | 32 | 31,067 | ||||||||||
8.50%, 6/01/24(a) | 4 | 4,547 | ||||||||||
United States Steel Corp. | 30 | 29,763 | ||||||||||
Valvoline, Inc. | 7 | 7,171 | ||||||||||
W.R. Grace & Co.-Conn | 18 | 18,526 | ||||||||||
5.625%, 10/01/24(a) | 24 | 25,255 | ||||||||||
|
| |||||||||||
1,472,848 | ||||||||||||
|
|
14 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Capital Goods – 2.8% | ||||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. | U.S.$ | 79 | $ | 78,237 | ||||||||
4.625%, 5/15/23(a) | 17 | 17,539 | ||||||||||
7.25%, 5/15/24(a) | 3 | 3,082 | ||||||||||
B456 Systems, Inc. | 21 | 1,603 | ||||||||||
Ball Corp. | 27 | 27,652 | ||||||||||
5.00%, 3/15/22 | 50 | 51,374 | ||||||||||
BBA US Holdings, Inc. | 11 | 11,047 | ||||||||||
Bombardier, Inc. | 183 | 183,705 | ||||||||||
6.00%, 10/15/22(a) | 35 | 34,939 | ||||||||||
6.125%, 1/15/23(a) | 5 | 5,033 | ||||||||||
8.75%, 12/01/21(a) | 7 | 7,900 | ||||||||||
Clean Harbors, Inc. | 52 | 51,936 | ||||||||||
5.25%, 8/01/20 | 4 | 4,262 | ||||||||||
Cleaver-Brooks, Inc. | 14 | 14,540 | ||||||||||
EnPro Industries, Inc. | 8 | 8,315 | ||||||||||
Gates Global LLC/Gates Global Co. | 5 | 4,835 | ||||||||||
GFL Environmental, Inc. | 50 | 49,522 | ||||||||||
9.875%, 2/01/21(a) | 25 | 26,589 | ||||||||||
Jefferson Smurfit Corp./US | 48 | – 0 | – | |||||||||
Jeld-Wen, Inc. | 6 | 5,770 | ||||||||||
4.875%, 12/15/27(a) | 8 | 7,582 | ||||||||||
KLX, Inc. | 29 | 30,008 | ||||||||||
Owens-Brockway Glass Container, Inc. | 20 | 19,807 | ||||||||||
RBS Global, Inc./Rexnord LLC | 57 | 55,185 | ||||||||||
Smurfit-Stone Container Enterprises, Inc. | 50 | – 0 | – | |||||||||
TransDigm, Inc. | 37 | 37,569 | ||||||||||
Triumph Group, Inc. | 8 | 7,758 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Waste Pro USA, Inc. | U.S.$ | 42 | $ | 41,573 | ||||||||
|
| |||||||||||
787,362 | ||||||||||||
|
| |||||||||||
Communications - Media – 8.4% | ||||||||||||
Altice Financing SA | 67 | 66,684 | ||||||||||
Altice France SA/France | 68 | 67,202 | ||||||||||
7.375%, 5/01/26(a) | 185 | 179,654 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 52 | 50,055 | ||||||||||
5.00%, 2/01/28(a) | 185 | 170,254 | ||||||||||
5.125%, 2/15/23 | 29 | 28,683 | ||||||||||
5.125%, 5/01/27(a) | 40 | 37,669 | ||||||||||
5.25%, 9/30/22 | 6 | 6,211 | ||||||||||
5.375%, 5/01/25(a) | 12 | 12,053 | ||||||||||
5.75%, 2/15/26(a) | 11 | 10,906 | ||||||||||
5.875%, 5/01/27(a) | 23 | 22,408 | ||||||||||
Clear Channel Worldwide Holdings, Inc. | 55 | 55,696 | ||||||||||
Series B | 89 | 91,120 | ||||||||||
7.625%, 3/15/20 | 14 | 14,035 | ||||||||||
CSC Holdings LLC | 200 | 187,183 | ||||||||||
6.625%, 10/15/25(a) | 3 | 2,698 | ||||||||||
6.75%, 11/15/21 | 51 | 53,680 | ||||||||||
7.625%, 7/15/18 | 50 | 50,539 | ||||||||||
10.125%, 1/15/23(a) | 97 | 107,588 | ||||||||||
DISH DBS Corp. | 12 | 10,110 | ||||||||||
5.875%, 7/15/22 | 109 | 100,333 | ||||||||||
6.75%, 6/01/21 | 92 | 91,741 | ||||||||||
7.75%, 7/01/26 | 66 | 60,139 | ||||||||||
Gray Television, Inc. | 8 | 7,716 | ||||||||||
iHeartCommunications, Inc. | 50 | 11,372 | ||||||||||
9.00%, 12/15/19(f)(g) | 75 | 60,166 | ||||||||||
11.25%, 3/01/21(a)(f)(g) | 10 | 8,142 | ||||||||||
McGraw-Hill Global Education Holdings LLC/McGraw-Hill Global Education Finance | 23 | 21,627 |
16 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Meredith Corp. | U.S.$ | 32 | $ | 32,395 | ||||||||
NAI Entertainment Holdings/NAI Entertainment Holdings Finance Corp. | 5 | 5,286 | ||||||||||
Netflix, Inc. | 33 | 31,098 | ||||||||||
5.875%, 11/15/28(a) | 65 | 64,854 | ||||||||||
Outfront Media Capital LLC/Outfront Media Capital Corp. | 8 | 8,166 | ||||||||||
Radiate Holdco LLC/Radiate Finance, Inc. | 17 | 16,216 | ||||||||||
6.875%, 2/15/23(a) | 17 | 16,466 | ||||||||||
RR Donnelley & Sons Co. | 29 | 30,185 | ||||||||||
Sinclair Television Group, Inc. | 9 | 8,337 | ||||||||||
5.625%, 8/01/24(a) | 5 | 4,931 | ||||||||||
6.125%, 10/01/22 | 17 | 17,417 | ||||||||||
Sirius XM Radio, Inc. | 14 | 13,605 | ||||||||||
4.625%, 5/15/23(a) | 6 | 5,921 | ||||||||||
6.00%, 7/15/24(a) | 125 | 128,462 | ||||||||||
TEGNA, Inc. | 25 | 25,660 | ||||||||||
6.375%, 10/15/23 | 38 | 39,282 | ||||||||||
Townsquare Media, Inc. | 43 | 39,922 | ||||||||||
Univision Communications, Inc. | 77 | 70,709 | ||||||||||
Urban One, Inc. | 37 | 36,165 | ||||||||||
9.25%, 2/15/20(a) | 37 | 35,081 | ||||||||||
Virgin Media Finance PLC | 2 | 2,281 | ||||||||||
Ziggo Bond Finance BV | 18 | 17,146 | ||||||||||
Ziggo Secured Finance BV | 110 | 103,830 | ||||||||||
|
| |||||||||||
2,339,079 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 6.9% | ||||||||||||
CenturyLink, Inc. | 36 | 37,282 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series T | U.S.$ | 39 | $ | 39,216 | ||||||
Embarq Corp. | 98 | 93,018 | ||||||||
Frontier Communications Corp. | 64 | 45,931 | ||||||||
7.625%, 4/15/24 | 55 | 36,011 | ||||||||
7.875%, 1/15/27 | 13 | 7,180 | ||||||||
8.75%, 4/15/22 | 56 | 46,925 | ||||||||
11.00%, 9/15/25 | 37 | 28,294 | ||||||||
GTT Communications, Inc. | 6 | 6,134 | ||||||||
Hughes Satellite Systems Corp. | 29 | 30,068 | ||||||||
6.625%, 8/01/26 | 21 | 21,097 | ||||||||
7.625%, 6/15/21 | 19 | 20,631 | ||||||||
Intelsat Jackson Holdings SA | 38 | 32,088 | ||||||||
7.25%, 10/15/20 | 122 | 118,859 | ||||||||
7.50%, 4/01/21 | 44 | 41,956 | ||||||||
8.00%, 2/15/24(a) | 10 | 10,759 | ||||||||
9.50%, 9/30/22(a) | 53 | 60,757 | ||||||||
9.75%, 7/15/25(a) | 56 | 54,959 | ||||||||
Intelsat Luxembourg SA | 42 | 28,476 | ||||||||
Level 3 Financing, Inc. | 60 | 59,471 | ||||||||
5.25%, 3/15/26 | 27 | 25,674 | ||||||||
5.375%, 1/15/24 | 50 | 49,397 | ||||||||
Level 3 Parent LLC | 8 | 7,580 | ||||||||
Qwest Corp. | 78 | 84,406 | ||||||||
6.875%, 9/15/33 | 11 | 10,478 | ||||||||
Sable International Finance Ltd. | 42 | 43,908 | ||||||||
SoftBank Group Corp. | 75 | 76,963 | ||||||||
Sprint Capital Corp. | 31 | 31,605 | ||||||||
8.75%, 3/15/32 | 102 | 117,136 | ||||||||
Sprint Communications, Inc. | 153 | 161,850 | ||||||||
Sprint Corp. | 35 | 36,864 | ||||||||
7.875%, 9/15/23 | 22 | 23,550 |
18 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
T-Mobile USA, Inc. | U.S.$ | 57 | $ | 54,839 | ||||||||
6.375%, 3/01/25 | 27 | 28,296 | ||||||||||
6.50%, 1/15/24-1/15/26 | 136 | 143,540 | ||||||||||
Telecom Italia Capital SA | 56 | 60,830 | ||||||||||
7.20%, 7/18/36 | 33 | 37,480 | ||||||||||
7.721%, 6/04/38 | 46 | 55,511 | ||||||||||
Uniti Group LP/Uniti Group Finance, Inc./CSL Capital LLC | 29 | 28,342 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc. | 38 | 37,590 | ||||||||||
|
| |||||||||||
1,934,951 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 1.7% | ||||||||||||
American Axle & Manufacturing, Inc. | 30 | 29,693 | ||||||||||
BCD Acquisition, Inc. | 69 | 75,198 | ||||||||||
Cooper-Standard Automotive, Inc. | 8 | 7,937 | ||||||||||
Dana Financing Luxembourg SARL | 12 | 12,238 | ||||||||||
Exide Technologies | 4 | 2,364 | ||||||||||
11.00% (11.00% Cash or 7.00% PIK), 4/30/22(b)(e)(h) | 45 | 39,963 | ||||||||||
Series AI | 90 | 56,692 | ||||||||||
Goodyear Tire & Rubber Co. (The) | 67 | 66,911 | ||||||||||
IHO Verwaltungs GmbH | 58 | 58,228 | ||||||||||
Meritor, Inc. | 8 | 8,231 | ||||||||||
Navistar International Corp. | 43 | 44,743 | ||||||||||
Tesla, Inc. | 9 | 7,977 | ||||||||||
Titan International, Inc. | 47 | 47,960 | ||||||||||
|
| |||||||||||
458,135 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Entertainment – 0.5% | ||||||||||||
AMC Entertainment Holdings, Inc. | U.S.$ | 13 | $ | 12,194 | ||||||||
5.875%, 11/15/26 | 10 | 9,736 | ||||||||||
National CineMedia LLC | 21 | 19,076 | ||||||||||
NCL Corp., Ltd. | 12 | 12,213 | ||||||||||
Silversea Cruise Finance Ltd. | 34 | 36,124 | ||||||||||
VOC Escrow Ltd. | 52 | 50,307 | ||||||||||
|
| |||||||||||
139,650 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 4.5% | ||||||||||||
Beazer Homes USA, Inc. | 5 | 4,673 | ||||||||||
5.875%, 10/15/27 | 16 | 14,643 | ||||||||||
6.75%, 3/15/25 | 34 | 33,646 | ||||||||||
8.75%, 3/15/22 | 18 | 19,016 | ||||||||||
Caesars Entertainment Corp. | 11 | 18,989 | ||||||||||
Diamond Resorts International, Inc. | 25 | 26,757 | ||||||||||
10.75%, 9/01/24(a) | 22 | 24,481 | ||||||||||
Five Point Operating Co. LP/Five Point Capital Corp. | 55 | 56,082 | ||||||||||
GLP Capital LP/GLP Financing II, Inc. | 6 | 5,889 | ||||||||||
4.875%, 11/01/20 | 8 | 7,743 | ||||||||||
5.375%, 11/01/23 | 7 | 7,528 | ||||||||||
Hilton Domestic Operating Co., Inc. | 30 | 29,957 | ||||||||||
K. Hovnanian Enterprises, Inc. | 43 | 38,439 | ||||||||||
10.00%, 7/15/22(a) | 22 | 23,624 | ||||||||||
10.50%, 7/15/24(a) | 7 | 7,150 | ||||||||||
KB Home | 22 | 23,641 | ||||||||||
7.50%, 9/15/22 | 10 | 11,131 | ||||||||||
8.00%, 3/15/20 | 6 | 6,235 | ||||||||||
Lennar Corp. | 103 | 102,961 | ||||||||||
4.50%, 11/15/19-4/30/24 | 103 | 102,517 | ||||||||||
6.25%, 12/15/21(a) | 23 | 23,972 | ||||||||||
8.375%, 1/15/21(a) | 20 | 22,143 |
20 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
MDC Holdings, Inc. | U.S.$ | 6 | $ | 5,949 | ||||||||
5.625%, 2/01/20 | 23 | 23,989 | ||||||||||
6.00%, 1/15/43 | 36 | 33,175 | ||||||||||
Meritage Homes Corp. | 29 | 32,268 | ||||||||||
MGM Resorts International | 26 | 27,191 | ||||||||||
6.75%, 10/01/20 | 25 | 26,565 | ||||||||||
7.75%, 3/15/22 | 24 | 26,639 | ||||||||||
8.625%, 2/01/19 | 45 | 46,922 | ||||||||||
Pinnacle Entertainment, Inc. | 8 | 7,885 | ||||||||||
PulteGroup, Inc. | 37 | 35,917 | ||||||||||
6.00%, 2/15/35 | 57 | 57,172 | ||||||||||
7.875%, 6/15/32 | 17 | 20,658 | ||||||||||
Scientific Games International, Inc. | 8 | 8,620 | ||||||||||
Shea Homes LP/Shea Homes Funding Corp. | 23 | 23,520 | ||||||||||
6.125%, 4/01/25(a) | 60 | 60,376 | ||||||||||
Standard Industries, Inc./NJ | 28 | 28,311 | ||||||||||
5.50%, 2/15/23(a) | 26 | 26,879 | ||||||||||
6.00%, 10/15/25(a) | 39 | 40,044 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 16 | 15,340 | ||||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 17 | 17,429 | ||||||||||
5.875%, 4/15/23(a) | 8 | 8,200 | ||||||||||
Toll Brothers Finance Corp. | 11 | 10,772 | ||||||||||
5.875%, 2/15/22 | 35 | 37,266 | ||||||||||
Wyndham Hotels & Resorts, Inc. | 25 | 25,240 | ||||||||||
|
| |||||||||||
1,257,544 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.2% | ||||||||||||
Golden Nugget, Inc. | 8 | 8,118 | ||||||||||
8.75%, 10/01/25(a) | 10 | 10,454 | ||||||||||
IRB Holding Corp. | 26 | 25,218 | ||||||||||
|
| |||||||||||
43,790 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Retailers – 1.2% | ||||||||||||
Dollar Tree, Inc. | U.S.$ | 26 | $ | 27,122 | ||||||||
FirstCash, Inc. | 7 | 7,106 | ||||||||||
Group 1 Automotive, Inc. | 9 | 8,935 | ||||||||||
JC Penney Corp., Inc. | 15 | 9,635 | ||||||||||
L Brands, Inc. | 21 | 19,734 | ||||||||||
5.625%, 2/15/22 | 12 | 12,451 | ||||||||||
6.875%, 11/01/35 | 114 | 108,429 | ||||||||||
7.00%, 5/01/20 | 44 | 46,349 | ||||||||||
Neiman Marcus Group Ltd. LLC | 24 | 16,327 | ||||||||||
Penske Automotive Group, Inc. | 14 | 13,952 | ||||||||||
5.75%, 10/01/22 | 14 | 14,351 | ||||||||||
PetSmart, Inc. | 30 | 17,360 | ||||||||||
Rite Aid Corp. | 13 | 13,224 | ||||||||||
Sonic Automotive, Inc. | 12 | 11,933 | ||||||||||
6.125%, 3/15/27 | 20 | 18,816 | ||||||||||
|
| |||||||||||
345,724 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 10.4% | ||||||||||||
Acadia Healthcare Co., Inc. | 30 | 30,310 | ||||||||||
Air Medical Group Holdings, Inc. | 34 | 32,934 | ||||||||||
Albertsons Cos. LLC/Safeway, Inc./New Albertson’s, Inc./Albertson’s LLC | 23 | 20,468 | ||||||||||
6.625%, 6/15/24 | 22 | 20,578 | ||||||||||
Avantor, Inc. | 18 | 18,209 | ||||||||||
Aveta, Inc. | 297 | – 0 | – | |||||||||
Avon Products, Inc. | 12 | 12,107 | ||||||||||
BI-LO LLC/BI-LO Finance Corp. | 43 | 25,375 | ||||||||||
9.25%, 2/15/19(a)(b)(f)(g) | 65 | 65,416 |
22 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Charles River Laboratories International, Inc. | U.S.$ | 10 | $ | 10,171 | ||||||
CHS/Community Health Systems, Inc. | 59 | 54,418 | ||||||||
6.25%, 3/31/23 | 13 | 11,873 | ||||||||
6.875%, 2/01/22 | 14 | 7,635 | ||||||||
7.125%, 7/15/20(m) | 208 | 165,523 | ||||||||
8.00%, 11/15/19 | 10 | 8,746 | ||||||||
DaVita, Inc. | 73 | 69,202 | ||||||||
5.75%, 8/15/22 | 14 | 14,320 | ||||||||
Dean Foods Co. | 7 | 6,713 | ||||||||
Eagle Holding Co. II LLC | 44 | 44,625 | ||||||||
Endo Finance LLC | 62 | 51,320 | ||||||||
Endo Finance LLC/Endo Finco, Inc. | 53 | 38,406 | ||||||||
Envision Healthcare Corp. | 43 | 42,425 | ||||||||
First Quality Finance Co., Inc. | 83 | 82,241 | ||||||||
Hadrian Merger Sub, Inc. | 40 | 40,097 | ||||||||
HCA, Inc. | 100 | 99,951 | ||||||||
4.25%, 10/15/19 | 142 | 143,473 | ||||||||
4.75%, 5/01/23 | 108 | 108,923 | ||||||||
5.875%, 2/15/26 | 54 | 54,713 | ||||||||
6.50%, 2/15/20 | 157 | 164,534 | ||||||||
Kinetic Concepts, Inc./KCI USA, Inc. | 66 | 68,042 | ||||||||
LifePoint Health, Inc. | 17 | 15,932 | ||||||||
5.50%, 12/01/21 | 40 | 40,336 | ||||||||
5.875%, 12/01/23 | 52 | 51,463 | ||||||||
Mallinckrodt International Finance SA | 27 | 19,153 | ||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 24 | 18,378 | ||||||||
5.625%, 10/15/23(a) | 32 | 25,222 | ||||||||
5.75%, 8/01/22(a) | 59 | 49,644 | ||||||||
MEDNAX, Inc. | 83 | 81,849 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Ortho-Clinical Diagnostics, Inc./Ortho-Clinical Diagnostics SA | U.S.$ | 14 | $ | 13,762 | ||||||||
Post Holdings, Inc. | 24 | 22,920 | ||||||||||
RegionalCare Hospital Partners Holdings, Inc. | 28 | 29,366 | ||||||||||
Spectrum Brands, Inc. | 29 | 29,002 | ||||||||||
6.625%, 11/15/22 | 51 | 52,537 | ||||||||||
Tenet Healthcare Corp. | 48 | 47,211 | ||||||||||
6.00%, 10/01/20 | 85 | 87,849 | ||||||||||
6.75%, 6/15/23 | 98 | 96,519 | ||||||||||
7.50%, 1/01/22(a) | 19 | 19,558 | ||||||||||
8.125%, 4/01/22 | 97 | 101,456 | ||||||||||
Valeant Pharmaceuticals International | 82 | 82,651 | ||||||||||
7.25%, 7/15/22(a) | 5 | 5,050 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 130 | 122,493 | ||||||||||
5.625%, 12/01/21(a) | 115 | 111,784 | ||||||||||
5.875%, 5/15/23(a) | 155 | 142,318 | ||||||||||
6.50%, 3/15/22(a) | 14 | 14,237 | ||||||||||
7.50%, 7/15/21(a) | 41 | 41,651 | ||||||||||
Vizient, Inc. | 66 | 72,770 | ||||||||||
|
| |||||||||||
2,907,859 | ||||||||||||
|
| |||||||||||
Energy – 14.1% | ||||||||||||
Alta Mesa Holdings LP/Alta Mesa Finance Services Corp. | 23 | 23,888 | ||||||||||
Antero Resources Corp. | 30 | 29,993 | ||||||||||
5.125%, 12/01/22 | 99 | 99,749 | ||||||||||
5.625%, 6/01/23 | 27 | 27,575 | ||||||||||
Berry Petroleum Co. LLC | 56 | – 0 | – | |||||||||
7.00%, 2/15/26(a) | 70 | 71,621 | ||||||||||
Bristow Group, Inc. | 82 | 84,144 | ||||||||||
California Resources Corp. | 19 | 15,225 | ||||||||||
6.00%, 11/15/24 | 5 | 3,599 | ||||||||||
8.00%, 12/15/22(a) | 103 | 88,453 | ||||||||||
Carrizo Oil & Gas, Inc. | 92 | 94,279 |
24 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
8.25%, 7/15/25 | U.S.$ | 8 | $ | 8,577 | ||||||
Cheniere Corpus Christi Holdings LLC | 74 | 75,727 | ||||||||
Cheniere Energy, Inc. | 28 | 28,173 | ||||||||
Chesapeake Energy Corp. | 37 | 35,572 | ||||||||
5.75%, 3/15/23 | 20 | 18,424 | ||||||||
6.125%, 2/15/21 | 68 | 68,761 | ||||||||
6.875%, 11/15/20 | 1 | 600 | ||||||||
8.00%, 12/15/22-6/15/27(a) | 86 | 82,890 | ||||||||
Covey Park Energy LLC/Covey Park Finance Corp. | 6 | 6,060 | ||||||||
DCP Midstream Operating LP | 35 | 35,658 | ||||||||
Denbury Resources, Inc. | 20 | 20,916 | ||||||||
9.25%, 3/31/22(a) | 42 | 43,822 | ||||||||
Diamond Offshore Drilling, Inc. | 68 | 49,277 | ||||||||
7.875%, 8/15/25 | 22 | 22,587 | ||||||||
Energy Transfer Equity LP | 87 | 84,033 | ||||||||
7.50%, 10/15/20 | 18 | 18,916 | ||||||||
Ensco PLC | 7 | 5,451 | ||||||||
5.20%, 3/15/25 | 136 | 111,731 | ||||||||
7.75%, 2/01/26 | 14 | 13,129 | ||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 8 | 4,091 | ||||||||
7.75%, 9/01/22 | 74 | 50,121 | ||||||||
8.00%, 2/15/25(a) | 12 | 8,222 | ||||||||
9.375%, 5/01/20 | 19 | 18,187 | ||||||||
9.375%, 5/01/24(a) | 67 | 51,252 | ||||||||
Genesis Energy LP/Genesis Energy Finance Corp. | 45 | 42,783 | ||||||||
6.25%, 5/15/26 | 36 | 34,356 | ||||||||
6.50%, 10/01/25 | 12 | 11,758 | ||||||||
6.75%, 8/01/22 | 12 | 12,225 | ||||||||
Gulfport Energy Corp. | 20 | 19,062 | ||||||||
6.375%, 5/15/25-1/15/26 | 79 | 75,565 | ||||||||
Hess Infrastructure Partners LP/Hess Infrastructure Partners Finance Corp. | 83 | 83,810 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
HighPoint Operating Corp. | U.S.$ | 62 | $ | 62,888 | ||||||
8.75%, 6/15/25 | 16 | 16,979 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co. | 7 | 6,820 | ||||||||
5.75%, 10/01/25(a) | 77 | 76,657 | ||||||||
Indigo Natural Resources LLC | 82 | 78,641 | ||||||||
Laredo Petroleum, Inc. | 22 | 22,281 | ||||||||
Murphy Oil Corp. | 26 | 25,530 | ||||||||
5.875%, 12/01/42 | 21 | 19,173 | ||||||||
Murphy Oil USA, Inc. | 2 | 2,325 | ||||||||
Nabors Industries, Inc. | 34 | 33,221 | ||||||||
5.00%, 9/15/20 | 9 | 9,073 | ||||||||
5.50%, 1/15/23 | 74 | 72,580 | ||||||||
Noble Holding International Ltd. | 10 | 6,731 | ||||||||
7.75%, 1/15/24 | 81 | 75,638 | ||||||||
7.95%, 4/01/25 | 20 | 17,785 | ||||||||
Oasis Petroleum, Inc. | 68 | 69,858 | ||||||||
Parkland Fuel Corp. | 67 | 67,427 | ||||||||
PBF Holding Co. LLC/PBF Finance Corp. | 13 | 13,515 | ||||||||
PDC Energy, Inc. | 33 | 33,244 | ||||||||
PHI, Inc. | 81 | 77,406 | ||||||||
Precision Drilling Corp. | 28 | 28,294 | ||||||||
QEP Resources, Inc. | 58 | 56,578 | ||||||||
5.375%, 10/01/22 | 34 | 33,846 | ||||||||
6.875%, 3/01/21 | 15 | 15,677 | ||||||||
Range Resources Corp. | 42 | 38,598 | ||||||||
5.00%, 8/15/22-3/15/23 | 116 | 113,258 | ||||||||
5.875%, 7/01/22 | 2 | 2,027 | ||||||||
Rowan Cos., Inc. | 10 | 8,575 | ||||||||
5.85%, 1/15/44 | 35 | 25,318 | ||||||||
7.375%, 6/15/25 | 52 | 50,303 |
26 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sable Permian Resources Land LLC/AEPB Finance Corp. | U.S.$ | 13 | $ | 9,505 | ||||||||
Sanchez Energy Corp. | 49 | 35,405 | ||||||||||
7.25%, 2/15/23(a) | 25 | 25,256 | ||||||||||
7.75%, 6/15/21 | 20 | 18,588 | ||||||||||
SandRidge Energy, Inc. | 29 | – 0 | – | |||||||||
8.125%, 10/15/22(b)(c)(d)(f) | 47 | – 0 | – | |||||||||
SemGroup Corp. | 16 | 15,258 | ||||||||||
7.25%, 3/15/26 | 24 | 23,769 | ||||||||||
SM Energy Co. | 25 | 23,822 | ||||||||||
6.125%, 11/15/22 | 31 | 31,332 | ||||||||||
6.50%, 11/15/21-1/01/23 | 86 | 87,094 | ||||||||||
Southern Star Central Corp. | 35 | 35,580 | ||||||||||
SRC Energy, Inc. | 23 | 23,320 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 69 | 66,960 | ||||||||||
5.875%, 3/15/28(a) | 52 | 50,508 | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 36 | 36,181 | ||||||||||
4.25%, 11/15/23 | 19 | 17,645 | ||||||||||
5.125%, 2/01/25 | 8 | 7,747 | ||||||||||
5.875%, 4/15/26(a) | 18 | 17,869 | ||||||||||
Transocean Phoenix 2 Ltd. | 43 | 46,631 | ||||||||||
Transocean, Inc. | 55 | 53,702 | ||||||||||
6.80%, 3/15/38 | 123 | 103,604 | ||||||||||
7.50%, 1/15/26(a) | 18 | 18,264 | ||||||||||
9.00%, 7/15/23(a) | 24 | 26,416 | ||||||||||
Vantage Drilling International | 46 | – 0 | – | |||||||||
10.00%, 12/31/20(b)(c) | 1 | 1,143 | ||||||||||
10.00%, 12/31/20(b)(h) | 1 | 856 | ||||||||||
Vine Oil & Gas LP/Vine Oil & Gas Finance Corp. | 49 | 46,127 | ||||||||||
Weatherford International LLC | 31 | 29,517 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Weatherford International Ltd. | U.S.$ | 10 | $ | 8,854 | ||||||||
5.875%, 7/01/21(k) | 35 | 33,328 | ||||||||||
7.75%, 6/15/21 | 66 | 65,344 | ||||||||||
9.875%, 2/15/24 | 38 | 36,491 | ||||||||||
Whiting Petroleum Corp. | 28 | 26,368 | ||||||||||
5.75%, 3/15/21 | 30 | 30,705 | ||||||||||
6.25%, 4/01/23 | 9 | 9,256 | ||||||||||
6.625%, 1/15/26(a) | 42 | 43,204 | ||||||||||
|
| |||||||||||
3,946,157 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.7% |
| |||||||||||
American Tire Distributors, Inc. | 82 | 43,603 | ||||||||||
Global Partners LP/GLP Finance Corp. | 85 | 84,258 | ||||||||||
7.00%, 6/15/23 | 20 | 19,854 | ||||||||||
H&E Equipment Services, Inc. | 12 | 12,054 | ||||||||||
Laureate Education, Inc. | 26 | 28,286 | ||||||||||
LKQ Corp. | 8 | 7,957 | ||||||||||
|
| |||||||||||
196,012 | ||||||||||||
|
| |||||||||||
Services – 2.0% |
| |||||||||||
ADT Corp. (The) | 37 | 34,896 | ||||||||||
APTIM Corp. | 35 | 30,517 | ||||||||||
APX Group, Inc. | 10 | 9,951 | ||||||||||
8.75%, 12/01/20 | 150 | 148,243 | ||||||||||
Aramark Services, Inc. | 44 | 43,278 | ||||||||||
5.125%, 1/15/24 | 7 | 6,816 | ||||||||||
Gartner, Inc. | 13 | 13,065 | ||||||||||
GEO Group, Inc. (The) | 18 | 17,587 | ||||||||||
5.875%, 1/15/22-10/15/24 | 42 | 43,026 | ||||||||||
6.00%, 4/15/26 | 8 | 7,892 | ||||||||||
Monitronics International, Inc. | 14 | 9,920 | ||||||||||
Nielsen Co. Luxembourg SARL (The) | 28 | 28,317 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co. | 30 | 30,192 |
28 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | U.S.$ | 59 | $ | 63,647 | ||||||||
Sabre GLBL, Inc. | 34 | 34,346 | ||||||||||
Team Health Holdings, Inc. | 47 | 40,783 | ||||||||||
|
| |||||||||||
562,476 | ||||||||||||
|
| |||||||||||
Technology – 3.2% |
| |||||||||||
Ascend Learning LLC | 17 | 17,291 | ||||||||||
BMC Software Finance, Inc. | 88 | 87,695 | ||||||||||
Boxer Parent Co., Inc. | 4 | 3,998 | ||||||||||
Conduent Finance, Inc./Conduent Business Services LLC | 71 | 84,121 | ||||||||||
CURO Financial Technologies Corp. | 37 | 40,905 | ||||||||||
Dell International LLC/EMC Corp. | 59 | 60,670 | ||||||||||
Dell, Inc. | 8 | 8,734 | ||||||||||
EMC Corp. | 91 | 91,043 | ||||||||||
First Data Corp. | 110 | 111,867 | ||||||||||
7.00%, 12/01/23(a) | 39 | 40,699 | ||||||||||
Genesys Telecommunications Laboratories, Inc./Greeneden Lux 3 SARL/Greeneden US Ho | 7 | 7,775 | ||||||||||
Goodman Networks, Inc. | 20 | 13,732 | ||||||||||
Harland Clarke Holdings Corp. | 18 | 18,567 | ||||||||||
Infor US, Inc. | 78 | 79,047 | ||||||||||
Ingram Micro, Inc. | 8 | 7,770 | ||||||||||
IQVIA Inc. | 27 | 27,421 | ||||||||||
Iron Mountain, Inc. | 20 | 20,416 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Nokia Oyj | U.S.$ | 16 | $ | 15,476 | ||||||||
6.625%, 5/15/39 | 14 | 14,880 | ||||||||||
Rackspace Hosting, Inc. | 13 | 13,187 | ||||||||||
Sanmina Corp. | 8 | 8,509 | ||||||||||
Solera LLC/Solera Finance, Inc. | 32 | 35,980 | ||||||||||
Symantec Corp. | 27 | 27,032 | ||||||||||
West Corp. | 15 | 14,512 | ||||||||||
Western Digital Corp. | 53 | 52,286 | ||||||||||
|
| |||||||||||
903,613 | ||||||||||||
|
| |||||||||||
Transportation - Services – 1.3% |
| |||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 5 | 4,786 | ||||||||||
5.50%, 4/01/23 | 8 | 8,080 | ||||||||||
CEVA Group PLC | 22 | 22,141 | ||||||||||
Herc Rentals, Inc. | 10 | 11,216 | ||||||||||
Hertz Corp. (The) | 25 | 20,976 | ||||||||||
5.875%, 10/15/20 | 11 | 10,890 | ||||||||||
7.375%, 1/15/21 | 90 | 89,246 | ||||||||||
7.625%, 6/01/22(a) | 7 | 7,133 | ||||||||||
Park Aerospace Holdings Ltd. | 15 | 14,363 | ||||||||||
5.25%, 8/15/22(a) | 30 | 29,902 | ||||||||||
United Rentals North America, Inc. | 66 | 68,122 | ||||||||||
XPO CNW, Inc. | 35 | 36,600 | ||||||||||
XPO Logistics, Inc. | 48 | 50,010 | ||||||||||
|
| |||||||||||
373,465 | ||||||||||||
|
| |||||||||||
17,668,665 | ||||||||||||
|
| |||||||||||
Financial Institutions – 6.4% |
| |||||||||||
Banking – 2.2% |
| |||||||||||
Ally Financial, Inc. | 22 | 22,057 | ||||||||||
4.125%, 3/30/20 | 19 | 19,310 |
30 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
4.75%, 9/10/18 | U.S.$ | 56 | $ | 56,252 | ||||||||
8.00%, 11/01/31 | 111 | 135,590 | ||||||||||
Bank of America Corp. | ||||||||||||
Series DD | 22 | 23,362 | ||||||||||
Series FF | 1 | 998 | ||||||||||
Series Z | 1 | 1,060 | ||||||||||
Barclays Bank PLC | 15 | 16,751 | ||||||||||
CIT Group, Inc. | 3 | 2,928 | ||||||||||
5.25%, 3/07/25 | 32 | 32,680 | ||||||||||
6.125%, 3/09/28 | 19 | 19,688 | ||||||||||
Goldman Sachs Group, Inc. (The) | 44 | 42,214 | ||||||||||
Royal Bank of Scotland Group PLC | EUR | 50 | 59,947 | |||||||||
8.625%, 8/15/21(l) | U.S.$ | 117 | 127,731 | |||||||||
Societe Generale SA | 31 | 34,933 | ||||||||||
SunTrust Banks, Inc. | 25 | 23,963 | ||||||||||
|
| |||||||||||
619,464 | ||||||||||||
|
| |||||||||||
Brokerage – 0.2% |
| |||||||||||
Lehman Brothers Holdings, Inc. | 423 | 13,761 | ||||||||||
LPL Holdings, Inc. | 58 | 56,389 | ||||||||||
|
| |||||||||||
70,150 | ||||||||||||
|
| |||||||||||
Finance – 2.2% |
| |||||||||||
Compass Diversified Holdings/Compass Group Diversified Holdings LLC | 45 | 44,661 | ||||||||||
Enova International, Inc. | 9 | 9,561 | ||||||||||
9.75%, 6/01/21 | 51 | 54,218 | ||||||||||
goeasy Ltd. | 13 | 13,823 | ||||||||||
Navient Corp. | 53 | 53,222 | ||||||||||
5.00%, 10/26/20 | 47 | 47,441 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.50%, 1/25/23 | U.S.$ | 54 | $ | 53,148 | ||||||||
5.875%, 3/25/21 | 1 | 597 | ||||||||||
6.50%, 6/15/22 | 70 | 72,293 | ||||||||||
7.25%, 1/25/22-9/25/23 | 32 | 33,498 | ||||||||||
8.00%, 3/25/20 | 86 | 91,183 | ||||||||||
SLM Corp. | 21 | 20,539 | ||||||||||
Springleaf Finance Corp. | 44 | 44,423 | ||||||||||
TMX Finance LLC/TitleMax Finance Corp. | 71 | 67,445 | ||||||||||
|
| |||||||||||
606,052 | ||||||||||||
|
| |||||||||||
Insurance – 0.9% |
| |||||||||||
Acrisure LLC/Acrisure Finance, Inc. | 10 | 9,441 | ||||||||||
Ambac Assurance Corp. | 2 | 2,669 | ||||||||||
Genworth Holdings, Inc. | 30 | 28,202 | ||||||||||
Liberty Mutual Group, Inc. | 61 | 73,976 | ||||||||||
Polaris Intermediate Corp. | 119 | 120,398 | ||||||||||
USIS Merger Sub, Inc. | 7 | 7,027 | ||||||||||
|
| |||||||||||
241,713 | ||||||||||||
|
| |||||||||||
Other Finance – 0.4% |
| |||||||||||
Creditcorp | 33 | 30,561 | ||||||||||
NVA Holdings, Inc./United States | 17 | 17,119 | ||||||||||
Oxford Finance LLC/Oxford Finance Co-Issuer II, Inc. | 6 | 6,148 | ||||||||||
Tempo Acquisition LLC/Tempo Acquisition Finance Corp. | 23 | 22,839 | ||||||||||
Travelport Corporate Finance PLC | 25 | 25,559 | ||||||||||
|
| |||||||||||
102,226 | ||||||||||||
|
| |||||||||||
REITS – 0.5% |
| |||||||||||
Iron Mountain, Inc. | 55 | 51,749 | ||||||||||
MPT Operating Partnership LP/MPT Finance Corp. | 7 | 6,633 |
32 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.25%, 8/01/26 | U.S.$ | 40 | $ | 38,445 | ||||||||
5.50%, 5/01/24 | 26 | 26,391 | ||||||||||
SBA Communications Corp. | 15 | 14,293 | ||||||||||
4.875%, 9/01/24 | 8 | 7,702 | ||||||||||
|
| |||||||||||
145,213 | ||||||||||||
|
| |||||||||||
1,784,818 | ||||||||||||
|
| |||||||||||
Utility – 2.1% |
| |||||||||||
Electric – 1.8% |
| |||||||||||
AES Corp./VA | 54 | 54,325 | ||||||||||
Calpine Corp. | 37 | 35,529 | ||||||||||
5.50%, 2/01/24 | 4 | 4,009 | ||||||||||
5.75%, 1/15/25 | 119 | 109,593 | ||||||||||
DPL, Inc. | 13 | 13,561 | ||||||||||
NRG Energy, Inc. | 12 | 12,278 | ||||||||||
6.625%, 1/15/27 | 21 | 21,605 | ||||||||||
Talen Energy Supply LLC | 53 | 45,251 | ||||||||||
6.50%, 6/01/25 | 32 | 23,041 | ||||||||||
10.50%, 1/15/26(a) | 36 | 31,451 | ||||||||||
Texas Competitive/TCEH | 59 | – 0 | – | |||||||||
Vistra Energy Corp. | 8 | 7,751 | ||||||||||
7.375%, 11/01/22 | 115 | 120,714 | ||||||||||
7.625%, 11/01/24 | 7 | 7,200 | ||||||||||
|
| |||||||||||
486,308 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.3% | ||||||||||||
NGL Energy Partners LP/NGL Energy Finance Corp. | 85 | 84,960 | ||||||||||
|
| |||||||||||
571,268 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 20,024,751 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 7.1% | ||||||||||||
Industrial – 4.0% | ||||||||||||
Basic – 0.5% | ||||||||||||
FMG Resources (August 2006) Pty Ltd. | 1 | 1,204 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Glencore Finance Canada Ltd. | U.S.$ | 5 | $ | 5,107 | ||||||||
Glencore Funding LLC | 5 | 4,816 | ||||||||||
Monsanto Co. | 56 | 54,408 | ||||||||||
Southern Copper Corp. | 69 | 68,554 | ||||||||||
|
| |||||||||||
134,089 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.6% | ||||||||||||
CNH Industrial Capital LLC | 26 | 25,702 | ||||||||||
4.375%, 4/05/22 | 33 | 33,686 | ||||||||||
Embraer Netherlands Finance BV | 40 | 42,216 | ||||||||||
General Electric Co. | 40 | 39,700 | ||||||||||
Masco Corp. | 13 | 14,530 | ||||||||||
7.125%, 3/15/20 | 1 | 791 | ||||||||||
|
| |||||||||||
156,625 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
AT&T, Inc. | 29 | 29,314 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.4% | ||||||||||||
General Motors Financial Co., Inc. | EUR | 100 | 120,511 | |||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.2% | ||||||||||||
DR Horton, Inc. | U.S.$ | 44 | 44,882 | |||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
Anheuser-Busch InBev Finance, Inc. | 28 | 27,271 | ||||||||||
CVS Health Corp. | 18 | 17,936 | ||||||||||
4.30%, 3/25/28 | 55 | 54,400 | ||||||||||
|
| |||||||||||
99,607 | ||||||||||||
|
| |||||||||||
Energy – 1.4% | ||||||||||||
Andeavor Logistics LP/Tesoro Logistics Finance Corp. | 8 | 8,348 |
34 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Cenovus Energy, Inc. | U.S.$ | 59 | $ | 56,711 | ||||||||
4.45%, 9/15/42 | 31 | 26,930 | ||||||||||
6.75%, 11/15/39 | 1 | 1,656 | ||||||||||
Continental Resources, Inc./OK | 12 | 12,091 | ||||||||||
4.90%, 6/01/44 | 35 | 34,640 | ||||||||||
5.00%, 9/15/22 | 18 | 18,298 | ||||||||||
Ecopetrol SA | 15 | 14,630 | ||||||||||
Enable Midstream Partners LP | 36 | 34,817 | ||||||||||
Energy Transfer Partners LP | 30 | 29,055 | ||||||||||
Hess Corp. | 42 | 40,725 | ||||||||||
Kinder Morgan, Inc./DE | 11 | 14,160 | ||||||||||
Marathon Oil Corp. | 34 | 40,158 | ||||||||||
Marathon Petroleum Corp. | 43 | 42,502 | ||||||||||
|
| |||||||||||
374,721 | ||||||||||||
|
| |||||||||||
Services – 0.2% | ||||||||||||
Expedia Group, Inc. | 30 | 27,336 | ||||||||||
IHS Markit Ltd. | 24 | 24,951 | ||||||||||
|
| |||||||||||
52,287 | ||||||||||||
|
| |||||||||||
Technology – 0.3% | ||||||||||||
Agilent Technologies, Inc. | 42 | 42,259 | ||||||||||
Seagate HDD Cayman | 28 | 27,138 | ||||||||||
4.875%, 6/01/27 | 5 | 4,286 | ||||||||||
Xerox Corp. | 18 | 17,462 | ||||||||||
|
| |||||||||||
91,145 | ||||||||||||
|
| |||||||||||
1,103,181 | ||||||||||||
|
| |||||||||||
Financial Institutions – 3.1% | ||||||||||||
Banking – 1.7% | ||||||||||||
Bank of America Corp. | 27 | 27,349 | ||||||||||
BNP Paribas SA | 58 | 62,603 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BPCE SA | U.S.$ | 82 | $ | 87,401 | ||||||||
Countrywide Capital III | 46 | 57,477 | ||||||||||
Goldman Sachs Group, Inc. (The) | EUR | 57 | 72,549 | |||||||||
Morgan Stanley | U.S.$ | 39 | 40,436 | |||||||||
Santander Holdings USA, Inc. | 28 | 27,374 | ||||||||||
Standard Chartered PLC | 58 | 57,203 | ||||||||||
US Bancorp | 17 | 17,693 | ||||||||||
Zions Bancorporation | 14 | 14,184 | ||||||||||
|
| |||||||||||
464,269 | ||||||||||||
|
| |||||||||||
Brokerage – 0.1% | ||||||||||||
GFI Group, Inc. | 34 | 34,251 | ||||||||||
|
| |||||||||||
Insurance – 1.1% | ||||||||||||
ACE Capital Trust II | 20 | 28,823 | ||||||||||
Allstate Corp. (The) | 10 | 11,932 | ||||||||||
American International Group, Inc. | 40 | 40,207 | ||||||||||
Berkshire Hathaway, Inc. | EUR | 100 | 121,628 | |||||||||
Nationwide Mutual Insurance Co. | U.S.$ | 31 | 48,685 | |||||||||
Prudential Financial, Inc. | 70 | 73,013 | ||||||||||
|
| |||||||||||
324,288 | ||||||||||||
|
| |||||||||||
REITS – 0.2% | ||||||||||||
Sabra Health Care LP/Sabra Capital Corp. | 31 | 31,668 | ||||||||||
Senior Housing Properties Trust | 9 | 9,351 | ||||||||||
Spirit Realty LP | 6 | 5,743 | ||||||||||
|
| |||||||||||
46,762 | ||||||||||||
|
| |||||||||||
869,570 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 1,972,751 | |||||||||||
|
|
36 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BANK LOANS – 2.5% | ||||||||||||
Industrial – 2.5% | ||||||||||||
Basic – 0.1% | ||||||||||||
Foresight Energy LLC | U.S.$ | 12 | $ | 11,798 | ||||||||
Unifrax I LLC | 11 | 11,214 | ||||||||||
|
| |||||||||||
23,012 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.4% | ||||||||||||
Accudyne Industries Borrower S.C.A. / Accudyne Industries, LLC (fka Silver II US Holdings, LLC) | 20 | 20,304 | ||||||||||
Apex Tool Group, LLC | 61 | 61,525 | ||||||||||
Gardner Denver, Inc. | 19 | 18,930 | ||||||||||
HD Supply Waterworks, LTD. | 2 | 2,337 | ||||||||||
5.21% (LIBOR 6 Month + 3.00%), 8/01/24(b)(o) | 3 | 2,663 | ||||||||||
|
| |||||||||||
105,759 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.2% | ||||||||||||
Intelsat Jackson Holdings S.A. | 4 | 3,882 | ||||||||||
6.63%, 1/02/24 | 6 | 6,396 | ||||||||||
West Corp. | 30 | 30,002 | ||||||||||
|
| |||||||||||
40,280 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Navistar, Inc. | 10 | 9,769 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.1% | ||||||||||||
Seaworld Parks & Entertainment, Inc. (fka SW Acquisitions Co., Inc.) | 25 | 24,877 | ||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||||
Caesars Resort Collection, LLC (fka Caesars Growth Properties Holdings, LLC) | U.S.$ | 39 | $ | 39,036 | ||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.0% | ||||||||||||
IRB Holding Corp. (fka Arby’s/Buffalo Wild Wings) | 3 | 2,807 | ||||||||||
5.248% (LIBOR 2 Month + 3.25%), 2/05/25(o) | 3 | 3,509 | ||||||||||
|
| |||||||||||
6,316 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||||
J.C. Penney Corp., Inc. | 30 | 28,815 | ||||||||||
Serta Simmons Bedding, LLC | 49 | 38,585 | ||||||||||
|
| |||||||||||
67,400 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.4% | ||||||||||||
Air Medical Group Holdings, Inc. 5.13% (LIBOR 1 Month + 3.25%), 4/28/22(o) | 21 | 21,596 | ||||||||||
6.15% (LIBOR 1 Month + 4.25%), 3/14/25(o) | 16 | 16,427 | ||||||||||
Alphabet Holding Company, Inc. (fka Nature’s Bounty) | 54 | 41,940 | ||||||||||
Avantor, Inc. | 23 | 23,262 | ||||||||||
Post Holdings, Inc. | 12 | 12,441 | ||||||||||
Vizient, Inc. | 1 | 652 | ||||||||||
|
| |||||||||||
116,318 | ||||||||||||
|
| |||||||||||
Energy – 0.2% | ||||||||||||
California Resources Corporation | 46 | 51,960 | ||||||||||
|
|
38 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Other Industrial – 0.2% | ||||||||||||
American Tire Distributors, Inc. | U.S.$ | 40 | $ | 34,833 | ||||||||
Travelport Finance (Luxembourg) S.Ã r.l. | 23 | 22,924 | ||||||||||
|
| |||||||||||
57,757 | ||||||||||||
|
| |||||||||||
Services – 0.3% | ||||||||||||
Monitronics International, Inc. | 70 | 67,466 | ||||||||||
|
| |||||||||||
Technology – 0.3% | ||||||||||||
Conduent Incorporated | 5 | 4,916 | ||||||||||
MTS Systems Corporation | 24 | 24,296 | ||||||||||
Solera, LLC (Solera Finance, Inc.) | 60 | 59,752 | ||||||||||
|
| |||||||||||
88,964 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 698,914 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 1.9% | ||||||||||||
Energy – 0.6% | ||||||||||||
Energy Equipment & Services – 0.0% | ||||||||||||
Weatherford International PLC(f) | 2,097 | 6,186 | ||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels – 0.6% | ||||||||||||
Berry Petroleum Corp.(b)(c)(f) | 2,202 | 20,067 | ||||||||||
Carrizo Oil & Gas, Inc.(f) | 405 | 8,128 | ||||||||||
CHC Group LLC(f)(i) | 1,219 | 8,838 | ||||||||||
Chesapeake Energy Corp.(f) | 1,523 | 4,523 | ||||||||||
Denbury Resources, Inc.(f) | 3,999 | 13,157 | ||||||||||
EP Energy Corp. – Class A(f) | 2,501 | 4,602 | ||||||||||
Halcon Resources Corp.(f) | 276 | 1,482 | ||||||||||
K201640219 (South Africa) Ltd. A Shares(b)(c)(d)(f) | 191,574 | – 0 | – | |||||||||
K201640219 (South Africa) Ltd. B Shares(b)(c)(d)(f) | 30,276 | – 0 | – | |||||||||
Linn Energy, Inc.(f) | 88 | 3,450 | ||||||||||
Oasis Petroleum, Inc.(f) | 972 | 10,721 | ||||||||||
Paragon Offshore Ltd. – Class A(b)(c)(f) | 267 | 280 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Paragon Offshore Ltd. – Class B(b)(c)(f) | 401 | $ | 11,779 | |||||||||
Peabody Energy Corp. | 533 | 19,641 | ||||||||||
SandRidge Energy, Inc.(f) | 578 | 8,404 | ||||||||||
Tervita Corp.(b)(c)(f) | 599 | 4,455 | ||||||||||
Triangle Petroleum Corp.(f) | 3,047 | 140 | ||||||||||
Vantage Drilling International(b)(c)(f) | 82 | 18,143 | ||||||||||
Whiting Petroleum Corp.(f) | 411 | 16,777 | ||||||||||
|
| |||||||||||
154,587 | ||||||||||||
|
| |||||||||||
160,773 | ||||||||||||
|
| |||||||||||
Consumer Discretionary – 0.5% |
| |||||||||||
Auto Components – 0.0% |
| |||||||||||
Exide Technologies(b)(d)(f)(i) | 1,793 | 3,927 | ||||||||||
|
| |||||||||||
Diversified Consumer Services – 0.1% |
| |||||||||||
Ascent Capital Group, Inc. – Class A(f) | 539 | 1,865 | ||||||||||
Laureate Education, Inc. – Class A(f) | 1,354 | 19,118 | ||||||||||
|
| |||||||||||
20,983 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure – 0.3% |
| |||||||||||
Caesars Entertainment Corp.(f) | 2,258 | 25,628 | ||||||||||
eDreams ODIGEO SA(f) | 10,349 | 47,310 | ||||||||||
|
| |||||||||||
72,938 | ||||||||||||
|
| |||||||||||
Household Durables – 0.0% |
| |||||||||||
Hovnanian Enterprises, Inc. – Class A(f) | 3,276 | 6,585 | ||||||||||
|
| |||||||||||
Internet & Direct Marketing Retail – 0.0% |
| |||||||||||
Travelport Worldwide Ltd. | 220 | 3,771 | ||||||||||
|
| |||||||||||
Media – 0.1% |
| |||||||||||
Clear Channel Outdoor Holdings, Inc. – Class A | 3,060 | 14,688 | ||||||||||
DISH Network Corp. – Class A(f) | 100 | 3,355 | ||||||||||
Gray Television, Inc.(f) | 483 | 5,458 | ||||||||||
Nexstar Media Group, Inc. – Class A | 151 | 9,399 | ||||||||||
Townsquare Media, Inc. – Class A | 598 | 4,557 | ||||||||||
|
| |||||||||||
37,457 | ||||||||||||
|
| |||||||||||
145,661 | ||||||||||||
|
| |||||||||||
Information Technology – 0.2% |
| |||||||||||
Internet Software & Services – 0.2% |
| |||||||||||
Avaya Holdings Corp.(f) | 2,503 | 57,294 | ||||||||||
|
| |||||||||||
IT Services – 0.0% | ||||||||||||
Goodman Networks, Inc.(b)(c)(d)(f) | 1,236 | – 0 | – | |||||||||
|
| |||||||||||
57,294 | ||||||||||||
|
|
40 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Materials – 0.2% | ||||||||||||
Metals & Mining – 0.2% | ||||||||||||
BIS Industries Holdings Ltd.(b)(c)(d)(f) | 21,027 | $ | 2,103 | |||||||||
Constellium NV – Class A(f) | 1,662 | 18,864 | ||||||||||
Neenah Enterprises, Inc.(b)(c)(d)(f) | 4,481 | 25,183 | ||||||||||
|
| |||||||||||
46,150 | ||||||||||||
|
| |||||||||||
Industrials – 0.2% | ||||||||||||
Machinery – 0.2% | ||||||||||||
Modular Space Corp.(b)(f)(h) | 2,407 | 40,919 | ||||||||||
|
| |||||||||||
Trading Companies & | ||||||||||||
Emeco Holdings Ltd.(b)(c)(d)(f) | 5,341 | 1,126 | ||||||||||
|
| |||||||||||
42,045 | ||||||||||||
|
| |||||||||||
Financials – 0.1% | ||||||||||||
Diversified Financial Services – 0.1% | ||||||||||||
iPayment, Inc.(b)(c)(d)(f) | 59,949 | 41,964 | ||||||||||
|
| |||||||||||
Health Care – 0.1% | ||||||||||||
Health Care Providers & Services – 0.1% | ||||||||||||
Community Health Systems, Inc.(f) | 2,078 | 7,855 | ||||||||||
LifePoint Health, Inc.(f) | 138 | 6,610 | ||||||||||
|
| |||||||||||
14,465 | ||||||||||||
|
| |||||||||||
Pharmaceuticals – 0.0% | ||||||||||||
Endo International PLC(f) | 614 | 3,518 | ||||||||||
Horizon Pharma PLC(f) | 196 | 2,595 | ||||||||||
|
| |||||||||||
6,113 | ||||||||||||
|
| |||||||||||
20,578 | ||||||||||||
|
| |||||||||||
Telecommunication Services – 0.0% | ||||||||||||
Wireless Telecommunication | ||||||||||||
T-Mobile US, Inc.(f) | 150 | 9,076 | ||||||||||
|
| |||||||||||
Total Common Stocks | 523,541 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
EMERGING MARKETS – CORPORATE BONDS – 1.3% | ||||||||||||
Industrial – 1.2% | ||||||||||||
Basic – 0.3% | ||||||||||||
First Quantum Minerals Ltd. | U.S.$ | 13 | 13,450 | |||||||||
7.25%, 4/01/23(a) | 58 | 58,028 | ||||||||||
|
| |||||||||||
71,478 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
Digicel Ltd. | U.S.$ | 36 | $ | 33,283 | ||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||||
Edcon Ltd. | EUR | 1 | – 0 | – | ||||||||
K2016470219 South Africa Ltd. | U.S.$ | 15 | 548 | |||||||||
K2016470260 South Africa Ltd. | 4 | 1,536 | ||||||||||
|
| |||||||||||
2,084 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
Arcelik AS | 29 | 27,450 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 38 | 37,368 | ||||||||||
2.80%, 7/21/23 | 9 | 7,527 | ||||||||||
3.15%, 10/01/26 | 13 | 10,368 | ||||||||||
Tonon Luxembourg SA | 6 | 272 | ||||||||||
Virgolino de Oliveira Finance SA | 96 | 6,088 | ||||||||||
|
| |||||||||||
89,073 | ||||||||||||
|
| |||||||||||
Energy – 0.5% | ||||||||||||
CHC Group LLC/CHC Finance Ltd. | 65 | 70,384 | ||||||||||
Petrobras Global Finance BV | 27 | 26,348 | ||||||||||
6.25%, 3/17/24 | 35 | 36,627 | ||||||||||
|
| |||||||||||
133,359 | ||||||||||||
|
| |||||||||||
Transportation - Airlines – 0.0% | ||||||||||||
Guanay Finance Ltd. | 6 | 5,987 | ||||||||||
|
| |||||||||||
335,264 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Terraform Global Operating LLC | 12 | 12,153 | ||||||||||
|
|
42 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Financial Institutions – 0.0% | ||||||||||||
Insurance – 0.0% | ||||||||||||
Ambac LSNI LLC | U.S.$ | 10 | $ | 9,802 | ||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 357,219 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 1.3% | ||||||||||||
Industrial – 1.0% | ||||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. | 490 | 3,190 | ||||||||||
|
| |||||||||||
Energy – 0.8% | ||||||||||||
Berry Petroleum Co. LLC | 1,913 | 21,043 | ||||||||||
Sanchez Energy Corp. | 962 | 13,275 | ||||||||||
Sanchez Energy Corp. | 300 | 5,040 | ||||||||||
Tervita Corp. | 24,991 | 185,883 | ||||||||||
|
| |||||||||||
225,241 | ||||||||||||
|
| |||||||||||
Services – 0.2% | ||||||||||||
iPayment, Inc. | 440 | 44,000 | ||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
Goodman Networks, Inc. | 1,470 | 5,880 | ||||||||||
|
| |||||||||||
278,311 | ||||||||||||
|
| |||||||||||
Utility – 0.3% | ||||||||||||
Electric – 0.3% | ||||||||||||
SCE Trust III | 423 | 11,188 | ||||||||||
Vistra Energy Corp. | 600 | 56,160 | ||||||||||
|
| |||||||||||
67,348 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Financial Institutions – 0.0% | ||||||||||||
Banking – 0.0% | ||||||||||||
GMAC Capital Trust I | 357 | $ | 9,493 | |||||||||
|
| |||||||||||
Total Preferred Stocks | 355,152 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
ASSET-BACKED SECURITIES – 1.1% | ||||||||||||
Other ABS - Fixed Rate – 0.6% | ||||||||||||
DB Master Finance LLC | U.S.$ | 58 | 56,781 | |||||||||
Taco Bell Funding LLC | 16 | 16,434 | ||||||||||
Series 2016-1A, Class A2I | 29 | 28,895 | ||||||||||
Wendy’s Funding LLC | 71 | 68,985 | ||||||||||
|
| |||||||||||
171,095 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.4% | ||||||||||||
CWABS Asset-Backed Certificates Trust | 57 | 56,549 | ||||||||||
GSAA Home Equity Trust | 77 | 39,117 | ||||||||||
|
| |||||||||||
95,666 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Floating Rate – 0.1% | ||||||||||||
Lehman XS Trust | 28 | 27,808 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 294,569 | |||||||||||
|
|
44 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 0.9% | ||||||||||||
Risk Share Floating Rate – 0.9% | ||||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | U.S.$ | 15 | $ | 17,760 | ||||||||
Series 2013-DN2, Class M2 | 52 | 57,212 | ||||||||||
Series 2014-DN1, Class M3 | 36 | 42,528 | ||||||||||
Series 2014-HQ2, Class M3 | 54 | 62,102 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 15 | 16,905 | ||||||||||
Series 2014-C01, Class M2 | 27 | 30,806 | ||||||||||
Series 2015-C03, Class 1M2 | 6 | 6,709 | ||||||||||
Series 2015-C03, Class 2M2 | 2 | 2,651 | ||||||||||
|
| |||||||||||
236,673 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.0% | ||||||||||||
Alternative Loan Trust | 6 | 4,820 | ||||||||||
CSMC Mortgage-Backed Trust | 7 | 5,995 | ||||||||||
|
| |||||||||||
10,815 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 247,488 | |||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – TREASURIES – 0.6% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentine Bonos del Tesoro | ARS | 979 | $ | 43,776 | ||||||||
|
| |||||||||||
Brazil – 0.4% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 365 | 107,836 | |||||||||
|
| |||||||||||
South Africa – 0.1% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 283 | 22,769 | |||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 174,381 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 0.5% | ||||||||||||
Mexico – 0.3% | ||||||||||||
Mexican Bonos | MXN | 1,202 | 57,992 | |||||||||
Series M 20 | 480 | 29,237 | ||||||||||
|
| |||||||||||
87,229 | ||||||||||||
|
| |||||||||||
Russia – 0.2% | ||||||||||||
Russian Federal Bond – OFZ | RUB | 3,986 | 64,783 | |||||||||
|
| |||||||||||
Total Governments – Treasuries | 152,012 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.4% | ||||||||||||
United States – 0.4% | ||||||||||||
State of California | U.S.$ | 25 | 37,591 | |||||||||
7.95%, 3/01/36 | 55 | 59,685 | ||||||||||
|
| |||||||||||
Total Local Governments – US Municipal Bonds | 97,276 | |||||||||||
|
|
46 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COLLATERALIZED LOAN OBLIGATIONS – 0.3% | ||||||||||||
CLO - Floating Rate – 0.3% | ||||||||||||
CIFC Funding Ltd. | U.S.$ | 73 | $ | 72,026 | ||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.2% | ||||||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||||||
Citigroup Commercial Mortgage Trust | 15 | 12,701 | ||||||||||
GS Mortgage Securities Trust | 29 | 25,481 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 29 | 27,357 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 65,539 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 0.1% | ||||||||||||
Funds and Investment Trusts – 0.1% | ||||||||||||
iShares MSCI Global Metals & Mining Producers ETF(q) | 805 | 27,603 | ||||||||||
|
| |||||||||||
WARRANTS – 0.0% | ||||||||||||
Avaya Holdings Corp., expiring 12/15/22(b)(f) | 1,210 | 5,445 | ||||||||||
iPayment Holdings, Inc., expiring 12/29/22(b)(c)(d)(f) | 21,438 | – 0 | – | |||||||||
Midstates Petroleum Co., Inc., expiring 4/21/20(c)(f) | 860 | 86 | ||||||||||
SandRidge Energy, Inc., A-CW22, expiring 10/03/22(f) | 1,975 | 652 | ||||||||||
SandRidge Energy, Inc., B-CW22, expiring 10/03/22(f) | 830 | 182 | ||||||||||
|
| |||||||||||
Total Warrants | 6,365 | |||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Notional Amount | U.S. $ Value | |||||||||||
| ||||||||||||
OPTIONS PURCHASED – CALLS – 0.0% | ||||||||||||
Swaptions – 0.0% | ||||||||||||
CDX-NAHY Series 30, 5 Year Index | USD | 1,100,000 | $ | 3,414 | ||||||||
|
| |||||||||||
Shares | ||||||||||||
RIGHTS – 0.0% | ||||||||||||
Utility – 0.0% | ||||||||||||
Vistra Energy Corp. | 3,442 | 2,196 | ||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 8.8% | ||||||||||||
Investment Companies – 8.6% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 1.51%(q)(r)(s) | 2,414,029 | 2,414,029 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
Corporates – Non-Investment Grade – 0.2% |
| |||||||||||
Industrial – 0.2% | ||||||||||||
Consumer Cyclical - Other – 0.2% | ||||||||||||
Lennar Corp. | U.S.$ | 52 | 51,867 | |||||||||
|
| |||||||||||
Total Short-Term Investments | 2,465,896 | |||||||||||
|
| |||||||||||
Total Investments – 98.7% | 27,541,093 | |||||||||||
Other assets less liabilities – 1.3% | 372,139 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 27,913,232 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional | Original Value | Value at April 30, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
S&P 500 E-Mini Futures | 1 | June 2018 | USD | 0 | ** | $ | 131,765 | $ | 132,350 | $ | 585 | |||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 22 | June 2018 | USD | 22 | 2,642,703 | 2,631,750 | (10,953 | ) | ||||||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||||
Euro-BOBL Futures | 5 | June 2018 | EUR | 5 | 785,604 | 790,978 | (5,374 | ) | ||||||||||||||||||||
Euro-OAT Futures | 2 | June 2018 | EUR | 2 | 366,410 | 371,482 | (5,072 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (20,814 | ) | ||||||||||||||||||||||||||
|
|
48 | AB FLEXFEE HIGH YIELD 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) | ||||||||||||||||
Barclays Bank PLC | RUB | 4,120 | USD | 66 | 5/17/18 | $ | 1,152 | |||||||||||||
Brown Brothers Harriman & Co. | AUD | 88 | USD | 68 | 6/07/18 | 1,816 | ||||||||||||||
Brown Brothers Harriman & Co. | NZD | 197 | USD | 142 | 6/07/18 | 3,558 | ||||||||||||||
Brown Brothers Harriman & Co. | CAD | 259 | USD | 205 | 6/12/18 | 2,864 | ||||||||||||||
Brown Brothers Harriman & Co. | MXN | 1,611 | USD | 89 | 6/14/18 | 3,173 | ||||||||||||||
Brown Brothers Harriman & Co. | ZAR | 257 | USD | 21 | 6/28/18 | 635 | ||||||||||||||
Citibank, NA | USD | 1 | KRW | 549 | 7/26/18 | (2 | ) | |||||||||||||
Goldman Sachs Bank USA | BRL | 390 | USD | 115 | 5/03/18 | 3,420 | ||||||||||||||
Goldman Sachs Bank USA | USD | 112 | BRL | 390 | 5/03/18 | (719 | ) | |||||||||||||
JPMorgan Chase Bank, NA | TWD | 2,031 | USD | 70 | 6/07/18 | 1,180 | ||||||||||||||
Royal Bank of Scotland PLC | EUR | 477 | USD | 591 | 5/30/18 | 14,484 | ||||||||||||||
Standard Chartered Bank | BRL | 390 | USD | 112 | 5/03/18 | 718 | ||||||||||||||
Standard Chartered Bank | USD | 111 | BRL | 390 | 5/03/18 | (114 | ) | |||||||||||||
Standard Chartered Bank | USD | 70 | INR | 4,579 | 5/17/18 | (1,055 | ) | |||||||||||||
Standard Chartered Bank | BRL | 390 | USD | 111 | 6/04/18 | 186 | ||||||||||||||
|
| |||||||||||||||||||
$ | 31,296 | |||||||||||||||||||
|
|
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 30, 5 Year Index | | Credit Suisse International | | Sell | 1.02 | % | Jun, 2018 | $ | 550 | $ | 1,182 | $ | (827 | ) | ||||||||||||||
CDX-NAHY Series 30, 5 Year Index | | Credit Suisse International | | Sell | 1.04 | Jun, 2018 | 550 | 1,953 | (1,456 | ) | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
$ | 3,135 | $ | (2,283 | ) | ||||||||||||||||||||||||
|
|
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
CDX-NAHY Series 26, 5 Year Index, 6/20/21* | (5.00 | )% | Quarterly | 2.48 | % | USD | 484 | $ | (37,986 | ) | $ | (4,349 | ) | $ | (33,637 | ) | ||||||||||||
CDX-NAIG Series 20, 5 Year Index, 6/20/18* | (1.00 | ) | Quarterly | 0.09 | USD | 227 | (555 | ) | 571 | (1,126 | ) |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
iTraxx Europe Crossover Series 21, 5 Year Index, 6/20/19* | (5.00 | )% | Quarterly | 0.56 | % | EUR | 0 | ** | $ | (9 | ) | $ | (4 | ) | $ | (5 | ) | |||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 6/20/21* | (5.00 | ) | Quarterly | 1.55 | EUR | 14 | (1,883 | ) | (346 | ) | (1,537 | ) | ||||||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 6/20/21* | (5.00 | ) | Quarterly | 1.55 | EUR | 46 | (6,186 | ) | (1,119 | ) | (5,067 | ) | ||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||
CDX-NAHY Series 26, 5 Year Index, 6/20/21* | 5.00 | Quarterly | 2.48 | USD | 484 | 38,001 | 8,026 | 29,975 | ||||||||||||||||||||
CDX-NAHY Series 29, 5 Year Index, 12/20/22* | 5.00 | Quarterly | 3.17 | USD | 239 | 18,743 | 15,077 | 3,666 | ||||||||||||||||||||
CDX-NAHY Series 30, 5 Year Index, 6/20/23* | 5.00 | Quarterly | 3.39 | USD | 1,366 | 102,297 | 93,560 | 8,737 | ||||||||||||||||||||
iTraxx Europe Crossover Series 28, 5 Year Index, 12/20/22* | 5.00 | Quarterly | 2.35 | EUR | 843 | 121,579 | 106,907 | 14,672 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 234,001 | $ | 218,323 | $ | 15,678 | |||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
50 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||||||||
Notional (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
USD | 1,770 | 3/06/23 | | 3 Month LIBOR | | 2.714% | | Quarterly/ Semi-Annual | | $ | (14,169 | ) | $ | — | $ | (14,169 | ) | |||||||||||||||
USD | 2,835 | 9/02/25 | 2.248% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 133,947 | (8,311 | ) | 142,258 | |||||||||||||||||||
USD | 961 | 1/15/26 | 1.978% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 61,717 | 5,398 | 56,319 | ||||||||||||||||||||
USD | 651 | 2/16/26 | 1.625% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 61,874 | 7,434 | 54,440 | ||||||||||||||||||||
USD | 150 | 3/31/26 | 1.693% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 13,779 | — | 13,779 | ||||||||||||||||||||
USD | 100 | 5/03/26 | 1.770% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 8,112 | — | 8,112 | ||||||||||||||||||||
USD | 800 | 6/01/26 | 1.714% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 70,277 | 32,362 | 37,915 | ||||||||||||||||||||
USD | 4,650 | 4/28/27 | | 3 Month LIBOR | | 2.330% | | Quarterly/ Semi-Annual | | (243,833 | ) | 16,658 | (260,491 | ) | ||||||||||||||||||
USD | 350 | 5/03/27 | 2.285% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 16,853 | 111 | 16,742 | ||||||||||||||||||||
USD | 940 | 3/06/28 | 2.876% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | 8,938 | — | 8,938 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 117,495 | $ | 53,652 | $ | 63,843 | |||||||||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||||||
Barclays Bank PLC |
| |||||||||||||||||||||||||||||||
Uniti Group, Inc., 8.250%, 10/15/23, 12/20/19* | (5.00 | )% | Quarterly | 5.05 | % | USD | 60 | $ | (297 | ) | $ | 905 | $ | (1,202 | ) | |||||||||||||||||
Windstream Services, LLC, 7.500%, 6/01/22, 6/20/18* | (5.00 | ) | Quarterly | 20.67 | USD | 51 | 806 | 850 | (44 | ) | ||||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||||||
CDX- | (5.00 | ) | Monthly | 11.55 | USD | 180 | 38,298 | 22,581 | 15,717 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 51 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||||||
British Telecommunications PLC, 5.750%, 12/07/28, 6/20/20* | (1.00 | )% | Quarterly | 0.26 | EUR | 170 | $ | (3,524 | ) | $ | 93 | $ | (3,617 | ) | ||||||||||||||||||
CDX- CMBX.NA.BBB- Series 6, 5/11/63* | (3.00 | ) | Monthly | 6.47 | USD | 192 | 23,885 | 20,535 | 3,350 | |||||||||||||||||||||||
K. Hovnanian Enterprises, Inc., 7.000%, 1/15/19, 12/20/22* | (5.00 | ) | Quarterly | 29.07 | USD | 30 | 9,072 | 8,819 | 253 | |||||||||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||||||
Barclays Bank PLC |
| |||||||||||||||||||||||||||||||
Altice Luxembourg SA, 7.250%, 5/15/22, 6/20/22* | 5.00 | Quarterly | 5.17 | EUR | 60 | (17 | ) | 6,500 | (6,517 | ) | ||||||||||||||||||||||
K. Hovnanian Enterprises, Inc., 7.000%, 1/15/19, 9/20/20* | 5.00 | Quarterly | 38.32 | USD | 63 | (17,543 | ) | 368 | (17,911 | ) | ||||||||||||||||||||||
New Albertsons LP, 8.000%, 5/01/31, 12/20/22* | 5.00 | Quarterly | 6.32 | % | USD | 30 | (1,426 | ) | (1,994 | ) | 568 | |||||||||||||||||||||
Windstream Services, LLC, 7.500%, 6/01/22, 12/20/22* | 5.00 | Quarterly | 22.87 | USD | 100 | (39,069 | ) | (30,513 | ) | (8,556 | ) | |||||||||||||||||||||
Citibank, NA |
| |||||||||||||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 3/15/25, 6/20/22* | 5.00 | Quarterly | 2.12 | USD | 50 | 5,752 | 2,404 | 3,348 | ||||||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 11.55 | USD | 29 | (6,170 | ) | (3,530 | ) | (2,640 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 11.55 | USD | 69 | (14,681 | ) | (7,802 | ) | (6,879 | ) |
52 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
International Game Technology PLC, 4.750%, 2/15/23, 6/20/22* | 5.00 | % | Quarterly | 1.30 | EUR | 100 | $ | 18,902 | $ | 7,857 | $ | 11,045 | ||||||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 75 | (9,343 | ) | (5,029 | ) | (4,314 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 252 | (31,391 | ) | (17,345 | ) | (14,046 | ) | |||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||||||
Altice Finco SA, 9.000%, 6/15/23, 6/20/22* | 5.00 | Quarterly | 3.67 | EUR | 60 | 4,116 | 5,573 | (1,457 | ) | |||||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 3/15/25, 6/20/22* | 5.00 | Quarterly | 2.13 | USD | 13 | 1,489 | 561 | 928 | ||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 11.55 | �� | USD | 163 | (34,661 | ) | (29,744 | ) | (4,917 | ) | ||||||||||||||||||||
K. Hovnanian Enterprises, Inc., 7.000%, 1/15/19, 12/20/18* | 5.00 | Quarterly | 84.91 | USD | 30 | (7,508 | ) | (4,484 | ) | (3,024 | ) | |||||||||||||||||||||
New Albertsons LP, 8.000%, 5/01/31, 12/20/22* | 5.00 | Quarterly | 6.32 | % | USD | 60 | (2,852 | ) | (3,783 | ) | 931 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (66,162 | ) | $ | (27,178 | ) | $ | (38,984 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note D)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||||||
Bank of America, NA |
| |||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 1,697 | LIBOR | Quarterly | USD | 450 | 6/20/18 | $ | 2,425 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 53 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
iBoxx $ Liquid High Yield Index | 11 | LIBOR | Quarterly | USD | 3 | 6/20/18 | $ | 10 | ||||||||||||||||
iBoxx $ Liquid High Yield Index | 11 | LIBOR | Quarterly | USD | 3 | 6/20/18 | 9 | |||||||||||||||||
iBoxx $ Liquid High Yield Index | 11 | LIBOR | Quarterly | USD | 3 | 6/20/18 | 9 | |||||||||||||||||
iBoxx $ Liquid High Yield Index | 19 | LIBOR | Quarterly | USD | 5 | 6/20/18 | 2 | |||||||||||||||||
iBoxx $ Liquid High Yield Index | 11 | LIBOR | Quarterly | USD | 3 | 6/20/18 | 1 | |||||||||||||||||
Citibank, NA |
| |||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 11 | LIBOR | Quarterly | USD | 3 | 6/20/18 | 8 | |||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 26 | LIBOR | Quarterly | USD | 7 | 6/20/18 | 1 | |||||||||||||||||
Morgan Stanley & Co. International PLC | ||||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 11 | LIBOR | Quarterly | USD | 3 | 6/20/18 | (1 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | 2,464 | |||||||||||||||||||||||
|
|
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Principal Amount (000) | Currency | Interest Rate | Maturity | U.S. $ Value at April 30, 2018 | |||||||||||||||
Credit Suisse Securities (USA) LLC† | 168 | USD | (1.75 | )%* | — | $ | 166,336 |
† | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on April 30, 2018 |
* | Interest payment due from counterparty. |
The type of underlying collateral and the remaining maturity of open reverse repurchase agreements on the statements of assets and liabilities is as follows:
Overnight and Continuous | Up to 30 Days | 31-90 Days | Greater than 90 Days | Total | ||||||||||||||||
Corporates – Non-Investment Grade | $ | 166,336 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 166,336 |
54 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
** | Notional 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, 2018, the aggregate market value of these securities amounted to $9,748,420 or 34.9% of net assets. |
(b) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(c) | Illiquid security. |
(d) | Fair valued by the Adviser. |
(e) | 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, 2018. |
(f) | Non-income producing security. |
(g) | Defaulted. |
(h) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.44% of net assets as of April 30, 2018, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Aveta, Inc. | 12/15/17 | $ | – 0 | – | $ | – 0 | – | 0.00 | % | |||||||
Creditcorp | 6/28/13 | 33,203 | 30,561 | 0.11 | % | |||||||||||
Exide Technologies | 5/23/17 | 38,550 | 39,963 | 0.14 | % | |||||||||||
Exide Technologies | 11/10/16 | 2,324 | 2,364 | 0.01 | % | |||||||||||
K2016470219 South Africa Ltd. | 3/13/15 | 17,708 | 548 | 0.00 | % | |||||||||||
K2016470260 South Africa Ltd. | 12/22/16 | 3,927 | 1,536 | 0.01 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | 2/19/15 | 36,767 | 1 | 0.00 | % | |||||||||||
Modular Space Corp. | 2/08/17 | 10,434 | 40,919 | 0.15 | % | |||||||||||
Tonon Luxembourg SA | 1/16/13 | 5,510 | 272 | 0.00 | % | |||||||||||
Vantage Drilling International | 6/17/16 | 856 | 856 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 2/13/13 | 96,161 | 6,088 | 0.02 | % |
(i) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
CHC Group LLC | 3/10/17 | $ | 62,260 | $ | 8,838 | 0.03 | % | |||||||||
CHC Group LLC/CHC Finance Ltd. Series AI, Zero Coupon, 10/01/20 | 3/10/17 | 47,067 | 70,384 | 0.25 | % | |||||||||||
Exide Technologies | 4/30/15 | 2,889 | 3,927 | 0.01 | % | |||||||||||
Momentive Performance Materials, Inc. | 10/24/14 | – 0 | – | – 0 | – | 0.00 | % |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 55 |
PORTFOLIO OF INVESTMENTS (continued)
(j) | Defaulted matured security. |
(k) | Convertible security. |
(l) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(m) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. |
(n) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at April 30, 2018. |
(o) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at April 30, 2018. |
(p) | 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. |
(q) | 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. |
(r) | Affiliated investments. |
(s) | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
ARS – Argentine Peso
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
INR – Indian Rupee
KRW – South Korean Won
MXN – Mexican Peso
NZD – New Zealand Dollar
RUB – Russian Ruble
TWD – New Taiwan Dollar
USD – United States Dollar
ZAR – South African Rand
Glossary:
ABS – Asset-Backed Securities
BBA – British Bankers Association
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
ETF – Exchange Traded Fund
EURIBOR – Euro Interbank Offered Rate
LIBOR – London Interbank Offered Rates
MSCI – Morgan Stanley Capital International
OAT – Obligations Assimilables du Trésor
REIT – Real Estate Investment Trust
See notes to financial statements.
56 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $25,378,089) | $ | 25,127,064 | ||
Affiliated issuers (cost $2,414,029) | 2,414,029 | |||
Cash | 40,677 | |||
Cash collateral due from broker | 217,796 | |||
Foreign currencies, at value (cost $121,155) | 118,882 | |||
Unaffiliated dividends and interest receivable | 386,922 | |||
Upfront premiums paid on credit default swaps | 77,046 | |||
Receivable for capital stock sold | 73,524 | |||
Unrealized appreciation on credit default swaps | 36,140 | |||
Receivable from Adviser | 34,535 | |||
Unrealized appreciation on forward currency exchange contracts | 33,186 | |||
Receivable for terminated total return swaps | 10,219 | |||
Affiliated dividends receivable | 5,162 | |||
Receivable for variation margin on centrally cleared swaps | 2,808 | |||
Unrealized appreciation on total return swaps | 2,465 | |||
Receivable for investment securities sold | 1,372 | |||
Receivable for variation margin on futures | 990 | |||
|
| |||
Total assets | 28,582,817 | |||
|
| |||
Liabilities | ||||
Swaptions written, at value (premiums received $3,135) | 2,283 | |||
Payable for reverse repurchase agreements | 166,336 | |||
Payable for investment securities purchased | 112,790 | |||
Upfront premiums received on credit default swaps | 104,224 | |||
Dividends payable | 75,344 | |||
Unrealized depreciation on credit default swaps | 75,124 | |||
Audit and tax fee payable | 61,772 | |||
Custody fee payable | 53,686 | |||
Transfer Agent fee payable | 4,277 | |||
Directors’ fee payable | 3,627 | |||
Unrealized depreciation on forward currency exchange contracts | 1,890 | |||
Payable for variation margin on centrally cleared swaps | 1,196 | |||
Payable for capital stock redeemed | 739 | |||
Unrealized depreciation on total return swaps | 1 | |||
Accrued expenses and other liabilities | 6,296 | |||
|
| |||
Total liabilities | 669,585 | |||
|
| |||
Net Assets | $ | 27,913,232 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 2,930 | ||
Additional paid-in capital | 37,660,270 | |||
Distributions in excess of net investment income | (190,000 | ) | ||
Accumulated net realized loss on investment and foreign currency transactions | (9,362,172 | ) | ||
Net unrealized depreciation on investments and foreign currency denominated assets and liabilities | (197,796 | ) | ||
|
| |||
$ | 27,913,232 | |||
|
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 57 |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
Advisor | $ | 27,913,232 | 2,930,361 | $ | 9.53 | |||||||
|
|
|
|
|
|
|
See notes to financial statements.
58 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2018 (unaudited)
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $120) | $ | 763,340 | ||||||
Dividends |
| |||||||
Unaffiliated issuers | 5,632 | |||||||
Affiliated issuers | 4,203 | $ | 773,175 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 60,009 | |||||||
Transfer agency—Class A | 3,629 | |||||||
Transfer agency—Class C | 873 | |||||||
Transfer agency—Advisor Class | 8,542 | |||||||
Transfer agency—Class R | 28 | |||||||
Transfer agency—Class K | 1 | |||||||
Transfer agency—Class I | 1,115 | |||||||
Transfer agency—Class Z | 37 | |||||||
Distribution fee—Class A | 3,481 | |||||||
Distribution fee—Class C | 3,257 | |||||||
Distribution fee—Class R | 64 | |||||||
Distribution fee—Class K | 7 | |||||||
Custodian | 89,179 | |||||||
Audit and tax | 67,210 | |||||||
Registration fees | 48,300 | |||||||
Administrative | 41,737 | |||||||
Legal | 25,268 | |||||||
Directors’ fees | 14,447 | |||||||
Printing | 6,947 | |||||||
Miscellaneous | 7,699 | |||||||
|
| |||||||
Total expenses before interest expense | 381,830 | |||||||
Interest expense | 1,095 | |||||||
|
| |||||||
Total expenses | 382,925 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (297,620 | ) | ||||||
|
| |||||||
Net expenses | 85,305 | |||||||
|
| |||||||
Net investment income | 687,870 | |||||||
|
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 59 |
STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | $ | 56,314 | ||||||
Forward currency exchange contracts | (104,910 | ) | ||||||
Futures | (1,288 | ) | ||||||
Options written | 16,707 | |||||||
Swaps | 29,397 | |||||||
Swaptions written | 3,429 | |||||||
Foreign currency transactions | 143,368 | |||||||
Net change in unrealized appreciation/depreciation on: | ||||||||
Investments | (673,990 | ) | ||||||
Forward currency exchange contracts | (24,271 | ) | ||||||
Futures | (14,293 | ) | ||||||
Options written | (2,112 | ) | ||||||
Swaps | 52,315 | |||||||
Swaptions written | (760 | ) | ||||||
Foreign currency denominated assets and liabilities | (371 | ) | ||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (520,465 | ) | ||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 167,405 | ||||||
|
|
See notes to financial statements.
60 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 687,870 | $ | 2,894,940 | ||||
Net realized gain on investment and foreign currency transactions | 143,017 | 505,769 | ||||||
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | (663,482 | ) | 1,588,796 | |||||
Contributions from Affiliates (see Note B) | – 0 | – | 92 | |||||
|
|
|
| |||||
Net increase in net assets from operations | 167,405 | 4,989,597 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (68,765 | ) | (162,805 | ) | ||||
Class C | (13,824 | ) | (21,960 | ) | ||||
Advisor Class | (318,161 | ) | (164,064 | ) | ||||
Class R | (606 | ) | (1,990 | ) | ||||
Class K | (137 | ) | (415 | ) | ||||
Class I | (292,713 | ) | (785,002 | ) | ||||
Class Z | (9,658 | ) | (1,422,780 | ) | ||||
Tax return of capital | ||||||||
Class A | – 0 | – | (16,992 | ) | ||||
Class C | – 0 | – | (2,292 | ) | ||||
Advisor Class | – 0 | – | (17,124 | ) | ||||
Class R | – 0 | – | (208 | ) | ||||
Class K | – 0 | – | (43 | ) | ||||
Class I | – 0 | – | (81,932 | ) | ||||
Class Z | – 0 | – | (148,497 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | 64,163 | (60,218,108 | ) | |||||
|
|
|
| |||||
Total decrease | (472,296 | ) | (58,054,615 | ) | ||||
Net Assets | ||||||||
Beginning of period | 28,385,528 | 86,440,143 | ||||||
|
|
|
| |||||
End of period (including distributions in excess of net investment income of ($190,000) and ($174,006), respectively) | $ | 27,913,232 | $ | 28,385,528 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 61 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 FlexFee High Yield Portfolio (the “Fund”), a diversified portfolio. On February 26, 2018, the Fund’s name was changed from the AB High Yield Portfolio to the AB FlexFee High Yield Portfolio. At a meeting held on October 31, 2017 to November 2, 2017, the Fund’s Board of Directors (the “Board”) approved the conversion of Class A, Class C, Class R, Class I and Class Z shares of the Fund to Advisor Class shares of the Fund on a relative net assets basis. The conversion was effective on February 26, 2018. The Fund 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 Fund 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 Fund was subsequently changed to October 31. The Fund has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class T, Class 1 and Class 2 shares. Class B, Class T, Class 1 and Class 2 shares have not been issued, and no shares of Class A, Class C, Class R, Class K, Class I or Class Z were outstanding as of April 30, 2018. Advisor class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven 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.
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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 Fund’s 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 market inputs, as well as third party broker-dealers or counterparties. Open end
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NOTES TO FINANCIAL STATEMENTS (continued)
mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
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, 2018:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Non-Investment Grade | $ | – 0 | – | $ | 19,747,011 | $ | 277,740 | # | $ | 20,024,751 | ||||||
Corporates – Investment Grade | – 0 | – | 1,972,751 | – 0 | – | 1,972,751 | ||||||||||
Bank Loans | – 0 | – | 617,658 | 81,256 | 698,914 | |||||||||||
Common Stocks | 306,285 | 47,310 | 169,946 | # | 523,541 | |||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 338,973 | 18,246 | # | 357,219 | ||||||||||
Preferred Stocks | 80,031 | 18,315 | 256,806 | 355,152 | ||||||||||||
Asset-Backed Securities | – 0 | – | – 0 | – | 294,569 | 294,569 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Collateralized Mortgage Obligations | $ | – 0 | – | $ | 247,488 | $ | – 0 | – | $ | 247,488 | ||||||
Emerging Markets – Treasuries | – 0 | – | 174,381 | – 0 | – | 174,381 | ||||||||||
Governments – Treasuries | – 0 | – | 152,012 | – 0 | – | 152,012 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 97,276 | – 0 | – | 97,276 | ||||||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 72,026 | 72,026 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | – 0 | – | 65,539 | 65,539 | ||||||||||
Investment Companies | 27,603 | – 0 | – | – 0 | – | 27,603 | ||||||||||
Warrants | 920 | – 0 | – | 5,445 | # | 6,365 | ||||||||||
Options Purchased – Calls | – 0 | – | 3,414 | – 0 | – | 3,414 | ||||||||||
Rights | 2,196 | – 0 | – | – 0 | – | 2,196 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 2,414,029 | – 0 | – | – 0 | – | 2,414,029 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 51,867 | – 0 | – | 51,867 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 2,831,064 | 23,468,456 | 1,241,573 | 27,541,093 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets | ||||||||||||||||
Futures | 585 | – 0 | – | – 0 | – | 585 | † | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 33,186 | – 0 | – | 33,186 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 280,620 | – 0 | – | 280,620 | † | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 375,497 | – 0 | – | 375,497 | † | |||||||||
Credit Default Swaps | – 0 | – | 102,320 | – 0 | – | 102,320 | ||||||||||
Total Return Swaps | – 0 | – | 2,465 | – 0 | – | 2,465 | ||||||||||
Liabilities | ||||||||||||||||
Futures | (21,399 | ) | – 0 | – | – 0 | – | (21,399 | )† | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (1,890 | ) | – 0 | – | (1,890 | ) | ||||||||
Credit Default Swaptions Written | – 0 | – | (2,283 | ) | – 0 | – | (2,283 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (46,619 | ) | – 0 | – | (46,619 | )† | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (258,002 | ) | – 0 | – | (258,002 | )† | ||||||||
Credit Default Swaps | – 0 | – | (168,482 | ) | – 0 | – | (168,482 | ) | ||||||||
Total Return Swaps | – 0 | – | (1 | ) | – 0 | – | (1 | ) | ||||||||
Reverse Repurchase Agreements | (166,336 | ) | – 0 | – | – 0 | – | (166,336 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total^ | $ | 2,643,914 | $ | 23,785,267 | $ | 1,241,573 | $ | 27,670,754 | ||||||||
|
|
|
|
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
# | The Fund held securities with zero market value at period end. |
* | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
† | Only variation margin receivable/payable at period end is reported within the statements of assets and liabilities. This amount reflects cumulative unrealized appreciation/depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
^ | 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 instrument was 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# | Bank Loans | Common Stocks# | Emerging Markets - Corporate Bonds# | |||||||||||||
Balance as of 10/31/17 | $ | 267,823 | $ | 114,007 | $ | 84,172 | $ | 4,820 | ||||||||
Accrued discounts/(premiums) | (1,476 | ) | 67 | – 0 | – | (439 | ) | |||||||||
Realized gain (loss) | (26,548 | ) | – 0 | – | 6,685 | 344 | ||||||||||
Change in unrealized appreciation/depreciation | 30,747 | 2,247 | 37,228 | 7,364 | ||||||||||||
Purchases | 10,652 | – 0 | – | 2,019 | 1,229 | |||||||||||
Sales/Paydowns | (17,897 | ) | (34,401 | ) | (11,673 | ) | – 0 | – | ||||||||
Reclassification | (58,308 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||
Transfers into level 3 | 72,747 | 49,568 | 51,515 | 4,928 | ||||||||||||
Transfers out of level 3 | – 0 | – | (50,232 | ) | – 0 | – | – 0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 4/30/18 | $ | 277,740 | $ | 81,256 | $ | 169,946 | $ | 18,246 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18** | $ | 8,476 | $ | 2,291 | $ | 36,585 | $ | 7,364 | ||||||||
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|
|
|
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Preferred Stocks | Asset- Backed Securities | Collateralized Loan Obligations | Commercial Mortgage- Backed Securities | |||||||||||||
Balance as of 10/31/17 | $ | 247,929 | $ | 197,922 | $ | 72,080 | $ | 65,186 | ||||||||
Accrued discounts/(premiums) | – 0 | – | 1,306 | 146 | 33 | |||||||||||
Realized gain (loss) | – 0 | – | 164 | – 0 | – | – 0 | – | |||||||||
Change in unrealized appreciation/depreciation | 8,877 | (14,432 | ) | (200 | ) | 320 | ||||||||||
Purchases | – 0 | – | 88,870 | – 0 | – | – 0 | – | |||||||||
Sales/Paydowns | – 0 | – | (37,569 | ) | – 0 | – | – 0 | – | ||||||||
Reclassification | – 0 | – | 58,308 | – 0 | – | – 0 | – | |||||||||
Transfers into level 3 | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||
Transfers out of level 3 | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 4/30/18 | $ | 256,806 | $ | 294,569 | $ | 72,026 | $ | 65,539 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18** | $ | 8,877 | $ | (14,432 | ) | $ | (200 | ) | $ | 320 | ||||||
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|
|
|
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| |||||||||
Warrants# | Total | |||||||||||||||
Balance as of 10/31/17 | $ | 517 | $ | 1,054,456 | ||||||||||||
Accrued discounts/ (premiums) | – 0 | – | (363 | ) | ||||||||||||
Realized gain (loss) | – 0 | – | (19,355 | ) | ||||||||||||
Change in unrealized appreciation/depreciation | 4,928 | 77,079 | ||||||||||||||
Purchases | – 0 | – | 102,770 | |||||||||||||
Sales/Paydowns | – 0 | – | (101,540 | ) | ||||||||||||
Reclassification | – 0 | – | – 0 | – | ||||||||||||
Transfers into level 3 | – 0 | – | 178,758 | |||||||||||||
Transfers out of level 3 | – 0 | – | (50,232 | ) | ||||||||||||
|
|
|
| |||||||||||||
Balance as of 4/30/18 | $ | 5,445 | $ | 1,241,573 | + | |||||||||||
|
|
|
| |||||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18** | $ | 4,928 | $ | 54,209 | ||||||||||||
|
|
|
|
# | The Fund held securities with zero market value that were sold/expired/written off during the reporting period. |
** | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/depreciation of investments and other financial instruments in the accompanying statement of operations. |
+ | There were de minimis transfers under 1% of net assets during the reporting period. |
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NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at April 30, 2018. Securities priced (i) by third party vendors or (ii) by brokers are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/18 | Valuation | Unobservable | Range/ | |||||||
Corporates – Non-Investment Grade | $ | 7,003 | Recovery Analysis | Collateral Value | $100.00 / N/A | |||||
Common Stocks | $ | 41,964 | Market Approach | EBITDA* Projection | $113.4mm / N/A | |||||
EBITDA* Multiples | 7.0X-9.0X / 8.0X | |||||||||
$ | 25,183 | Market Approach | EBITDA* Projection | $40.1 mm / N/A | ||||||
EBITDA* Multiples | 4.2X-6.2X / 5.2X | |||||||||
$ | 3,927 | Market Approach | EBITDA* Projection | $194.0mm / N/A | ||||||
EBITDA* Multiples | 4.5X-5.5X / 5.0X | |||||||||
$ | 2,103 | Market Approach | EBITDA* Projection | $99mm / N/A | ||||||
EBITDA* Multiples | 5.1X / N/A | |||||||||
$ | – 0 | – | Qualitative Assessment | $0.00 / N/A | ||||||
|
| |||||||||
$ | 73,177 | |||||||||
|
| |||||||||
Preferred Stocks | $ | 44,000 | Market Approach | EBITDA* Projection | $113.4mm / N/A | |||||
EBITDA* Multiples | 7.0X-9.0X / 8.0X |
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. A significant increase (decrease) in collateral value and EBITDA projections and EBITDA Multiple 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 process 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 the 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, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation and 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 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. Expense Allocations
Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods.
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.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE B
Advisory Fee and Other Transactions with Affiliates
Effective February 26, 2018, under an amended investment advisory agreement, the Fund calculates and accrues daily a base fee, at an annualized rate of .40% of the Fund’s average daily net assets (“Base Fee”). The advisory fee is increased or decreased from the Base Fee by a performance adjustment (“Performance Adjustment”) that depends on whether, and to what extent, the investment performance of the Advisor Class shares of the Fund (“Measuring Class”) exceeds, or is exceeded by, the performance of the Markit iBoxx USD Liquid High Yield Index (“Index”) plus .75% (“Index Hurdle”) over the Performance Period (as defined below). The Performance Adjustment is calculated and accrued daily, according to a schedule that adds or subtracts .002667% of the Fund’s average daily net assets for each .01% of absolute performance by which the performance of the Measuring Class exceeds or lags the Index Hurdle for the period from the beginning of the Performance Period through the current business day. The maximum Performance Adjustment (positive or negative) will not exceed an annualized rate of +/- .20% (“Maximum Performance Adjustment”) of the Fund’s average daily net assets, which would occur when the performance of the Measuring Class exceeds, or is exceeded by, the Index Hurdle by .75% or more for the Performance Period. On a monthly basis, the Fund will pay the Adviser the minimum fee rate of .20% on an annualized basis (Base Fee minus the Maximum Performance Adjustment) applied to the average daily net assets for the month. At the end of the Performance Period, the Fund will pay to the Adviser the total advisory fee, less the amount of any minimum fees paid during the Performance Period and any waivers described below. The period over which performance is measured (“Performance Period”) is initially from February 26, 2018 to December 31, 2019 and thereafter each 12-month period beginning on the first day in the month of January through December 31 of the same year. In addition, the Adviser has agreed to waive its advisory fee by limiting the Fund’s accrual of the advisory fee (Base Fee plus Performance Adjustment) on any day to the amount corresponding to the maximum fee rate multiplied by the Fund’s current net assets as of the preceding day if such amount is less than the amount that would have been accrued based on the Fund’s average daily net assets for the Performance Period. For the reporting period ended April 30, 2018, the Fund accrued advisory fees of $10,760, as a portion reflected in the statement of operations, at an annual effective rate (excluding the impact from any expense waivers in effect) of .22% of the Fund’s average net assets, which reflected a (.18)% Performance Adjustment of $(8,688). Prior to February 26, 2018, under the terms of the investment advisory agreement, the Fund paid 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 Fund’s average daily net assets.
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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 Fund’s average daily net assets. The fee was accrued daily and paid monthly.
The Adviser has contractually agreed to waive its fees and bear certain expenses through December 31, 2019 to the extent necessary to limit total expenses (excluding expenses associated with 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 from exceeding .10% of average daily net assets (the “Expense Cap”). For the six months ended April 30, 2018, such reimbursements/waivers amounted to $255,321. Prior to February 26, 2018, the Adviser 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 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 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 (the “Old Expense Caps”). Effective January 1, 2017, the Old 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 July 14, 2015 are subject to repayment by the Fund until the end of the third fiscal year after the fiscal period in which the fee were waived or the expense were borne; such waivers that are subject to repayment amount to $288,388 for the period ended October 31, 2015. In any case, no repayment will be made that would cause the Fund’s total annual expenses (subject to the exclusions set forth above) to exceed .10% or, for fees waived or expenses borne prior to February 26, 2018, the Old Expense Caps.
During the year ended October 31, 2017, the Adviser reimbursed the Fund $92 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, 2018, the Adviser voluntarily agreed to waive such fees in the amount of $41,737.
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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. Such compensation retained by ABIS amounted to $8,022 for the six months ended April 30, 2018.
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 charges of $28 from the sale of Class A shares and received $0 and $44 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, 2018.
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 contractually agreed to waive its advisory fee from the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fees 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, 2018, such waiver amounted to $903.
A summary of the Fund’s transactions in AB mutual funds for the six months ended April 30, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 04/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | – 0 | – | $ | 8,922 | $ | 6,508 | $ | 2,414 | $ | 4 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2018 amounted to $504, 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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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, .50% of the Fund’s average daily net assets attributable to Class R shares and .25% of the Fund’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on 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 Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $4,940, $0 and $0 for Class C, Class R and Class K shares, respectively. 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 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, 2018, were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 10,944,710 | $ | 12,636,525 | ||||
U.S. government securities | – 0 | – | 212,156 |
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 | $ | 1,327,827 | ||
Gross unrealized depreciation | (1,524,517 | ) | ||
|
| |||
Net unrealized depreciation | $ | (196,690 | ) | |
|
|
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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:
• | 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 sales 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 forward currency exchange contracts. 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 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, 2018, the Fund held forward currency exchange contracts for hedging and non-hedging purposes.
• | 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”.
At the time the Fund enters into a future, 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
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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 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 future. 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 a future can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the six months ended April 30, 2018, the Fund held futures for 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
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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 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.
The Fund may also invest in options on swaps, 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 of 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, 2018, the maximum payment for written put swaptions amounted to $1,100,000. 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.
During the six months ended April 30, 2018, the Fund held purchased options for hedging purposes.
During the six months ended April 30, 2018, the Fund held written options for hedging purposes.
During the six months ended April 30, 2018, the Fund held purchased swaptions for non-hedging purposes.
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During the six months ended April 30, 2018, the Fund held written swaptions for non-hedging purposes.
• | 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 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
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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.
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).
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During six months ended April 30, 2018, the Fund held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligation with the same counterparty. As of April 30, 2018, the Fund had Buy Contracts outstanding with respect to the same referenced obligation and counterparty as certain Sales Contracts which may partially offset the Maximum Payout Amount in the amount of $228,000.
Credit default swaps may involve greater risks than if the Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over 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
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issuer on the referenced obligation. The implied credit spread of a particular reference entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced entity’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 entity or obligation.
During the six months ended April 30, 2018, the Fund held credit default swaps for hedging and non-hedging purposes.
Total Return Swaps:
The Fund may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty.
During the six months ended April 30, 2018, the Fund held total return swaps for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC
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derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 21,399 | * | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 338,503 | * | Receivable/Payable for variation margin on centrally cleared swaps |
| 274,660 | * | ||||
Interest rate contracts | Unrealized appreciation on total return swaps |
| 2,465 |
| Unrealized depreciation on total return swaps |
| 1 |
| ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 33,186 |
| Unrealized depreciation on forward currency exchange contracts |
| 1,890 |
| ||||
Credit contracts | Unrealized appreciation on credit default swaps | 36,140 | Unrealized depreciation on credit default swaps | 75,124 | ||||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 57,050 | * | Receivable/Payable for variation margin on centrally cleared swaps | 41,372 | * | ||||||
Credit contracts | Swaptions written, at value | 2,283 | ||||||||||
Credit contracts | Investments in securities, at value | 3,414 | ||||||||||
Equity contracts | Receivable/Payable for variation margin on futures | 585 | * | |||||||||
|
|
|
| |||||||||
Total | $ | 471,343 | $ | 416,729 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/depreciation on futures and centrally cleared swaps as reported in the portfolio of investments. |
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Derivative Type | Location of Gain or | 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 on swaps | $ | 17,166 | $ | 25,664 | |||||
Interest rate contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/depreciation on futures | (7,748 | ) | (14,878 | ) | |||||
Foreign currency contracts | Net realized gain/(loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation on forward currency exchange contracts | (104,910 | ) | (24,271 | ) | |||||
Credit contracts | Net realized gain/(loss) on investment transactions; Net change in unrealized appreciation/depreciation on investments | – 0 | – | (766 | ) | |||||
Credit contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/depreciation on swaps | 12,231 | 26,651 | |||||||
Credit contracts | Net realized gain/(loss) on swaptions written; Net change in unrealized appreciation/depreciation on swaptions written | 3,429 | (760 | ) | ||||||
Equity contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/depreciation on futures | 6,460 | 585 | |||||||
Equity contracts | Net realized gain/(loss) on investment transactions; Net change in unrealized appreciation/depreciation on investments | (26,380 | ) | 3,576 |
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Derivative Type | Location of Gain or | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Equity contracts | Net realized gain/(loss) on options written; Net change in unrealized appreciation/depreciation on options written | $ | 16,707 | $ | (2,112 | ) | ||||
|
|
|
| |||||||
Total | $ | (83,045 | ) | $ | 13,689 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2018.
Centrally Cleared Credit Default Swaps: | ||||
Average original value of buy contracts | $ | 834,568 | ||
Average original value of sale contracts | $ | 1,795,201 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount of contracts | $ | 11,214,143 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 740,468 | ||
Average notional amount of sale contracts | $ | 1,199,048 | ||
Futures: | ||||
Average original value of buy contracts | $ | 2,299,229 | (a) | |
Average original value of sale contracts | $ | 1,212,313 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 1,097,566 | ||
Average principal amount of sale contracts | $ | 3,419,526 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 1,630,381 | ||
Options Written: | ||||
Average notional amount | $ | 3,012 | (a) | |
Purchased Options: | ||||
Average notional amount | $ | 6,227 | (b) | |
Purchased Swaptions: | ||||
Average notional amount | $ | 1,100,000 | (c) | |
Swaptions Written: | ||||
Average notional amount | $ | 1,172,500 | (d) |
(a) | Positions were open for four months during the reporting period. |
(b) | Positions were open for five months during the reporting period. |
(c) | Positions were open for one month during the reporting period. |
(d) | Positions were open for three months during the reporting period. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund
86 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
as of April 30, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 2,456 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 2,456 | |||||||
Barclays Bank PLC | 1,958 | (1,958 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Brown Brothers Harriman & Co. | 12,046 | – 0 | – | – 0 | – | – 0 | – | 12,046 | ||||||||||||
Citibank, NA | 5,760 | (2 | ) | – 0 | – | – 0 | – | 5,758 | ||||||||||||
Credit Suisse International | 60,614 | (23,134 | ) | – 0 | – | – 0 | – | 37,480 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 41,983 | (41,983 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 1,180 | – 0 | – | – 0 | – | – 0 | – | 1,180 | ||||||||||||
Royal Bank of Scotland PLC | 14,484 | – 0 | – | – 0 | – | – 0 | – | 14,484 | ||||||||||||
Standard Chartered Bank | 904 | (904 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 141,385 | $ | (67,981 | ) | $ | – 0 | – | $ | – 0 | – | $ | 73,404 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 58,352 | $ | (1,958 | ) | $ | – 0 | – | $ | – 0 | – | $ | 56,394 | |||||||
Citibank, NA | 2 | (2 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 23,134 | (23,134 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 40,734 | – 0 | – | – 0 | – | – 0 | – | 40,734 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 49,264 | (41,983 | ) | – 0 | – | – 0 | – | 7,281 | ||||||||||||
Morgan Stanley & Co. International PLC/ Morgan Stanley Capital Services LLC | 1 | – 0 | – | – 0 | – | – 0 | – | 1 | ||||||||||||
Standard Chartered Bank | 1,169 | (904 | ) | – 0 | – | – 0 | – | 265 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 172,656 | $ | (67,981 | ) | $ | – 0 | – | $ | – 0 | – | $ | 104,675 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to overcollateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. See Note D.3 for additional disclosure of netting arrangements regarding reverse repurchase agreements. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 87 |
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. 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 such the return of such excess collateral may be delayed or denied. For the six months ended April 30, 2018, the average amount of reverse repurchase agreements outstanding was $345,023 and the daily weighted average interest rate was (0.61)%. At April 30, 2018, the Fund had reverse repurchase agreements outstanding in the amount of $166,336 as reported in the statement of assets and liabilities.
The following table presents the Fund’s RVP liabilities by counterparty net of related collateral pledged by the Fund as of April 30, 2018:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged†* | Net Amount of RVP Liabilities | |||||||||
Credit Suisse Securities (USA) LLC | $ | 166,336 | $ | (166,336 | ) | $ | – 0 | – |
† | Including accrued interest. |
* | The actual collateral pledged may be more than the amount reported due to overcollateralization. |
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NOTES TO FINANCIAL STATEMENTS (continued)
4. 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, and 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.
Unfunded loan commitments and funded loans are marked to market daily.
As of April 30, 2018, the Fund had no unfunded loan commitments outstanding.
As of April 30, 2018, the Fund had the following bridge loan commitments outstanding:
Loan | Unfunded Loan Participation Commitments | Funded | ||||||
BI-LO Finance LLC, LIBOR +0.00%, 03/08/2024 | $ | 100,000 | $ | – 0 | – | |||
Paysafe, LIBOR +0.00%, 04/25/2019 | $ | 100,000 | $ | – 0 | – |
During the six months ended April 30, 2018, the Fund received no commitment fees or additional funding fees.
abfunds.com | AB FLEXFEE 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 April 30, 2018 (unaudited) | Year Ended 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A* | ||||||||||||||||||||||||
Shares sold | 80,300 | 620,290 | $ | 773,699 | $ | 5,947,158 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,073 | 15,431 | 49,035 | 149,397 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (327,609 | ) | – 0 | – | (3,130,897 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (288,306 | ) | (230,551 | ) | (2,789,463 | ) | (2,216,354 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (530,542 | ) | 405,170 | $ | (5,097,626 | ) | $ | 3,880,201 | ||||||||||||||||
| ||||||||||||||||||||||||
Class C* | ||||||||||||||||||||||||
Shares sold | 8,025 | 72,483 | $ | 77,493 | $ | 701,341 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 611 | 1,866 | 5,912 | 18,024 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (101,817 | ) | – 0 | – | (973,623 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (11,471 | ) | (8,568 | ) | (110,570 | ) | (82,849 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (104,652 | ) | 65,781 | $ | (1,000,788 | ) | $ | 636,516 | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 326,901 | 416,754 | $ | 3,142,736 | $ | 4,010,347 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from: | ||||||||||||||||||||||||
Class A | 327,383 | – 0 | – | 3,130,897 | – 0 | – | ||||||||||||||||||
Class C | 101,807 | – 0 | – | 973,623 | – 0 | – | ||||||||||||||||||
Class R | 4,192 | – 0 | – | 40,092 | – 0 | – | ||||||||||||||||||
Class I | 1,800,976 | – 0 | – | 17,223,455 | – 0 | – | ||||||||||||||||||
Class Z | 43,624 | – 0 | – | 417,196 | – 0 | – | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 13,760 | 14,028 | 131,653 | 135,720 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (119,268 | ) | (288,688 | ) | (1,142,628 | ) | (2,762,280 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,499,375 | 142,094 | $ | 23,917,024 | $ | 1,383,787 | ||||||||||||||||||
|
90 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class R* | ||||||||||||||||||||||||
Shares sold | 689 | 3,868 | $ | 6,681 | $ | 37,554 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 37 | 169 | 356 | 1,638 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (4,194 | ) | – 0 | – | (40,092 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | – 0 | – | (3,852 | ) | – 0 | – | (37,236 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (3,468 | ) | 185 | $ | (33,055 | ) | $ | 1,956 | ||||||||||||||||
| ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | – 0 | – | 2 | $ | – 0 | – | $ | 17 | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,002 | ) | – 0 | – | (9,526 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (1,002 | ) | 2 | $ | (9,526 | ) | $ | 17 | ||||||||||||||||
| ||||||||||||||||||||||||
Class I* | ||||||||||||||||||||||||
Shares sold | 17,953 | 12,323 | $ | 176,781 | $ | 118,537 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 121 | 396 | 1,168 | 3,837 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (1,801,240 | ) | – 0 | – | (17,223,455 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (18,194 | ) | (1,690 | ) | (176,458 | ) | (16,315 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (1,801,360 | ) | 11,029 | $ | (17,221,964 | ) | $ | 106,059 | ||||||||||||||||
| ||||||||||||||||||||||||
Class Z* | ||||||||||||||||||||||||
Shares sold | 23,116 | 53,745 | $ | 223,643 | $ | 520,610 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 755 | 143,778 | 7,295 | 1,376,188 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (43,670 | ) | – 0 | – | (417,196 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (31,629 | ) | (7,041,947 | ) | (303,644 | ) | (68,123,442 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (51,428 | ) | (6,844,424 | ) | $ | (489,902 | ) | $ | (66,226,644 | ) | ||||||||||||||
|
* | Converted to Advisor Class on February 26, 2018. |
At April 30, 2018, the Adviser owned 61% of the Fund’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Fund’s performance.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 91 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE F
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 (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, 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 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—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to
92 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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 Fund’s investments in fixed-income securities denominated in foreign currencies 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.
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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 93 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
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, 2018. Effective July 5, 2018, the Facility will be increased to $325 million.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year.
The tax character of distributions paid during the year ended October 31, 2017, fiscal period ended October 31, 2016 and year ended August 31, 2016 were as follows:
October 2017 | October 2016 | August 2016 | ||||||||||
Distributions paid from: | ||||||||||||
Ordinary income | $ | 2,559,016 | $ | 636,717 | $ | 17,740,058 | ||||||
|
|
|
|
|
| |||||||
Total taxable distributions paid | 2,559,016 | 636,717 | 17,740,058 | |||||||||
Return of capital | 267,088 | – 0 | – | – 0 | – | |||||||
|
|
|
|
|
| |||||||
Total distributions paid | $ | 2,826,104 | $ | 636,717 | $ | 17,740,058 | ||||||
|
|
|
|
|
|
As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital and other losses | $ | (9,516,739 | )(a) | |
Unrealized appreciation/(depreciation) | 473,299 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (9,043,440 | )(c) | |
|
|
(a) | As of October 31, 2017, the Fund had a net capital loss carryforward of $9,509,266. The Fund also had $12,466,893 of capital loss carryforwards expire during the fiscal year. As of October 31, 2017, the cumulative deferred loss on straddles was $7,473. |
(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 recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
(c) | Other differences in 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 for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of October 31, 2017, the
94 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Fund had a net short-term capital loss carryforward of $5,695,887 and a net long-term capital loss carryforward of $3,813,379, which may be carried forward for an indefinite period.
NOTE I
Merger and Reorganization
At a meeting held 3-5, 2016, the Board, on behalf of the Fund, and the Board of Trustees of the Accounting Survivor, approved the Reorganization Agreement providing for the tax-free acquisition by the Fund of the assets and liabilities of the Accounting Survivor. The acquisition was completed at the close of business July 26, 2016. Pursuant to the Reorganization Agreement, the assets and liabilities of the Accounting Survivor’s shares were transferred in exchange for the Fund’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 Fund | 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. |
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 Fund’s financial statements through this date.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 95 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, | September 1, 2016 to October 31, 2016(a) | July 26, 2016(b) to August 31, 2016 | |||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 9.71 | $ 9.46 | $ 9.44 | $ 9.36 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(c)(d) | .25 | .49 | .08 | # | .05 | |||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.18 | ) | .24 | .01 | .08† | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (e) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase in net asset value from operations | .07 | .73 | .09 | .13 | ||||||||||||
|
| |||||||||||||||
Less: Dividends | ||||||||||||||||
Dividends from net investment income | (.25 | ) | (.43 | ) | (.07 | ) | (.05 | ) | ||||||||
Tax return of capital | – 0 | – | (.05 | ) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.25 | ) | (.48 | ) | (.07 | ) | (.05 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 9.53 | $ 9.71 | $ 9.46 | $ 9.44 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(f) | .68 | % | 7.89 | %*+ | .94 | %+# | 1.35 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period | $27,913 | $4,185 | $2,733 | $2,063 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(g)(h) | .42 | %^ | .71 | % | .78 | %^ | .81 | %^ | ||||||||
Expenses, before waivers/reimbursements(g)(h) | 2.60 | %^ | 2.49 | % | 3.18 | %^ | 2.41 | %^ | ||||||||
Net investment income(d) | 5.21 | %^ | 5.11 | % | 4.90 | %^# | 5.30 | %^ | ||||||||
Portfolio turnover rate | 6 | % | 65 | % | 9 | % | 44 | % |
See footnote summary on page 97.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | The Fund changed its fiscal year end from August 31 to October 31. |
(b) | Inception date. |
(c) | Based on average shares outstanding. |
(d) | Net expenses waived/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 charge or contingent deferred sales charge is not reflected in the calculation of total investment return. Total investment 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 for a period of less than one year is not annualized. |
(g) | The expense ratios presented below exclude interest expense: |
Six Months Ended | Year Ended October 31, 2017 | September 1, 2016 to | Year Ended August 31, 2016 | |||||||||||||
Advisor Class | ||||||||||||||||
Net of waivers/reimbursements | .40 | %^ | .70 | % | N/A | .80 | % | |||||||||
Before waivers/reimbursements | 2.58 | %^ | 2.54 | % | N/A | 2.40 | % |
(h) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the 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 Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the year ended October 31, 2017 and October 31, 2016, such waiver amounted to .01% and .02%, respectively. |
† | 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 Fund’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 Fund resulting from class action settlements, which enhanced the performance of each share class for the years ended October 31, 2017, August 31, 2016 and August 31, 2015 by .07%, .02% and .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 Income Per Share | Net Investment Income Ratio | Total Return | ||
$.003 | .20% | .03% |
See notes to financial statements.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1) , Chairman Michael J. Downey(1) William H. Foulk, Jr.(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
Gershon M. Distenfeld(2) , Vice President Ivan Rudolph-Shabinsky(2), Vice President William Smith(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, Rudolph-Shabinksy and Smith are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
98 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
Board Consideration of Amendment to the Fund’s Advisory Agreement
At the Board Meeting held on October 31-November 2, 2017, the Adviser presented its recommendation that the Board of Directors (the “Board” or “Directors”) of AB Bond Fund, Inc. (the “Company”) consider and approve an amendment to the Company’s current Advisory Agreement with the Adviser (the “Amended Agreement”) in respect of AB High Yield Portfolio (the “Fund”) to change the Fund’s current advisory fee to a performance-based, or fulcrum, fee. The Adviser explained that it believed a fulcrum fee would make the Fund more attractive to investors interested in either active or passive strategies from both performance and fee perspectives. In this regard, the Adviser also stated that it believes a high yield fund is well suited for the performance fee structure and that there is significant investor interest in passive high yield funds, but the performance of passive high yield funds generally lags that of conventional high yield indexes. The Adviser further stated that it believes that the Fund, under a fulcrum fee arrangement, would be an attractive alternative to such passive funds. Lastly, the Adviser noted that the Fund may be attractive compared to other active high yield funds in light of its fee structure and fee levels and its strong long-term performance record.
At the recommendation of the Adviser, the Board, including a majority of the Directors who are not interested persons of the Company (the “Independent Directors”) as defined in the Investment Company Act of 1940, as amended (“1940 Act”), approved the Amended Agreement between the Company, on behalf of the Fund, and the Adviser, for an initial two-year period, at the Board Meeting, which was held in-person. The Board, including the Independent Directors, recommend approval of the Amended Agreement by stockholders.
At the Board Meeting, the Board also approved (i) changing the Fund’s name to “AB FlexFeeTM High Yield Portfolio,” (ii) changing the Fund’s Performance Benchmark from the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (the “Current Index”) to the Markit iBoxx USD Liquid High Yield Index (the “Index”), (iii) converting the Fund’s outstanding Class A, Class C, Class R, Class I and Class Z shares to Advisor Class shares, (iv) changing the Fund’s fiscal year end from October 31 to December 31, consistent with the other AB FlexFee Funds; and (v) changing the Fund’s custodian and accounting agent to Brown Brothers Harriman & Co., the agent for the other AB FlexFee Funds. Implementation of the foregoing changes and actions is conditioned upon approval by stockholders of the Amended Agreement and would be effective on or about February 26, 2018.
The Directors approved the proposed changes to the Fund’s current Advisory Agreement to change the Fund into a fulcrum fee Fund and the other related proposals of the Adviser, including the proposed change to the
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 99 |
Fund’s name and Performance Benchmark. In considering the Adviser’s recommendation for the Fund, the Directors considered materials presented to them concerning the SEC’s published guidance on factors that should be considered in connection with fulcrum fee arrangements, including the following factors: (1) the fairness of the fulcrum fee; (2) selection of an appropriate index against which fund performance should be measured; (3) variations in periods used for computing average asset values and performance; (4) length of period over which performance is computed; (5) computation of performance over a rolling period; (6) performance for transitional periods; (7) computation of the performance of the fund and the index with respect to payment of dividends and capital gains distributions; and (8) avoidance of basing significant fee adjustments upon random or insignificant differences. The Directors had extensive discussions about the Adviser’s proposed change of Performance Benchmark for the Fund, and the use of the Index plus a hurdle rate for purposes of calculating the fulcrum fee, recognizing that the Current Index, like the Fund, includes less liquid securities, and that the performance of the Index, which includes significantly fewer less liquid securities, can be expected to be lower than that of the Current Index, making it a less challenging benchmark. The Directors determined to approve the proposed changes, due to, among other things: the .75% hurdle in the proposed management fee arrangement; the fact that the Adviser would need to achieve significant outperformance before earning a fee higher than the current fee and that based on historical performance of the Index and the Fund the proposal would result in a material fee reduction; and the Adviser’s desire to position the Fund as a competitor to exchange-traded funds that use benchmarks similar or identical to the proposed Performance Benchmark.
The Directors also considered that the Adviser had agreed to bear one half of the expenses relating to (i) the special meeting of stockholders called to approve the Amended Agreement, including the preparation, printing and mailing of the proxy materials and of all related solicitations and (ii) the additional audit of the Fund’s financial statements required as a result of changing the Fund’s fiscal year end to conform to the fiscal year end of the other AB FlexFee funds. The remaining one half of the aforementioned expenses will be borne by the Fund, subject to the applicable expense limitation.
At the Board Meeting, the Directors also approved continuance of the Fund’s current Advisory Agreement for an additional annual term or, if earlier, until such time as the Amended Agreement takes effect.
Prior to their approval of the Amended Agreement, the Directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed Amended 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
100 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the proposed performance-based management fee (which consists of a Base Fee plus or minus a Performance Adjustment), in which the Senior Officer concluded that the current and proposed contractual fees for the Fund were reasonable. The Directors also discussed the proposed approvals in private sessions with counsel and the Company’s Senior Officer.
The Directors considered the fact that the Amended Agreement would have terms and conditions substantially identical to those of the current Advisory Agreement with the exception of the change of the current advisory fee to a performance-based, or fulcrum, fee under the Amended Agreement and the change in the name of the Fund.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the current and proposed management fees. 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 current Advisory Agreement and the Amended Agreement, including the current fee arrangement and the proposed performance-based management 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 current Advisory Agreement (which would not change under the Amended Agreement), including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The Directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Amended Agreement, similar to the current 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. In the Fund’s last fiscal year, the Adviser did not request any reimbursements from the Fund. The Directors noted that the methodology to be 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 current Advisory Agreement and to be provided to the Fund under the Amended Agreement.
Costs of Services to be Provided and Profitability
In connection with their approval of the continuance of the Fund’s current Advisory Agreement 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 2015 and 2016 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 that 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 current Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative
102 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
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.
The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Amended Agreement and the Directors recognized that such information for 2018 and subsequent years would differ from that reviewed previously as a result of the imposition of the proposed performance fee. The Directors also noted that, due to the performance fee component of the proposed management fee, profitability would tend to be higher with better performance relative to the Index, which they considered to create an appropriate alignment of incentives.
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 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 Board Meeting, the Directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Board Meeting, the Directors reviewed performance information for the Fund’s operations as AB Bond Fund – AB High Yield Portfolio prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year period ended July 31, 2017 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. They noted that the Fund’s future performance would be affected by the performance fee component in the proposed management fee.
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Management Fees and Other Expenses
The Directors considered the current management fee rate paid by the Fund to the Adviser and the proposed management fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning management fee rates paid by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared the Fund’s current pro forma contractual effective management fee rate (reflecting a reduction in the management fee rate effective January 1, 2017) with a peer group median. The Directors also compared the Fund’s proposed contractual effective management fee rate with a peer group median. The information reviewed by the Directors showed that its proposed base contractual management fee rate of 40 basis points and its maximum fee rate of 60 basis points were lower than the Fund’s peer group median of 69 basis points. The fee rate payable after implementation of the Amended Agreement will depend upon the Fund’s future investment performance.
In considering the proposed performance-based fee, the Directors discussed, among other things: (i) the appropriateness of the Index, (ii) the Index Hurdle and (iii) the funds against which the Fund will compete from a fee perspective.
The Directors recognized that the Adviser’s total compensation from the Fund pursuant to the Amended Agreement would be increased by amounts paid pursuant to the expense reimbursement provision in the Amended Agreement, and that the impact of such expense reimbursement would depend on the size of the Fund and the extent to which the Adviser requests reimbursements pursuant to this provision.
The Directors also considered the Adviser’s fee schedule for other 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 proposed fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and 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 this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the
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Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; (iv) must service, and be marketed to, retail investors and financial intermediaries; and (v) requires a larger sales support infrastructure. 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 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures or to “equitize” cash inflows pending purchases of underlying securities, that the proposed management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to the Fund’s operations under the current fee structure, 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 the 15(c) provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the Directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap, which had been set at a lower level since the management fee reduction that took effect on January 1, 2017. The Directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. Based on their review, the Directors concluded that the Fund’s expense ratio was acceptable.
With respect to the Fund’s proposed implementation of a fulcrum fee, the Directors considered the proposed total expense ratios of the Advisor Class shares of the Fund (the Fund’s outstanding Class A, Class C, Class R, Class I and Class Z shares will be converted to Advisor Class shares if stockholders approve the Adviser’s proposals) in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s proposed expense cap for the “other expenses” of the Fund (expenses excluding the advisory fee, Rule 12b-1 fees, and certain other expenses typically excluded from the Adviser’s expense caps) for the period ending December 31, 2019. The Directors noted that it was likely that the expense ratios of some of the
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 105 |
other funds in the Fund’s 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 proposed expense ratios were acceptable.
Economies of Scale
The Directors noted that the proposed management fee schedule for the Fund, unlike the current management fee schedule, 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 Board 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 and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant 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
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 107 |
NOTES
108 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
AB FLEXFEE HIGH YIELD PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
FFHY-0152-0418
APR 04.30.18
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, 2018
This report provides management’s discussion of fund performance for AB Income Fund for the semi-annual reporting period ended April 30, 2018.
The investment objective of the Fund is to seek high current income consistent with preservation of capital.
NAV RETURNS AS OF APRIL 30, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB INCOME FUND | ||||||||
Class A Shares | -1.64% | -0.11% | ||||||
Class C Shares | -2.00% | -0.86% | ||||||
Advisor Class Shares1 | -1.64% | 0.02% | ||||||
Bloomberg Barclays US Aggregate Bond Index | -1.87% | -0.32% |
1 | Please note that this share class is 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, 2018.
During the six-month period, all share classes except Class C shares outperformed the benchmark, before sales charges. Sector positioning contributed to relative performance because of out-of-benchmark exposures to agency risk-sharing transactions and high-yield corporates. Security decisions further added to returns, primarily due to selection within commercial mortgage-backed securities (“CMBS”). As a result of the Fund’s exposure to Brazil, country allocation was also positive. As rates rose during the period, the Fund’s shorter-than-benchmark duration contributed to performance; however, yield-curve positioning detracted, particularly an overweight to intermediate maturities, where rates rose the most. Currency selection was also negative, mostly because of short positions in the Japanese yen and Turkish lira.
During the 12-month period, all share classes except Class C outperformed the benchmark, before sales charges. Security selection contributed to returns, primarily from selections within high-yield corporates, asset-backed securities and CMBS. Sector allocation also contributed, the
2 | AB INCOME FUND | abfunds.com |
result of beneficial out-of-benchmark exposures to agency risk-sharing transactions, non-agency mortgages and high-yield corporates. An underweight position in investment-grade corporates detracted from returns, as did an overweight in treasuries. Although the Fund’s shorter-than-benchmark duration benefited performance as rates rose, overall yield-curve positioning detracted, particularly an overweight along the intermediate portion of the curve, where rates rose the most. Neither currency nor country allocation had a significant impact on overall returns 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 (a measure of how the Fund is performing on a risk-adjusted basis versus its benchmark) 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 synthetic high-yield exposure in the Fund. 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
Fixed-income markets were volatile during the six-month period. Emerging-market debt had mixed returns, with some segments of the market helped by increasing oil prices and an improving global growth story, while the rise in global rates weighed on others. Investment-grade credit and high-yield markets fell in the period, trailing the positive returns of emerging-market local-currency government bonds and developed-market treasuries. US, Canadian, Australian and German treasury yields rose, while the UK and Japanese curves flattened and treasury yields in other developed markets moved in different directions. The passage of US tax reform buoyed market sentiment, while in Europe, despite some formal progress on Brexit, investor anxiety increased around a bifurcated outlook for the negotiation process. The US Federal Reserve (the “Fed”) raised interest rates twice in the period, and began to formally reduce its balance sheet, as universally anticipated by markets. The European Central Bank confirmed that its newly reduced pace of asset purchases would continue through September 2018, and further if necessary. At the end of the period, a severe spike in volatility shook a broad swath of capital markets. US Treasury yields rose dramatically, driven by higher inflation forecasts
abfunds.com | AB INCOME FUND | 3 |
and expectations for continued rate increases from the Fed. Additionally, President Trump’s announcement of tariffs on Chinese imports weighed on capital markets worldwide, as investors feared the possible onset of a global trade war.
The Fund’s Senior Investment Management Team (the “Team”) continues to pursue high income while preserving capital by investing primarily in government bonds from both US and non-US issuers as well as corporate bonds, with scope to invest a select amount in below investment-grade bonds. The Team manages the Fund with a core fixed-income strategy through a global, multi-sector approach that seeks an attractive risk/return profile.
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
4 | AB INCOME FUND | abfunds.com |
(continued on next page)
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.
abfunds.com | AB INCOME FUND | 5 |
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.
6 | AB INCOME FUND | abfunds.com |
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.
abfunds.com | AB INCOME FUND | 7 |
DISCLOSURES AND RISKS (continued)
Mortgage-Related and/or Other Asset-Backed Securities Risk: Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by non-governmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
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.
8 | AB INCOME FUND | abfunds.com |
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.
abfunds.com | AB INCOME FUND | 9 |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS A SHARES | 3.65% | |||||||||||
1 Year | -0.11% | -4.34% | ||||||||||
Since Inception2 | 3.25% | 1.09% | ||||||||||
CLASS C SHARES | 3.06% | |||||||||||
1 Year | -0.86% | -1.81% | ||||||||||
Since Inception2 | 2.53% | 2.53% | ||||||||||
ADVISOR CLASS SHARES3 | 4.07% | |||||||||||
1 Year | 0.02% | 0.02% | ||||||||||
5 Years | 2.68% | 2.68% | ||||||||||
10 Years | 5.99% | 5.99% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.11%, 1.87% and 0.90% 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 January 31, 2019. Any fees waived and expense borne by the Adviser through April 22, 2018 under the expense limitations in effect prior to that date 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 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 section 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, 2018. |
2 | Inception date: 4/21/2016. |
3 | Performance returns of Advisor Class shares for the periods prior to April 21, 2016 are based on the NAV per share of the Predecessor Fund. This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that this share class is 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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HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
1 Year | -2.27% | |||
Since Inception1 | 1.37% | |||
CLASS C SHARES | ||||
1 Year | 0.25% | |||
Since Inception1 | 2.91% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 2.38% | |||
5 Years | 3.28% | |||
10 Years | 6.11% |
1 | Inception date: 4/21/2016. |
2 | Performance returns of Advisor Class shares for the periods prior to April 21, 2016 are based on the NAV per share of the Predecessor Fund. Please note that this share class is 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 | 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, 2017 | Ending Account Value April 30, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 983.60 | $ | 5.02 | 1.02 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.74 | $ | 5.11 | 1.02 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 980.00 | $ | 8.69 | 1.77 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,016.02 | $ | 8.85 | 1.77 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 983.60 | $ | 3.79 | 0.77 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.98 | $ | 3.86 | 0.77 | % |
* | 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). |
12 | AB INCOME FUND | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $2,679.9
1 | All data are as of April 30, 2018. 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 0.3% or less in the following types: Bank Loans, Common Stocks, Governments–Sovereign Agencies, Governments–Sovereign Bonds, Local Governments–Regional Bonds, Local Governments–US Municipal Bonds, Mortgage Pass-Throughs, Options Purchased–Calls, Options Purchased–Puts, Preferred Stocks, Quasi-Sovereigns, Warrants and Whole Loan Trusts. |
abfunds.com | AB INCOME FUND | 13 |
PORTFOLIO SUMMARY (continued)
April 30, 2018 (unaudited)
1 | All data are as of April 30, 2018. 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 0.5% or less in the following countries: Angola, Bahamas, Bahrain, Belarus, Chile, Colombia, Costa Rica, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador, Germany, Guatemala, Honduras, Hong Kong, India, Ireland, Israel, Ivory Coast, Jamaica, Jersey (Channel Islands), Kazakhstan, Kenya, Lebanon, Luxembourg, Malaysia, Mexico, Nigeria, Norway, Peru, Qatar, Russia, Senegal, South Africa, Sri Lanka, Sweden, Switzerland, Trinidad & Tobago, Uruguay and Zambia. |
14 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – TREASURIES – 62.9% | ||||||||||||
Australia – 1.1% | ||||||||||||
Australia Government Bond | AUD | 36,630 | $ | 30,458,126 | ||||||||
|
| |||||||||||
Canada – 1.1% | ||||||||||||
Canadian Government Bond | CAD | 41,800 | 29,143,613 | |||||||||
|
| |||||||||||
Indonesia – 0.6% | ||||||||||||
Indonesia Treasury Bond | IDR | 107,698,000 | 8,472,799 | |||||||||
Series FR59 | 101,195,000 | 7,319,135 | ||||||||||
|
| |||||||||||
15,791,934 | ||||||||||||
|
| |||||||||||
Malaysia – 0.5% | ||||||||||||
Malaysia Government Bond | MYR | 26,000 | 6,797,269 | |||||||||
Series 414 | 15,620 | 3,981,935 | ||||||||||
Series 515 | 12,880 | 3,289,063 | ||||||||||
|
| |||||||||||
14,068,267 | ||||||||||||
|
| |||||||||||
Russia – 0.4% | ||||||||||||
Russian Federal Bond – OFZ | RUB | 670,156 | 10,891,758 | |||||||||
|
| |||||||||||
United States – 59.1% | ||||||||||||
U.S. Treasury Bonds | U.S.$ | 15,356 | 15,459,173 | |||||||||
6.125%, 11/15/27 | 12,091 | 15,295,115 | ||||||||||
6.25%, 5/15/30(b) | 119,000 | 158,548,906 | ||||||||||
6.375%, 8/15/27(c) | 86,284 | 110,443,520 | ||||||||||
6.50%, 11/15/26 | 12,276 | 15,592,438 | ||||||||||
7.125%, 2/15/23(b) | 68,907 | 82,300,798 | ||||||||||
8.00%, 11/15/21(b)(c) | 122,400 | 144,240,750 | ||||||||||
8.125%, 5/15/21 | 58,280 | 67,568,375 | ||||||||||
8.125%, 8/15/21(b) | 44,158 | 51,733,857 | ||||||||||
8.75%, 8/15/20 | 19,350 | 22,004,578 | ||||||||||
U.S. Treasury Notes | 17,500 | 16,608,594 | ||||||||||
1.375%, 5/31/20-4/30/21 | 111,500 | 107,675,723 |
abfunds.com | AB INCOME FUND | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
1.375%, 5/31/21(c) | U.S.$ | 158,200 | $ | 152,242,781 | ||||||||
1.50%, 8/15/20-3/31/23 | 48,221 | 45,704,568 | ||||||||||
1.75%, 12/31/20 | 54,190 | 53,012,865 | ||||||||||
1.75%, 5/15/22-5/31/22(b) | 198,514 | 191,058,394 | ||||||||||
1.875%, 4/30/22 | 50,000 | 48,375,000 | ||||||||||
2.00%, 10/31/21(b) | 52,292 | 51,083,138 | ||||||||||
2.00%, 6/30/24-11/15/26 | 46,561 | 43,808,379 | ||||||||||
2.125%, 8/31/20(b)(c) | 40,000 | 39,612,401 | ||||||||||
2.25%, 2/15/27-11/15/27 | 29,000 | 27,415,156 | ||||||||||
2.375%, 12/31/20 | 10,056 | 9,999,435 | ||||||||||
2.50%, 5/15/24 | 12,670 | 12,414,620 | ||||||||||
3.125%, 5/15/21(b)(c) | 57,725 | 58,518,719 | ||||||||||
3.50%, 5/15/20(b)(c) | 5,011 | 5,107,305 | ||||||||||
3.625%, 2/15/21(b)(c)(d) | 36,605 | 37,600,199 | ||||||||||
|
| |||||||||||
1,583,424,787 | ||||||||||||
|
| |||||||||||
Uruguay – 0.1% | ||||||||||||
Uruguay Government International Bond 8.50%, 3/15/28(a) | UYU | 37,222 | 1,240,297 | |||||||||
9.875%, 6/20/22(a) | 20,752 | 755,103 | ||||||||||
|
| |||||||||||
1,995,400 | ||||||||||||
|
| |||||||||||
Total Governments – Treasuries | 1,685,773,885 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 18.8% | ||||||||||||
Industrial – 14.0% | ||||||||||||
Basic – 2.0% | ||||||||||||
ArcelorMittal | U.S.$ | 1,000 | 1,151,920 | |||||||||
7.25%, 10/15/39 | 1,846 | 2,185,535 | ||||||||||
Axalta Coating Systems LLC | 1,728 | 1,741,686 | ||||||||||
CF Industries, Inc. | 492 | 411,971 | ||||||||||
5.375%, 3/15/44 | 371 | 325,319 | ||||||||||
Constellium NV | EUR | 2,060 | 2,520,691 | |||||||||
5.75%, 5/15/24(a) | U.S.$ | 3,680 | 3,623,770 | |||||||||
ERP Iron Ore, LLC | 166 | 165,778 | ||||||||||
Freeport-McMoRan, Inc. | 1,908 | 1,728,896 | ||||||||||
6.875%, 2/15/23 | 2,558 | 2,749,569 | ||||||||||
INEOS Group Holdings SA | EUR | 4,050 | 5,166,618 |
16 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Joseph T Ryerson & Son, Inc. | U.S.$ | 2,275 | $ | 2,519,676 | ||||||||
Kronos International, Inc. | EUR | 7,595 | 9,330,849 | |||||||||
Magnetation LLC/Mag Finance Corp. | U.S.$ | 1,407 | 14 | |||||||||
Multi-Color Corp. | 1,207 | 1,128,883 | ||||||||||
Nufarm Australia Ltd./Nufarm Americas, Inc. | 1,223 | 1,218,389 | ||||||||||
OCI NV | 2,100 | 2,147,250 | ||||||||||
Peabody Energy Corp. | 2,305 | 2,367,558 | ||||||||||
Plastipak Holdings, Inc. | 987 | 959,394 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu | 2,554 | 2,566,285 | ||||||||||
Sealed Air Corp. | 2,246 | 2,504,200 | ||||||||||
SPCM SA | 913 | 885,071 | ||||||||||
Steel Dynamics, Inc. | 1,820 | 1,736,972 | ||||||||||
Teck Resources Ltd. | 786 | 834,315 | ||||||||||
United States Steel Corp. | 715 | 709,351 | ||||||||||
6.875%, 8/15/25 | 915 | 932,861 | ||||||||||
Valvoline, Inc. | 1,237 | 1,195,907 | ||||||||||
5.50%, 7/15/24 | 381 | 390,628 | ||||||||||
|
| |||||||||||
53,199,356 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.7% | ||||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. | EUR | 5,143 | 6,297,324 | |||||||||
BBA US Holdings, Inc. | U.S.$ | 672 | 674,856 | |||||||||
Bombardier, Inc. | 3,124 | 3,136,027 | ||||||||||
Cleaver-Brooks, Inc. | 1,066 | 1,107,084 |
abfunds.com | AB INCOME FUND | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Crown European Holdings SA | EUR | 1,075 | $ | 1,281,942 | ||||||||
Jeld-Wen, Inc. | U.S.$ | 275 | 264,462 | |||||||||
OI European Group BV | EUR | 3,140 | 3,881,958 | |||||||||
TransDigm, Inc. | U.S.$ | 847 | 851,235 | |||||||||
6.50%, 7/15/24 | 1,989 | 2,024,882 | ||||||||||
|
| |||||||||||
19,519,770 | ||||||||||||
|
| |||||||||||
Communications - Media – 1.2% | ||||||||||||
Altice Financing SA | 2,600 | 2,562,118 | ||||||||||
Altice France SA/France | 766 | 729,822 | ||||||||||
7.375%, 5/01/26(a) | 1,500 | 1,455,090 | ||||||||||
Altice Luxembourg SA | 2,047 | 1,959,511 | ||||||||||
Cequel Communications Holdings I LLC/Cequel Capital Corp. | 1,631 | 1,653,328 | ||||||||||
Clear Channel Worldwide Holdings, Inc. | 2,266 | 2,315,535 | ||||||||||
CSC Holdings LLC | 743 | 695,381 | ||||||||||
6.625%, 10/15/25(a) | 268 | 276,099 | ||||||||||
10.875%, 10/15/25(a) | 709 | 831,409 | ||||||||||
DISH DBS Corp. | 4,125 | 3,758,700 | ||||||||||
iHeartCommunications, Inc. | 1,347 | 1,077,614 | ||||||||||
Meredith Corp. | 798 | 807,839 | ||||||||||
Radiate Holdco LLC/Radiate Finance, Inc. | 1,031 | 998,637 | ||||||||||
TEGNA, Inc. | 1,495 | 1,545,441 | ||||||||||
Townsquare Media, Inc. | 303 | 283,275 | ||||||||||
Virgin Media Finance PLC | 2,246 | 2,129,253 | ||||||||||
6.00%, 10/15/24(a) | 503 | 495,968 | ||||||||||
Virgin Media Receivables Financing Notes I DAC | GBP | 3,770 | 5,146,611 |
18 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Ziggo Bond Finance BV | U.S.$ | 3,000 | $ | 2,801,550 | ||||||||
|
| |||||||||||
31,523,181 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.5% | ||||||||||||
C&W Senior Financing DAC | 1,247 | 1,243,733 | ||||||||||
Embarq Corp. | 2,592 | 2,467,895 | ||||||||||
Frontier Communications Corp. | 448 | 320,257 | ||||||||||
8.75%, 4/15/22 | 919 | 766,979 | ||||||||||
Hughes Satellite Systems Corp. | 810 | 813,750 | ||||||||||
Intelsat Jackson Holdings SA | 1,625 | 1,585,935 | ||||||||||
9.50%, 9/30/22(a) | 700 | 802,508 | ||||||||||
Qwest Corp. | 1,275 | 1,206,482 | ||||||||||
Sprint Capital Corp. | 890 | 907,382 | ||||||||||
Wind Tre SpA | 3,845 | 3,215,958 | ||||||||||
Windstream Services LLC/Windstream Finance Corp. | 1,246 | 743,052 | ||||||||||
|
| |||||||||||
14,073,931 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.4% | ||||||||||||
BCD Acquisition, Inc. | 1,714 | 1,859,913 | ||||||||||
Exide Technologies | 2,877 | 1,812,539 | ||||||||||
11.00%, 4/30/22(e)(h)(l) | 3,211 | 2,874,204 | ||||||||||
IHO Verwaltungs GmbH | EUR | 3,060 | 3,880,387 | |||||||||
|
| |||||||||||
10,427,043 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.5% | ||||||||||||
CPUK Finance Ltd. | GBP | 7,385 | 10,265,137 | |||||||||
VOC Escrow Ltd. | U.S.$ | 2,511 | 2,429,267 | |||||||||
|
| |||||||||||
12,694,404 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Other – 0.7% | ||||||||||||
Beazer Homes USA, Inc. | U.S.$ | 1,121 | $ | 1,025,928 | ||||||||
Cooperativa Muratori & Cementisti-CMC di Ravenna SC | EUR | 501 | 579,646 | |||||||||
6.875%, 8/01/22(a)(b) | 3,295 | 3,958,668 | ||||||||||
Hilton Domestic Operating Co., Inc. | U.S.$ | 1,330 | 1,328,098 | |||||||||
James Hardie International Finance DAC | 672 | 655,240 | ||||||||||
5.00%, 1/15/28(a) | 607 | 589,348 | ||||||||||
K. Hovnanian Enterprises, Inc. | 3,649 | 3,918,442 | ||||||||||
10.50%, 7/15/24(a) | 649 | 662,889 | ||||||||||
Shea Homes LP/Shea Homes Funding Corp. | 1,901 | 1,912,007 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 688 | 659,627 | ||||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 1,008 | 1,033,462 | ||||||||||
Wyndham Hotels & Resorts, Inc. | 1,335 | 1,347,843 | ||||||||||
|
| |||||||||||
17,671,198 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.3% | ||||||||||||
IRB Holding Corp. | 1,031 | 1,000,018 | ||||||||||
Stonegate Pub Co. Financing PLC | GBP | 4,556 | 6,232,916 | |||||||||
|
| |||||||||||
7,232,934 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.3% | ||||||||||||
FirstCash, Inc. | U.S.$ | 271 | 275,103 | |||||||||
L Brands, Inc. | 1,058 | 994,224 | ||||||||||
6.875%, 11/01/35 | 2,540 | 2,409,545 | ||||||||||
Neiman Marcus Group Ltd. LLC | 852 | 575,143 | ||||||||||
Penske Automotive Group, Inc. | 1,350 | 1,383,831 |
20 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
PetSmart, Inc. | U.S.$ | 1,842 | $ | 1,072,081 | ||||||||
PVH Corp. | EUR | 1,075 | 1,291,263 | |||||||||
|
| |||||||||||
8,001,190 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.1% | ||||||||||||
Air Medical Group Holdings, Inc. | U.S.$ | 1,414 | 1,353,537 | |||||||||
Aveta, Inc. | 1,985 | – 0 | – | |||||||||
10.50%, 3/01/21(e)(f)(j)(l) | 720 | – 0 | – | |||||||||
BI-LO LLC/BI-LO Finance Corp. | 855 | 503,123 | ||||||||||
Charles River Laboratories International, Inc. | 605 | 615,358 | ||||||||||
CHS/Community Health Systems, Inc. | 1,666 | 908,520 | ||||||||||
Endo Dac/Endo Finance LLC/Endo Finco, Inc. | 1,521 | 1,108,855 | ||||||||||
Endo Finance LLC/Endo Finco, Inc. | 1,170 | 847,841 | ||||||||||
Grifols SA | EUR | 5,083 | 6,193,350 | |||||||||
Hadrian Merger Sub, Inc. | U.S.$ | 1,966 | 1,970,777 | |||||||||
HCA, Inc. | 313 | 299,651 | ||||||||||
5.25%, 6/15/26 | 548 | 550,488 | ||||||||||
LifePoint Health, Inc. | 2,210 | 2,228,542 | ||||||||||
5.875%, 12/01/23 | 1,385 | 1,370,693 | ||||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 1,190 | 896,070 | ||||||||||
5.625%, 10/15/23(a) | 118 | 92,632 | ||||||||||
5.75%, 8/01/22(a) | 1,334 | 1,115,251 | ||||||||||
Spectrum Brands, Inc. | 1,755 | 1,755,123 | ||||||||||
Sunshine Mid BV | EUR | 2,077 | 2,533,743 | |||||||||
Tenet Healthcare Corp. | U.S.$ | 1,359 | 1,415,806 | |||||||||
Valeant Pharmaceuticals International, Inc. | EUR | 1,800 | 1,978,048 | |||||||||
6.125%, 4/15/25(a) | U.S.$ | 892 | 803,023 |
abfunds.com | AB INCOME FUND | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Vizient, Inc. | U.S.$ | 1,355 | $ | 1,499,849 | ||||||||
|
| |||||||||||
30,040,280 | ||||||||||||
|
| |||||||||||
Energy – 3.5% | ||||||||||||
Antero Resources Corp. | 2,148 | 2,162,778 | ||||||||||
Berry Petroleum Co. LLC | 1,904 | – 0 | – | |||||||||
7.00%, 2/15/26(a) | 1,360 | 1,391,498 | ||||||||||
Bristow Group, Inc. | 2,400 | 2,462,760 | ||||||||||
California Resources Corp. | 2,860 | 2,459,057 | ||||||||||
Carrizo Oil & Gas, Inc. | 2,570 | 2,633,685 | ||||||||||
Cheniere Energy Partners LP | 1,669 | 1,630,563 | ||||||||||
Cheniere Energy, Inc. | 1,697 | 1,729,028 | ||||||||||
Chesapeake Energy Corp. | 2,645 | 2,674,598 | ||||||||||
Denbury Resources, Inc. | 871 | 908,793 | ||||||||||
Diamond Offshore Drilling, Inc. | 2,642 | 2,712,515 | ||||||||||
Ensco PLC | 2,880 | 2,342,390 | ||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 520 | 354,520 | ||||||||||
9.375%, 5/01/20 | 809 | 767,943 | ||||||||||
9.375%, 5/01/24(a) | 1,618 | 1,237,705 | ||||||||||
Genesis Energy LP/Genesis Energy Finance Corp. | 2,466 | 2,353,402 | ||||||||||
6.50%, 10/01/25 | 237 | 232,217 | ||||||||||
Gulfport Energy Corp. | 280 | 266,862 | ||||||||||
6.375%, 5/15/25-1/15/26 | 2,994 | 2,871,834 | ||||||||||
Hess Infrastructure Partners LP/Hess Infrastructure Partners Finance Corp. | 3,639 | 3,674,517 | ||||||||||
HighPoint Operating Corp. | 807 | 818,556 | ||||||||||
Indigo Natural Resources LLC | 2,570 | 2,464,733 |
22 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Nabors Industries, Inc. | U.S.$ | 2,220 | $ | 2,169,118 | ||||||
5.00%, 9/15/20 | 635 | 640,143 | ||||||||
5.50%, 1/15/23 | 845 | 829,959 | ||||||||
Noble Holding International Ltd. | 3,592 | 3,367,500 | ||||||||
Oasis Petroleum, Inc. | 2,000 | 2,055,000 | ||||||||
Parkland Fuel Corp. | 2,841 | 2,859,126 | ||||||||
PDC Energy, Inc. | 2,650 | 2,669,557 | ||||||||
Precision Drilling Corp. | 1,545 | 1,561,238 | ||||||||
QEP Resources, Inc. | 746 | 727,201 | ||||||||
5.625%, 3/01/26 | 2,942 | 2,834,882 | ||||||||
Range Resources Corp. | 2,293 | 2,125,359 | ||||||||
5.00%, 8/15/22-3/15/23 | 1,377 | 1,332,521 | ||||||||
Rowan Cos., Inc. | 436 | 312,019 | ||||||||
7.375%, 6/15/25 | 2,390 | 2,312,851 | ||||||||
Sanchez Energy Corp. | 2,641 | 1,908,228 | ||||||||
7.25%, 2/15/23(a) | 1,876 | 1,895,173 | ||||||||
SandRidge Energy, Inc. | 1,259 | – 0 | – | |||||||
SemGroup Corp. | 2,261 | 2,156,203 | ||||||||
7.25%, 3/15/26 | 882 | 873,506 | ||||||||
SM Energy Co. | 1,470 | 1,420,975 | ||||||||
6.50%, 11/15/21-1/01/23 | 1,759 | 1,781,184 | ||||||||
SRC Energy, Inc. | 1,330 | 1,348,514 | ||||||||
Sunoco LP/Sunoco Finance Corp. | 1,724 | 1,673,039 | ||||||||
5.875%, 3/15/28(a) | 1,319 | 1,281,158 | ||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 2,627 | 2,607,928 | ||||||||
Transocean Phoenix 2 Ltd. | 680 | 731,462 | ||||||||
Transocean, Inc. | 1,061 | 1,076,544 | ||||||||
9.00%, 7/15/23(a) | 2,375 | 2,563,195 |
abfunds.com | AB INCOME FUND | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Vantage Drilling International | U.S.$ | 3,068 | $ | – 0 | – | |||||||
10.00%, 12/31/20(e)(g) | 91 | 89,180 | ||||||||||
10.00%, 12/31/20(e)(l) | 77 | 75,460 | ||||||||||
Vine Oil & Gas LP/Vine Oil & Gas Finance Corp. | 2,108 | 1,984,387 | ||||||||||
Weatherford International LLC | 756 | 719,840 | ||||||||||
Weatherford International Ltd. | 338 | 321,182 | ||||||||||
7.75%, 6/15/21 | 650 | 643,539 | ||||||||||
9.875%, 2/15/24 | 1,189 | 1,141,773 | ||||||||||
Whiting Petroleum Corp. | 749 | 766,601 | ||||||||||
6.25%, 4/01/23 | 732 | 752,825 | ||||||||||
6.625%, 1/15/26(a) | 1,543 | 1,587,253 | ||||||||||
WPX Energy, Inc. | 250 | 284,215 | ||||||||||
|
| |||||||||||
93,629,792 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.6% | ||||||||||||
Algeco Global Finance PLC | 2,258 | 2,304,966 | ||||||||||
American Tire Distributors, Inc. | 3,259 | 1,741,936 | ||||||||||
Global Partners LP/GLP Finance Corp. | 1,100 | 1,096,777 | ||||||||||
Laureate Education, Inc. | 2,096 | 2,260,683 | ||||||||||
Travis Perkins PLC | GBP | 7,006 | 9,990,452 | |||||||||
|
| |||||||||||
17,394,814 | ||||||||||||
|
| |||||||||||
Services – 0.8% | ||||||||||||
APX Group, Inc. | U.S.$ | 3,066 | 3,020,623 | |||||||||
Arena Luxembourg Finance SARL | EUR | 3,743 | 4,616,594 | |||||||||
Carlson Travel, Inc. | U.S.$ | 1,312 | 1,286,010 | |||||||||
GEO Group, Inc. (The) | 760 | 779,965 | ||||||||||
La Financiere Atalian SAS | EUR | 5,000 | 5,867,002 | |||||||||
Monitronics International, Inc.(b) | U.S.$ | 1,835 | 1,300,189 |
24 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | U.S.$ | 2,259 | $ | 2,423,839 | ||||||||
Sabre GLBL, Inc. | 983 | 992,997 | ||||||||||
Team Health Holdings, Inc. | 692 | 604,462 | ||||||||||
|
| |||||||||||
20,891,681 | ||||||||||||
|
| |||||||||||
Technology – 0.5% | ||||||||||||
BMC Software Finance, Inc. | 1,400 | 1,398,908 | ||||||||||
Conduent Finance, Inc./Conduent Business Services LLC | 2,212 | 2,615,624 | ||||||||||
Dell, Inc. | 1,325 | 1,306,768 | ||||||||||
First Data Corp. | 1,550 | 1,576,303 | ||||||||||
Infor Software Parent LLC/Infor Software Parent, Inc. | 2,340 | 2,363,166 | ||||||||||
IQVIA, Inc. | EUR | 1,060 | 1,299,858 | |||||||||
Solera LLC/Solera Finance, Inc. | U.S.$ | 2,130 | 2,370,818 | |||||||||
Veritas US, Inc./Veritas Bermuda Ltd. | 1,045 | 1,017,809 | ||||||||||
|
| |||||||||||
13,949,254 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.9% |
| |||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 955 | 914,221 | ||||||||||
5.50%, 4/01/23 | 1,300 | 1,287,390 | ||||||||||
Europcar Groupe SA | EUR | 1,936 | 2,329,216 | |||||||||
Heathrow Finance PLC | GBP | 3,945 | 5,217,203 | |||||||||
Hertz Corp. (The) | U.S.$ | 1,478 | 1,240,116 | |||||||||
5.875%, 10/15/20 | 490 | 485,095 | ||||||||||
Hertz Holdings Netherlands BV | EUR | 2,888 | 3,509,345 | |||||||||
Loxam SAS | 4,855 | 6,354,148 | ||||||||||
XPO CNW, Inc. | U.S.$ | 2,134 | 2,215,135 |
abfunds.com | AB INCOME FUND | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
XPO Logistics, Inc. | U.S.$ | 845 | $ | 876,012 | ||||||
|
| |||||||||
24,427,881 | ||||||||||
|
| |||||||||
374,676,709 | ||||||||||
|
| |||||||||
Financial Institutions – 4.2% |
| |||||||||
Banking – 2.8% |
| |||||||||
ABN AMRO Bank NV | EUR | 3,200 | 4,213,151 | |||||||
Banco Bilbao Vizcaya Argentaria SA | 6,600 | 8,706,282 | ||||||||
8.875%, 4/14/21(a)(n) | 1,600 | 2,270,287 | ||||||||
Banco Santander SA | 2,900 | 3,875,602 | ||||||||
6.75%, 4/25/22(a)(n) | 600 | 821,730 | ||||||||
Bank of America Corp. | U.S.$ | 13 | 13,780 | |||||||
Series DD | 2,485 | 2,638,797 | ||||||||
Series FF | 104 | 103,786 | ||||||||
Barclays Bank PLC | 656 | 754,964 | ||||||||
Barclays PLC | GBP | 1,350 | 2,011,874 | |||||||
8.00%, 12/15/20(n) | EUR | 2,000 | 2,778,494 | |||||||
CIT Group, Inc. | U.S.$ | 1,451 | 1,503,570 | |||||||
Citigroup, Inc. | 2,055 | 2,095,134 | ||||||||
Credit Agricole SA | EUR | 4,806 | 6,536,618 | |||||||
8.125%, 12/23/25(a)(n) | U.S.$ | 2,233 | 2,536,197 | |||||||
Credit Suisse Group AG | 640 | 655,383 | ||||||||
7.50%, 12/11/23(a)(n) | 1,428 | 1,549,623 | ||||||||
ING Groep NV | 6,341 | 6,540,805 | ||||||||
Intesa Sanpaolo SpA | 799 | 781,582 | ||||||||
7.75%, 1/11/27(a)(n) | EUR | 1,091 | 1,617,220 | |||||||
Series E | 134 | 175,359 | ||||||||
Lloyds Banking Group PLC | U.S.$ | 1,108 | 1,196,418 |
26 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Macquarie Bank Ltd./London | U.S.$ | 200 | $ | 193,110 | ||||||
Royal Bank of Scotland Group PLC | EUR | 150 | 180,078 | |||||||
Series U | U.S.$ | 2,900 | 2,922,185 | |||||||
Societe Generale SA | 2,015 | 2,234,494 | ||||||||
Series E | 1,824 | 1,873,212 | ||||||||
Standard Chartered PLC | 300 | 282,993 | ||||||||
7.50%, 4/02/22(a)(n) | 1,278 | 1,349,887 | ||||||||
7.75%, 4/02/23(a)(n) | 265 | 282,596 | ||||||||
SunTrust Banks, Inc. | 838 | 827,961 | ||||||||
Series H | 1,950 | 1,869,114 | ||||||||
UBS Group AG | 1,863 | 1,974,519 | ||||||||
UniCredit SpA | EUR | 2,970 | 3,901,651 | |||||||
9.25%, 6/03/22(a)(n) | 2,700 | 3,901,146 | ||||||||
|
| |||||||||
75,169,602 | ||||||||||
|
| |||||||||
Finance – 0.4% |
| |||||||||
Compass Diversified Holdings/Compass Group Diversified Holdings LLC | U.S.$ | 3,085 | 3,061,739 | |||||||
Enova International, Inc. | 3,178 | 3,376,117 | ||||||||
goeasy Ltd. | 844 | 897,408 | ||||||||
Navient Corp. | 2,067 | 2,124,235 | ||||||||
8.00%, 3/25/20 | 422 | 449,430 | ||||||||
|
| |||||||||
9,908,929 | ||||||||||
|
| |||||||||
Insurance – 0.2% |
| |||||||||
ASR Nederland NV | EUR | 1,040 | 1,296,721 | |||||||
Polaris Intermediate Corp. | U.S.$ | 2,692 | 2,731,062 | |||||||
|
| |||||||||
4,027,783 | ||||||||||
|
|
abfunds.com | AB INCOME FUND | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Other Finance – 0.8% |
| |||||||||||
Creditcorp | U.S.$ | 1,199 | $ | 1,103,080 | ||||||||
Intrum Justitia AB | EUR | 5,160 | 6,176,753 | |||||||||
3.125%, 7/15/24(a)(b) | 2,730 | 3,236,318 | ||||||||||
LHC3 PLC | 6,134 | 7,489,342 | ||||||||||
Oxford Finance LLC/Oxford Finance Co-Issuer II, Inc. | U.S.$ | 424 | 434,439 | |||||||||
Tempo Acquisition LLC/Tempo Acquisition Finance Corp. | 2,353 | 2,336,482 | ||||||||||
Travelport Corporate Finance PLC | 1,479 | 1,512,248 | ||||||||||
|
| |||||||||||
22,288,662 | ||||||||||||
|
| |||||||||||
REITS – 0.0% |
| |||||||||||
MPT Operating Partnership LP/MPT Finance Corp. | 339 | 321,250 | ||||||||||
|
| |||||||||||
111,716,226 | ||||||||||||
|
| |||||||||||
Utility – 0.6% |
| |||||||||||
Electric – 0.5% |
| |||||||||||
AES Corp./VA | 2,621 | 2,636,778 | ||||||||||
Calpine Corp. | 662 | 635,679 | ||||||||||
5.50%, 2/01/24 | 1,270 | 1,164,793 | ||||||||||
5.75%, 1/15/25 | 1,160 | 1,064,138 | ||||||||||
5.875%, 1/15/24(a) | 929 | 935,642 | ||||||||||
NRG Energy, Inc. | 1,801 | 1,852,869 | ||||||||||
Talen Energy Supply LLC | 1,920 | 1,632,518 | ||||||||||
6.50%, 6/01/25 | 540 | 394,114 | ||||||||||
10.50%, 1/15/26(a) | 2,836 | 2,477,643 | ||||||||||
Vistra Energy Corp. | 2,179 | 2,295,729 | ||||||||||
|
| |||||||||||
15,089,903 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.1% |
| |||||||||||
NGL Energy Partners LP/NGL Energy Finance Corp. | 2,090 | 2,088,997 | ||||||||||
|
| |||||||||||
17,178,900 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 503,571,835 | |||||||||||
|
|
28 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 7.2% | ||||||||||||
Risk Share Floating Rate – 6.5% |
| |||||||||||
Bellemeade Re Ltd. | U.S.$ | 4,437 | $ | 4,442,333 | ||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 3,250 | 3,952,296 | ||||||||||
Series 2013-DN2, Class M2 | 5,508 | 6,113,762 | ||||||||||
Series 2014-DN1, Class M3 | 4,455 | 5,183,253 | ||||||||||
Series 2014-DN2, Class M3 | 4,170 | 4,665,152 | ||||||||||
Series 2014-DN3, Class M3 | 4,449 | 4,874,492 | ||||||||||
Series 2014-DN4, Class M3 | 582 | 648,617 | ||||||||||
Series 2014-HQ2, Class M3 | 1,010 | 1,162,225 | ||||||||||
Series 2015-DN1, Class B | 2,613 | 3,773,170 | ||||||||||
Series 2015-DNA2, Class B | 1,495 | 1,852,321 | ||||||||||
Series 2015-DNA2, Class M2 | 2,269 | 2,310,554 | ||||||||||
Series 2015-HQA1, Class B | 1,586 | 1,941,487 | ||||||||||
Series 2016-DNA2, Class M3 | 6,600 | 7,562,470 |
abfunds.com | AB INCOME FUND | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2016-DNA4, Class M3 | U.S.$ | 600 | $ | 673,233 | ||||||
Series 2017-DNA2, Class B1 | 3,650 | 4,110,450 | ||||||||
Series 2017-DNA2, Class M2 | 1,168 | 1,278,773 | ||||||||
Series 2017-DNA3, Class B1 | 4,550 | 4,921,473 | ||||||||
Series 2017-HQA1, Class B1 | 3,755 | 4,089,604 | ||||||||
Series 2017-HQA3, Class M2 | 8,684 | 8,897,014 | ||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 11,046 | 12,580,874 | ||||||||
Series 2014-C02, Class 1M2 | 3,976 | 4,227,285 | ||||||||
Series 2014-C03, Class 1M2 | 13,144 | 14,055,438 | ||||||||
Series 2014-C04, Class 1M2 | 9,296 | 10,624,242 | ||||||||
Series 2014-C04, Class 2M2 | 1,873 | 2,103,005 | ||||||||
Series 2015-C01, Class 1M2 | 3,588 | 3,950,497 | ||||||||
Series 2015-C02, Class 1M2 | 5,641 | 6,193,561 | ||||||||
Series 2015-C02, Class 2M2 | 2,397 | 2,584,369 | ||||||||
Series 2015-C03, Class 1M2 | 4,932 | 5,626,917 |
30 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2015-C03, Class 2M2 | U.S.$ | 2,221 | $ | 2,474,778 | ||||||||
Series 2015-C04, Class 1M2 | 2,551 | 2,968,581 | ||||||||||
Series 2015-C04, Class 2M2 | 3,978 | 4,481,844 | ||||||||||
Series 2016-C01, Class 2M2 | 1,966 | 2,348,443 | ||||||||||
Series 2016-C02, Class 1M2 | 465 | 557,013 | ||||||||||
Series 2016-C04, Class 1M2 | 666 | 758,996 | ||||||||||
Series 2016-C05, Class 2B | 2,748 | 3,617,183 | ||||||||||
Series 2016-C05, Class 2M2 | 6,961 | 7,807,220 | ||||||||||
Series 2016-C07, Class 2B | 1,192 | 1,484,582 | ||||||||||
Series 2017-C01, Class 1B1 | 4,300 | 5,053,495 | ||||||||||
Series 2017-C02, Class 2M2 | 709 | 776,703 | ||||||||||
Series 2017-C07, Class 2M2 | 2,842 | 2,918,732 | ||||||||||
JP Morgan Madison Avenue Securities Trust | 1,589 | 1,730,109 | ||||||||||
Series 2015-CH1, Class M2 | 2,224 | 2,484,996 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 919 | 1,034,613 | ||||||||||
|
| |||||||||||
174,896,155 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Non-Agency Fixed Rate – 0.4% |
| |||||||||||
Alternative Loan Trust | U.S.$ | 1,520 | $ | 1,315,492 | ||||||||
Series 2007-13, Class A2 | 2,006 | 1,722,510 | ||||||||||
BNPP Mortgage Securities LLC Trust | 1,219 | 980,443 | ||||||||||
Citigroup Mortgage Loan Trust | 325 | 316,379 | ||||||||||
Series 2010-3, Class 2A2 | 585 | 498,470 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 28 | 23,651 | ||||||||||
Series 2007-3, Class A30 | 930 | 770,640 | ||||||||||
Series 2007-HY4, Class 1A1 | 486 | 454,933 | ||||||||||
Credit Suisse Mortgage Trust | 176 | 141,513 | ||||||||||
CSMC Mortgage-Backed Trust | 607 | 498,066 | ||||||||||
Morgan Stanley Mortgage Loan Trust | 2 | 1,609 | ||||||||||
Nomura Resecuritization Trust | 1,639 | 1,380,889 | ||||||||||
Wells Fargo Mortgage Backed Securities Trust | 2,180 | 2,116,107 | ||||||||||
|
| |||||||||||
10,220,702 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 0.3% |
| |||||||||||
Federal Home Loan Mortgage Corp. | 16,949 | 2,941,842 |
32 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 4774, Class SL | U.S.$ | 22,631 | $ | 3,847,343 | ||||||||
|
| |||||||||||
6,789,185 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.0% |
| |||||||||||
Federal National Mortgage Association REMICs | 7,444 | 672,755 | ||||||||||
|
| |||||||||||
Non-Agency Floating Rate – 0.0% |
| |||||||||||
First Horizon Alternative Mortgage Securities Trust | 566 | 313,933 | ||||||||||
Lehman XS Trust | 635 | 92,784 | ||||||||||
|
| |||||||||||
406,717 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 192,985,514 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 4.0% | ||||||||||||
Argentina – 1.0% |
| |||||||||||
Argentina POM Politica Monetaria | ARS | 309,074 | 15,688,419 | |||||||||
Argentine Bonos del Tesoro | 48,330 | 2,187,500 | ||||||||||
16.00%, 10/17/23 | 75,139 | 3,359,868 | ||||||||||
18.20%, 10/03/21 | 103,390 | 4,802,035 | ||||||||||
21.20%, 9/19/18 | 35,317 | 1,663,866 | ||||||||||
|
| |||||||||||
27,701,688 | ||||||||||||
|
| |||||||||||
Brazil – 1.4% |
| |||||||||||
Brazil Notas do Tesouro Nacional | BRL | 128,850 | 37,720,167 | |||||||||
|
| |||||||||||
Dominican Republic – 0.1% |
| |||||||||||
Dominican Republic International Bond | DOP | 149,900 | 3,864,070 | |||||||||
|
|
abfunds.com | AB INCOME FUND | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Nigeria – 0.1% | ||||||||||||
Nigeria Government Bond | NGN | 695,000 | $ | 2,015,074 | ||||||||
|
| |||||||||||
South Africa – 0.3% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 110,304 | 8,887,410 | |||||||||
|
| |||||||||||
Sri Lanka – 0.3% | ||||||||||||
Sri Lanka Government Bonds | LKR | 444,000 | 2,813,666 | |||||||||
Series A | 644,000 | 4,291,106 | ||||||||||
|
| |||||||||||
7,104,772 | ||||||||||||
|
| |||||||||||
Turkey – 0.8% | ||||||||||||
Turkey Government Bond | TRY | 23,586 | 5,306,984 | |||||||||
11.00%, 2/24/27 | 66,948 | 15,352,239 | ||||||||||
|
| |||||||||||
20,659,223 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 107,952,404 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 3.8% | ||||||||||||
Financial Institutions – 2.8% | ||||||||||||
Banking – 1.0% | ||||||||||||
BNP Paribas SA | U.S.$ | 418 | 456,878 | |||||||||
7.625%, 3/30/21(a)(n) | 810 | 870,661 | ||||||||||
Cooperatieve Rabobank UA | EUR | 1,000 | 1,379,683 | |||||||||
11.00%, 6/30/19(a)(n) | U.S.$ | 1,061 | 1,151,821 | |||||||||
Danske Bank A/S | EUR | 3,302 | 4,458,776 | |||||||||
HSBC Holdings PLC | 5,927 | 7,619,385 | ||||||||||
JPMorgan Chase & Co. | U.S.$ | 2,998 | 3,246,984 | |||||||||
Nordea Bank AB | EUR | 5,410 | 6,361,620 |
34 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Santander Holdings USA, Inc. | U.S.$ | 2,686 | $ | 2,625,968 | ||||||||
|
| |||||||||||
28,171,776 | ||||||||||||
|
| |||||||||||
Insurance – 1.7% |
| |||||||||||
ACE Capital Trust II | 750 | 1,080,877 | ||||||||||
Aegon NV | 1,870 | 1,859,304 | ||||||||||
AIG Life Holdings, Inc. | 509 | 676,970 | ||||||||||
Allianz SE | EUR | 1,000 | 1,281,348 | |||||||||
American International Group, Inc. | U.S.$ | 2,525 | 3,305,048 | |||||||||
Assicurazioni Generali SpA | EUR | 6,630 | 9,296,775 | |||||||||
Aviva PLC | 990 | 1,306,098 | ||||||||||
CNP Assurances | 1,000 | 1,385,672 | ||||||||||
Fairfax Financial Holdings Ltd. | U.S.$ | 5,000 | 6,045,950 | |||||||||
Great-West Life & Annuity Insurance Capital LP II | 2,707 | 2,705,728 | ||||||||||
Groupama SA | EUR | 3,100 | 4,600,385 | |||||||||
Hartford Financial Services Group, Inc. (The) | U.S.$ | 3,275 | 3,160,997 | |||||||||
MetLife, Inc. | 2,033 | 2,216,743 | ||||||||||
Prudential Financial, Inc. | 2,198 | 2,294,756 | ||||||||||
5.875%, 9/15/42 | 1,573 | 1,670,746 | ||||||||||
SCOR SE | EUR | 200 | 255,369 | |||||||||
Transatlantic Holdings, Inc. | U.S.$ | 2,122 | 2,866,291 | |||||||||
|
| |||||||||||
46,009,057 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
REITS – 0.1% |
| |||||||||||
Growthpoint Properties International Pty Ltd. | U.S.$ | 1,525 | $ | 1,556,613 | ||||||||
|
| |||||||||||
75,737,446 | ||||||||||||
|
| |||||||||||
Industrial – 0.9% |
| |||||||||||
Basic – 0.3% |
| |||||||||||
Braskem Finance Ltd. | 1,204 | 1,279,864 | ||||||||||
GTL Trade Finance, Inc. | 274 | 296,468 | ||||||||||
GTL Trade Finance, Inc./Gerdau Holdings, Inc. | 2,711 | 2,843,297 | ||||||||||
Minsur SA | 285 | 301,387 | ||||||||||
Suzano Austria GmbH | 1,883 | 1,977,150 | ||||||||||
|
| |||||||||||
6,698,166 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% |
| |||||||||||
General Electric Co. | 1,203 | 1,190,392 | ||||||||||
|
| |||||||||||
Communications - Media – 0.0% | ||||||||||||
Myriad International Holdings BV | 683 | 720,565 | ||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.4% | ||||||||||||
Orange SA | EUR | 4,891 | 6,489,270 | |||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 1,990 | 2,006,696 | |||||||||
5.152%, 3/20/28(a) | 1,990 | 2,016,885 | ||||||||||
|
| |||||||||||
10,512,851 | ||||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Andeavor Logistics LP/Tesoro Logistics Finance Corp. | 591 | 616,679 | ||||||||||
Ecopetrol SA | 604 | 642,650 | ||||||||||
Hess Corp. | 1,598 | 1,893,598 | ||||||||||
|
| |||||||||||
3,152,927 | ||||||||||||
|
|
36 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Technology – 0.0% | ||||||||||||
Xerox Corp. | U.S.$ | 697 | $ | 676,174 | ||||||||
|
| |||||||||||
22,951,075 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
ComEd Financing III | 3,462 | 3,613,220 | ||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 102,301,741 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – PROVINCIAL BONDS – 3.4% | ||||||||||||
Canada – 3.4% | ||||||||||||
Province of Alberta Canada | CAD | 16,314 | 13,193,254 | |||||||||
Province of British Columbia Canada | 11,254 | 11,931,983 | ||||||||||
Province of Manitoba Canada | 15,924 | 16,434,853 | ||||||||||
Province of Ontario Canada | 11,092 | 12,357,436 | ||||||||||
Province of Quebec Canada | 19,724 | 21,424,416 | ||||||||||
Province of Saskatchewan Canada | 19,693 | 15,756,241 | ||||||||||
|
| |||||||||||
Total Local Governments – Provincial Bonds | 91,098,183 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 2.6% | ||||||||||||
Autos - Fixed Rate – 1.5% | ||||||||||||
Avis Budget Rental Car Funding AESOP LLC | U.S.$ | 2,372 | 2,371,242 | |||||||||
CPS Auto Receivables Trust | 2,500 | 2,666,986 | ||||||||||
Series 2017-C, Class E | 1,400 | 1,415,215 | ||||||||||
Series 2018-B, Class E | 1,687 | 1,677,409 |
abfunds.com | AB INCOME FUND | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CPS Auto Trust | U.S.$ | 3,000 | $ | 3,120,469 | ||||||||
Series 2017-A, Class E | 3,500 | 3,670,969 | ||||||||||
Exeter Automobile Receivables Trust | 6,480 | 6,624,786 | ||||||||||
Series 2016-1A, Class D | 1,220 | 1,289,383 | ||||||||||
Series 2016-3A, Class D | 1,090 | 1,133,789 | ||||||||||
Series 2017-1A, Class D | 2,000 | 2,059,941 | ||||||||||
Series 2017-3A, Class D | 4,370 | 4,409,523 | ||||||||||
First Investors Auto Owner Trust | 450 | 456,446 | ||||||||||
Flagship Credit Auto Trust | 1,750 | 1,783,709 | ||||||||||
Series 2016-2, Class D | 4,200 | 4,520,221 | ||||||||||
Series 2017-1, Class E | 1,000 | 1,031,246 | ||||||||||
Hertz Vehicle Financing LLC | 1,446 | 1,444,386 | ||||||||||
|
| |||||||||||
39,675,720 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 1.1% | ||||||||||||
Atlas Ltd. | 1,269 | 1,269,345 | ||||||||||
Club Credit Trust | 2,191 | 2,171,418 | ||||||||||
Marlette Funding Trust | 1,850 | 1,906,310 | ||||||||||
Prosper Marketplace Issuance Trust | 4,650 | 4,629,587 | ||||||||||
SoFi Consumer Loan Program LLC | 9,721 | 2,819,102 |
38 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2016-5, Class R | U.S.$ | 24 | $ | 718,830 | ||||||||
Series 2017-1, Class B | 2,205 | 2,262,194 | ||||||||||
Series 2017-2, Class R | 13 | 732,780 | ||||||||||
Series 2017-3, Class R | 10 | 991,926 | ||||||||||
Series 2017-4, Class R1 | 19 | 1,905,910 | ||||||||||
Series 2017-5, Class R1 | 17 | 1,636,701 | ||||||||||
Series 2017-6, Class R1 | 25 | 2,865,145 | ||||||||||
SoFi Consumer Loan Program Trust | 37 | 3,677,430 | ||||||||||
Series 2018-2, Class C | 1,400 | 1,391,413 | ||||||||||
|
| |||||||||||
28,978,091 | ||||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 68,653,811 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 2.4% | ||||||||||||
Industrial – 1.9% | ||||||||||||
Basic – 0.3% | ||||||||||||
Consolidated Energy Finance SA | 787 | 817,874 | ||||||||||
Elementia SAB de CV | 1,039 | 1,023,415 | ||||||||||
First Quantum Minerals Ltd. | 910 | 916,825 | ||||||||||
7.50%, 4/01/25(a) | 870 | 861,491 | ||||||||||
Nexa Resources SA | 1,300 | 1,301,625 | ||||||||||
Stillwater Mining Co. | 1,575 | 1,579,835 | ||||||||||
7.125%, 6/27/25(a) | 1,116 | 1,133,611 | ||||||||||
Vedanta Resources PLC | 1,474 | 1,481,370 | ||||||||||
|
| |||||||||||
9,116,046 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
Indo Energy Finance II BV | 1,390 | 1,369,150 | ||||||||||
Odebrecht Finance Ltd. | 6,760 | 1,774,500 |
abfunds.com | AB INCOME FUND | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.25%, 6/27/29(a) | U.S.$ | 2,103 | $ | 541,522 | ||||||||
|
| |||||||||||
3,685,172 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.3% | ||||||||||||
Digicel Group Ltd. | 3,000 | 2,692,500 | ||||||||||
Digicel Ltd. | 700 | 665,000 | ||||||||||
6.75%, 3/01/23(a) | 385 | 351,794 | ||||||||||
Millicom International Cellular SA | 1,762 | 1,665,601 | ||||||||||
MTN Mauritius Investment Ltd. | 1,500 | 1,516,875 | ||||||||||
|
| |||||||||||
6,891,770 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Servicios Corporativos Javer SAB de CV | 884 | 884,397 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.9% | ||||||||||||
BRF GmbH | 1,010 | 888,800 | ||||||||||
BRF SA | 200 | 181,000 | ||||||||||
Central American Bottling Corp. | 718 | 731,463 | ||||||||||
Cosan Ltd. | 587 | 590,234 | ||||||||||
Inretail Pharma SA | 4,634 | 4,678,764 | ||||||||||
MARB BondCo PLC | 3,730 | 3,511,161 | ||||||||||
Marfrig Holdings Europe BV | 2,420 | 2,444,200 | ||||||||||
Minerva Luxembourg SA | 3,300 | 3,135,000 | ||||||||||
Natura Cosmeticos SA | 2,139 | 2,130,337 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 4,211 | 3,800,428 | ||||||||||
Tonon Luxembourg SA | 2,280 | 111,530 | ||||||||||
Virgolino de Oliveira Finance SA | 4,738 | 299,963 | ||||||||||
10.875%, 1/13/20(j)(k)(l) | 750 | 206,250 | ||||||||||
11.75%, 2/09/22(j)(k)(l) | 1,690 | 109,850 | ||||||||||
|
| |||||||||||
22,818,980 | ||||||||||||
|
|
40 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Energy – 0.2% | ||||||||||||
Medco Platinum Road Pte Ltd. | U.S.$ | 1,532 | $ | 1,463,213 | ||||||||
Petrobras Global Finance BV | 299 | 316,432 | ||||||||||
YPF SA | 2,036 | 2,000,222 | ||||||||||
16.50%, 5/09/22(a) | ARS | 13,912 | 628,159 | |||||||||
|
| |||||||||||
4,408,026 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.0% | ||||||||||||
Noble Group Ltd. | U.S.$ | 1,362 | 528,456 | |||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
IHS Netherlands Holdco BV | 500 | 515,000 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg SARL | 2,272 | 2,417,408 | ||||||||||
|
| |||||||||||
51,265,255 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.3% | ||||||||||||
Banking – 0.3% | ||||||||||||
Akbank Turk AS | 530 | 539,275 | ||||||||||
Banco do Brasil SA/Cayman | 1,431 | 1,507,415 | ||||||||||
Itau Unibanco Holding SA/Cayman Island | 1,203 | 1,174,573 | ||||||||||
Turkiye Vakiflar Bankasi TAO | 2,799 | 2,716,458 | ||||||||||
Zenith Bank PLC | 1,400 | 1,413,300 | ||||||||||
|
| |||||||||||
7,351,021 | ||||||||||||
|
| |||||||||||
Finance – 0.0% | ||||||||||||
Unifin Financiera SAB de CV SOFOM ENR | 575 | 559,193 | ||||||||||
|
| |||||||||||
Other Finance – 0.0% | ||||||||||||
Rio Oil Finance Trust | 496 | 514,169 | ||||||||||
|
| |||||||||||
8,424,383 | ||||||||||||
|
| |||||||||||
Utility – 0.2% | ||||||||||||
Electric – 0.2% | ||||||||||||
Pampa Energia SA | 2,500 | 2,525,000 |
abfunds.com | AB INCOME FUND | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Terraform Global Operating LLC | U.S.$ | 695 | $ | 703,882 | ||||||||
|
| |||||||||||
3,228,882 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 62,918,520 | |||||||||||
|
| |||||||||||
COLLATERALIZED LOAN OBLIGATIONS – 2.2% | ||||||||||||
CLO - Floating Rate – 2.2% | ||||||||||||
Apidos CLO XXVI | 550 | 556,070 | ||||||||||
Black Diamond CLO Ltd. | 5,300 | 5,300,000 | ||||||||||
BlueMountain CLO Ltd. | 2,000 | 2,010,678 | ||||||||||
BlueMountain Fuji US CLO II Ltd. | 3,300 | 3,336,812 | ||||||||||
CBAM 2017-3 Ltd. | 1,604 | 1,622,382 | ||||||||||
CIFC Funding Ltd. | 250 | 247,174 | ||||||||||
Dryden 57 Clo Ltd. | 5,050 | 5,041,157 | ||||||||||
Dryden Senior Loan Fund | 605 | 611,125 | ||||||||||
GREYWOLF CLO VI Ltd. | 5,300 | 5,300,000 |
42 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2018-1A, Class A2 | U.S.$ | 5,300 | $ | 5,300,000 | ||||||||
Marble Point CLO XI Ltd. | 2,400 | 2,401,776 | ||||||||||
OZLM Ltd. | 1,908 | 1,911,805 | ||||||||||
OZLM VII Ltd. | 1,000 | 1,001,734 | ||||||||||
Series 2014-7A, Class D | 1,608 | 1,588,254 | ||||||||||
OZLM XVIII Ltd. | 5,450 | 5,449,727 | ||||||||||
Rockford Tower CLO Ltd. | 4,444 | 4,472,382 | ||||||||||
Series 2017-3A, Class A | 1,931 | 1,934,816 | ||||||||||
SOUND POINT CLO XIX Ltd. | 7,931 | 7,931,000 | ||||||||||
Venture XXVII CLO Ltd. | 1,591 | 1,610,422 | ||||||||||
|
| |||||||||||
Total Collateralized Loan Obligations | 57,627,314 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 2.1% | ||||||||||||
Angola – 0.0% | ||||||||||||
Angolan Government International Bond | 505 | 567,494 | ||||||||||
|
|
abfunds.com | AB INCOME FUND | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Argentina – 0.2% | ||||||||||||
Argentine Republic Government International Bond | U.S.$ | 7,663 | $ | 7,601,696 | ||||||||
|
| |||||||||||
Bahamas – 0.1% | ||||||||||||
Bahamas Government International Bond | 1,414 | 1,458,188 | ||||||||||
|
| |||||||||||
Bahrain – 0.1% | ||||||||||||
Bahrain Government International Bond | 1,709 | 1,577,082 | ||||||||||
7.00%, 10/12/28(a) | 1,288 | 1,228,430 | ||||||||||
|
| |||||||||||
2,805,512 | ||||||||||||
|
| |||||||||||
Belarus – 0.0% | ||||||||||||
Republic of Belarus International Bond | 275 | 288,461 | ||||||||||
|
| |||||||||||
Costa Rica – 0.1% | ||||||||||||
Costa Rica Government International Bond | 1,935 | 1,934,129 | ||||||||||
|
| |||||||||||
Ecuador – 0.2% | ||||||||||||
Ecuador Government International Bond | 4,000 | 3,769,120 | ||||||||||
9.65%, 12/13/26(a) | 734 | 721,155 | ||||||||||
10.50%, 3/24/20(a) | 1,974 | 2,028,285 | ||||||||||
|
| |||||||||||
6,518,560 | ||||||||||||
|
| |||||||||||
Egypt – 0.3% | ||||||||||||
Citigroup Global Markets Holdings, Inc./United States | EGP | 52,962 | 2,932,166 | |||||||||
Egypt Government International Bond | U.S.$ | 4,666 | 4,788,483 | |||||||||
|
| |||||||||||
7,720,649 | ||||||||||||
|
| |||||||||||
El Salvador – 0.1% | ||||||||||||
El Salvador Government International Bond | 1,427 | 1,476,945 | ||||||||||
|
| |||||||||||
Honduras – 0.1% | ||||||||||||
Honduras Government International Bond | 1,555 | 1,603,594 | ||||||||||
|
| |||||||||||
Ivory Coast – 0.1% | ||||||||||||
Ivory Coast Government International Bond | 2,440 | 2,452,200 | ||||||||||
|
|
44 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Kenya – 0.1% | ||||||||||||
Kenya Government International Bond | U.S.$ | 1,252 | $ | 1,269,215 | ||||||||
7.25%, 2/28/28(a) | 1,639 | 1,689,711 | ||||||||||
|
| |||||||||||
2,958,926 | ||||||||||||
|
| |||||||||||
Lebanon – 0.1% | ||||||||||||
Lebanon Government International Bond | 1,520 | 1,516,200 | ||||||||||
8.25%, 4/12/21(a) | 1,410 | 1,439,962 | ||||||||||
|
| |||||||||||
2,956,162 | ||||||||||||
|
| |||||||||||
Nigeria – 0.0% | ||||||||||||
Nigeria Government International Bond | 248 | 252,650 | ||||||||||
6.75%, 1/28/21(a) | 501 | 526,050 | ||||||||||
7.875%, 2/16/32(a) | 426 | 457,418 | ||||||||||
|
| |||||||||||
1,236,118 | ||||||||||||
|
| |||||||||||
Senegal – 0.1% | ||||||||||||
Senegal Government International Bond | 608 | 586,750 | ||||||||||
8.75%, 5/13/21(a) | 864 | 963,360 | ||||||||||
|
| |||||||||||
1,550,110 | ||||||||||||
|
| |||||||||||
Sri Lanka – 0.1% | ||||||||||||
Sri Lanka Government International Bond | 2,000 | 1,970,000 | ||||||||||
6.20%, 5/11/27(a) | 685 | 661,025 | ||||||||||
|
| |||||||||||
2,631,025 | ||||||||||||
|
| |||||||||||
Turkey – 0.2% | ||||||||||||
Turkey Government International Bond | 4,597 | 4,009,857 | ||||||||||
6.00%, 3/25/27 | 1,761 | 1,769,805 | ||||||||||
|
| |||||||||||
5,779,662 | ||||||||||||
|
| |||||||||||
Zambia – 0.2% | ||||||||||||
Zambia Government International Bond | 1,553 | 1,566,589 | ||||||||||
8.97%, 7/30/27(a) | 3,490 | 3,498,725 | ||||||||||
|
| |||||||||||
5,065,314 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Sovereigns | 56,604,745 | |||||||||||
|
| |||||||||||
AGENCIES – 1.6% | ||||||||||||
Agency Debentures – 1.6% | ||||||||||||
Federal Home Loan Banks | 8,695 | 11,318,456 |
abfunds.com | AB INCOME FUND | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Federal Home Loan Mortgage Corp. | U.S.$ | 15,000 | $ | 19,937,700 | ||||||||
6.75%, 3/15/31 | 4,000 | 5,428,800 | ||||||||||
Residual Funding Corp. Principal Strip | 5,277 | 4,953,467 | ||||||||||
|
| |||||||||||
Total Agencies | 41,638,423 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 1.4% | ||||||||||||
Non-Agency Fixed Rate CMBS – 1.3% | ||||||||||||
Citigroup Commercial Mortgage Trust | 6,525 | 6,130,699 | ||||||||||
Commercial Mortgage Trust | 3,219 | 2,726,774 | ||||||||||
Series 2014-LC17, Class D | 3,549 | 2,613,680 | ||||||||||
CSAIL Commercial Mortgage Trust | 4,091 | 3,310,708 | ||||||||||
GS Mortgage Securities Trust | 2,652 | 2,528,133 | ||||||||||
Series 2013-GC13, Class D | 9,440 | 8,630,383 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 1,863 | 1,694,265 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 1,300 | 1,281,390 | ||||||||||
Madison Avenue Trust | 920 | 907,375 | ||||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 603 | 478,339 | ||||||||||
Series 2015-C22, Class XA | 13,247 | 711,299 | ||||||||||
WF-RBS Commercial Mortgage Trust | 4,000 | 3,826,395 | ||||||||||
|
| |||||||||||
34,839,440 | ||||||||||||
|
|
46 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Non-Agency Floating Rate CMBS – 0.1% | ||||||||||||
BBCMS Mortgage Trust | U.S.$ | 1,655 | $ | 1,666,521 | ||||||||
CLNS Trust | 1,480 | 1,494,823 | ||||||||||
Credit Suisse Mortgage Trust | 755 | 762,079 | ||||||||||
|
| |||||||||||
3,923,423 | ||||||||||||
|
| |||||||||||
Agency CMBS – 0.0% |
| |||||||||||
Government National Mortgage Association | 293 | 251 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 38,763,114 | |||||||||||
|
| |||||||||||
INFLATION-LINKED SECURITIES – 0.4% | ||||||||||||
Brazil – 0.1% |
| |||||||||||
Brazil Notas do Tesouro Nacional | BRL | 4,145 | 4,020,054 | |||||||||
|
| |||||||||||
Mexico – 0.3% |
| |||||||||||
Mexican Udibonos | MXN | 126,938 | 6,752,428 | |||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 10,772,482 | |||||||||||
|
| |||||||||||
QUASI-SOVEREIGNS – 0.4% | ||||||||||||
Quasi-Sovereign Bonds – 0.4% | ||||||||||||
Chile – 0.0% |
| |||||||||||
Empresa Nacional del Petroleo | U.S.$ | 202 | 191,648 | |||||||||
|
|
abfunds.com | AB INCOME FUND | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Indonesia – 0.3% |
| |||||||||||
Majapahit Holding BV | U.S.$ | 4,738 | $ | 6,078,854 | ||||||||
|
| |||||||||||
Kazakhstan – 0.1% |
| |||||||||||
KazMunayGas National Co. JSC | 1,418 | 1,416,582 | ||||||||||
5.375%, 4/24/30(a) | 1,940 | 1,937,400 | ||||||||||
|
| |||||||||||
3,353,982 | ||||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 9,624,484 | |||||||||||
|
| |||||||||||
BANK LOANS – 0.3% |
| |||||||||||
Industrial – 0.3% |
| |||||||||||
Basic – 0.0% |
| |||||||||||
Foresight Energy LLC | 431 | 420,632 | ||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.0% | ||||||||||||
Intelsat Jackson Holdings S.A. | 150 | 155,250 | ||||||||||
6.63%, 1/02/24 | 252 | 255,849 | ||||||||||
|
| |||||||||||
411,099 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Navistar, Inc. | 659 | 662,929 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.0% | ||||||||||||
IRB Holding Corp. (aka Arby’s/Buffalo Wild Wings) | 256 | 258,527 | ||||||||||
5.25% (LIBOR 2 Month + 3.25%), 2/05/25(s) | 320 | 323,159 | ||||||||||
|
| |||||||||||
581,686 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.2% | ||||||||||||
Air Medical Group Holdings, Inc. | 1,185 | 1,197,053 |
48 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Alphabet Holding Company, Inc. (fka Nature’s Bounty) | U.S.$ | 3,524 | $ | 2,737,244 | ||||||||
Avantor, Inc. | 1,381 | 1,395,711 | ||||||||||
|
| |||||||||||
5,330,008 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
American Tire Distributors, Inc. | 1,400 | 1,219,596 | ||||||||||
|
| |||||||||||
Total Bank Loans | 8,625,950 | |||||||||||
|
| |||||||||||
GOVERNMENTS – SOVEREIGN AGENCIES – 0.3% | ||||||||||||
Canada – 0.3% | ||||||||||||
Canada Housing Trust No. 1 | CAD | 10,310 | 8,416,869 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.3% | ||||||||||||
Energy – 0.1% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.1% | ||||||||||||
Berry Petroleum Corp.(e)(g)(j) | 74,583 | 675,946 | ||||||||||
Denbury Resources, Inc.(j) | 83,999 | 276,357 | ||||||||||
Golden Energy Offshore Services AS(f)(j) | 1,497,659 | 1,008,109 | ||||||||||
Paragon Litigation – Class A(e)(g) | 10,360 | 10,878 | ||||||||||
Paragon Litigation – Class B(e)(g) | 15,538 | 456,429 | ||||||||||
SandRidge Energy, Inc.(j) | 2,859 | 41,570 | ||||||||||
Vantage Drilling International(e)(g)(j) | 5,303 | 1,173,289 | ||||||||||
|
| |||||||||||
3,642,578 | ||||||||||||
|
| |||||||||||
Financials – 0.1% | ||||||||||||
Diversified Financial Services – 0.0% | ||||||||||||
iPayment Holdings, Inc.(e)(f)(g) | 1,836,868 | 1,285,808 | ||||||||||
|
| |||||||||||
Real Estate – 0.1% | ||||||||||||
Calibrate Real Estate Limited(e)(f)(g) | 6,916 | 1,374,954 | ||||||||||
|
| |||||||||||
Information Technology – 0.1% | ||||||||||||
Internet Software & Services – 0.1% | ||||||||||||
Avaya Holdings Corp.(j) | 45,968 | 1,052,207 | ||||||||||
|
| |||||||||||
Consumer Discretionary – 0.0% | ||||||||||||
Media – 0.0% | ||||||||||||
Ion Media Networks, Inc. – Class A(e)(f)(g)(j) | 2,512 | 533,524 | ||||||||||
|
|
abfunds.com | AB INCOME FUND | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Industrials – 0.0% | ||||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Exide Technologies/Old(e)(f)(j)(u) | 45,970 | $ | 100,674 | |||||||||
|
| |||||||||||
Total Common Stocks | 7,989,745 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
WHOLE LOAN TRUSTS – 0.2% | ||||||||||||
Performing Asset – 0.2% | ||||||||||||
Flexpath Wh I LLC | U.S.$ | 388 | 122,747 | |||||||||
Recife Funding Ltd. | 2,884 | 1,906,033 | ||||||||||
Sheridan Auto Loan Holdings I LLC | 2,053 | 1,127,140 | ||||||||||
Sheridan Consumer Finance Trust | 1,400 | 1,374,394 | ||||||||||
|
| |||||||||||
Total Whole Loan Trusts | 4,530,314 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 0.1% | ||||||||||||
Industrial – 0.1% | ||||||||||||
Capital Goods – 0.1% | ||||||||||||
Tervita Corp. | 245,313 | 1,824,634 | ||||||||||
|
| |||||||||||
Energy – 0.0% | ||||||||||||
Berry Petroleum Co. LLC | 65,472 | 720,192 | ||||||||||
|
| |||||||||||
Services – 0.0% | ||||||||||||
iPayment Holdings, Inc. | 11,762 | 1,176,200 | ||||||||||
|
| |||||||||||
Total Preferred Stocks | 3,721,026 | |||||||||||
|
|
50 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
LOCAL GOVERNMENTS – REGIONAL BONDS – 0.1% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Provincia de Buenos Aires/Argentina 5.75%, 6/15/19(a) | U.S.$ | 1,057 | $ | 1,076,026 | ||||||||
9.125%, 3/16/24(a) | 363 | 401,115 | ||||||||||
26.832% (BADLAR + 3.83%), 5/31/22(i) | ARS | 28,600 | 1,394,989 | |||||||||
Provincia de Cordoba | U.S.$ | 493 | 516,418 | |||||||||
|
| |||||||||||
Total Local Governments – Regional Bonds | 3,388,548 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.1% | ||||||||||||
United States – 0.1% | ||||||||||||
Texas Transportation Commission State Highway Fund | 2,560 | 2,907,264 | ||||||||||
|
| |||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.0% | ||||||||||||
Qatar – 0.0% | ||||||||||||
Qatar Government International Bond | 861 | 857,427 | ||||||||||
|
| |||||||||||
Notional Amount | ||||||||||||
OPTIONS PURCHASED – PUTS – 0.0% | ||||||||||||
Options on Forward Contracts – 0.0% | ||||||||||||
MXN/USD | MXN | 266,500,000 | 163,616 | |||||||||
TRY/EUR | TRY | 53,151,250 | 7,105 |
abfunds.com | AB INCOME FUND | 51 |
PORTFOLIO OF INVESTMENTS (continued)
Notional | U.S. $ Value | |||||||||||
| ||||||||||||
USD/MXN | USD | 14,650,000 | $ | 57,604 | ||||||||
|
| |||||||||||
Total Options Purchased – Puts | 228,325 | |||||||||||
|
| |||||||||||
OPTIONS PURCHASED – CALLS – 0.0% | ||||||||||||
Options on Forward Contracts – 0.0% | ||||||||||||
MXN/USD | MXN | 239,063,825 | 103,246 | |||||||||
SEK/EUR | SEK | 212,930,000 | 6,687 | |||||||||
TRY/EUR | TRY | 49,099,125 | 653 | |||||||||
|
| |||||||||||
Total Options Purchased – Calls | 110,586 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
MORTGAGE PASS-THROUGHS – 0.0% | ||||||||||||
Agency Fixed Rate 30-Year – 0.0% | ||||||||||||
Federal National Mortgage Association | U.S.$ | 10 | 11,566 | |||||||||
Series 1999 | 16 | 17,784 | ||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 29,350 | |||||||||||
|
|
52 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
WARRANTS – 0.0% | ||||||||||||
Avaya Holdings Corp., expiring | 2,936 | $ | 13,212 | |||||||||
Encore Automotive Acceptance, expiring 7/05/31(e)(f)(g)(j) | 12 | – 0 | – | |||||||||
Flexpath Capital, Inc., expiring 4/15/31(e)(f)(g)(j) | 17,195 | – 0 | – | |||||||||
SandRidge Energy, Inc., A-CW22, expiring 10/04/22(j) | 2,475 | 817 | ||||||||||
SandRidge Energy, Inc., B-CW22, expiring 10/04/22(j) | 1,042 | 229 | ||||||||||
|
| |||||||||||
Total Warrants | 14,258 | |||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 0.6% | ||||||||||||
Investment Companies – 0.6% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 1.51%(v)(w)(x) | 15,156,127 | 15,156,127 | ||||||||||
|
| |||||||||||
Total Investments – 115.2% | 3,086,262,244 | |||||||||||
Other assets less liabilities – (15.2)% | (406,374,427 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 2,679,887,817 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional | Original Value | Value at April 30, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
U.S. 10 Yr Ultra Bond Futures | 1,699 | | June 2018 | | USD | 169,900 | $ | 217,684,407 | $ | 217,286,172 | $ | (398,235 | ) | |||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 122 | | June 2018 | | USD | 24,400 | 25,924,197 | 25,869,719 | (54,478 | ) | ||||||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 2,900 | | June 2018 | | USD | 290,000 | 330,376,845 | 329,172,658 | (1,204,187 | ) | ||||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 1,325 | | June 2018 | | USD | 132,500 | 159,272,407 | 158,503,125 | (769,282 | ) | ||||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 31 | | June 2018 | | USD | 3,100 | 4,825,999 | 4,870,875 | 44,876 |
abfunds.com | AB INCOME FUND | 53 |
PORTFOLIO OF INVESTMENTS (continued)
Description | Number of Contracts | Expiration Month | Notional | Original Value | Value at April 30, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||||
10 Yr Canadian Bond Futures | 145 | | June 2018 | | CAD | 14,500 | $ | 14,757,706 | $ | 14,845,010 | $ | (87,304 | ) | |||||||||||||||
Euro-BOBL Futures | 599 | | June 2018 | | EUR | 59,900 | 94,114,667 | 94,759,138 | (644,471 | ) | ||||||||||||||||||
Euro-Bund Futures | 79 | | June 2018 | | EUR | 7,900 | 14,997,246 | 15,143,855 | (146,609 | ) | ||||||||||||||||||
Euro-Schatz Futures | 2,125 | | June 2018 | | EUR | 212,500 | 286,878,544 | 287,190,598 | (312,054 | ) | ||||||||||||||||||
U.S. Long Bond (CBT) Futures | 440 | | June 2018 | | USD | 44,000 | 62,789,699 | 63,291,250 | (501,551 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (4,073,295 | ) | ||||||||||||||||||||||||||
|
|
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 | 24,113 | EUR | 19,472 | 5/30/18 | $ | (553,387 | ) | ||||||||||||||||
Australia and New Zealand Banking Group Ltd. | NZD | 14,642 | USD | 10,585 | 6/07/18 | 283,833 | ||||||||||||||||||
Bank of America, NA | AUD | 4,551 | JPY | 382,861 | 5/16/18 | 79,328 | ||||||||||||||||||
Bank of America, NA | RUB | 705,978 | USD | 11,363 | 5/17/18 | 170,902 | ||||||||||||||||||
Bank of America, NA | USD | 13,175 | RUB | 811,944 | 5/17/18 | (303,252 | ) | |||||||||||||||||
Bank of America, NA | USD | 952 | JPY | 102,308 | 5/24/18 | (14,939 | ) | |||||||||||||||||
Bank of America, NA | TWD | 423,873 | USD | 14,354 | 6/07/18 | 4,258 | ||||||||||||||||||
Bank of America, NA | USD | 7,529 | CAD | 9,506 | 6/12/18 | (117,802 | ) | |||||||||||||||||
Bank of America, NA | BRL | 18,706 | USD | 5,374 | 6/14/18 | 55,538 | ||||||||||||||||||
Bank of America, NA | MXN | 195,829 | USD | 9,819 | 7/23/18 | (520,282 | ) | |||||||||||||||||
Barclays Bank PLC | NOK | 20,956 | EUR | 2,163 | 5/07/18 | 420 | ||||||||||||||||||
Barclays Bank PLC | USD | 13,300 | INR | 885,520 | 5/17/18 | (174 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 886 | TRY | 3,649 | 5/18/18 | 8,447 | ||||||||||||||||||
Barclays Bank PLC | AUD | 8,242 | NZD | 8,834 | 6/08/18 | 9,212 | ||||||||||||||||||
Barclays Bank PLC | MYR | 71,468 | USD | 18,339 | 7/12/18 | 268,354 | ||||||||||||||||||
BNP Paribas SA | AUD | 8,618 | USD | 6,622 | 6/07/18 | 133,826 | ||||||||||||||||||
BNP Paribas SA | NZD | 28,273 | USD | 20,132 | 6/07/18 | 241,500 | ||||||||||||||||||
BNP Paribas SA | USD | 13,838 | NZD | 18,778 | 6/07/18 | (628,082 | ) | |||||||||||||||||
BNP Paribas SA | USD | 16,641 | CAD | 20,986 | 6/12/18 | (281,130 | ) | |||||||||||||||||
BNP Paribas SA | GBP | 47,979 | USD | 68,246 | 6/13/18 | 2,064,624 | ||||||||||||||||||
BNP Paribas SA | ARS | 308,049 | USD | 14,653 | 6/26/18 | 298,900 | ||||||||||||||||||
BNP Paribas SA | USD | 26,735 | CNY | 168,302 | 6/28/18 | (200,028 | ) | |||||||||||||||||
Citibank, NA | USD | 13,622 | INR | 904,524 | 5/17/18 | (37,154 | ) | |||||||||||||||||
Citibank, NA | SEK | 15,690 | USD | 1,884 | 5/25/18 | 89,196 | ||||||||||||||||||
Citibank, NA | EUR | 100,272 | USD | 124,427 | 5/30/18 | 3,105,515 | ||||||||||||||||||
Citibank, NA | BRL | 21,852 | USD | 6,295 | 6/04/18 | 76,175 | ||||||||||||||||||
Citibank, NA | NZD | 19,203 | USD | 13,844 | 6/07/18 | 334,217 | ||||||||||||||||||
Citibank, NA | TWD | 753,504 | USD | 25,966 | 6/07/18 | 456,499 | ||||||||||||||||||
Citibank, NA | USD | 27,222 | TWD | 786,241 | 6/07/18 | (604,358 | ) |
54 | 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 | JPY | 983,488 | USD | 9,051 | 6/28/18 | $ | 18,803 | |||||||||||||||||
Citibank, NA | USD | 45,367 | KRW | 48,240,670 | 7/26/18 | (207,003 | ) | |||||||||||||||||
Credit Suisse International | BRL | 116,711 | USD | 33,527 | 5/03/18 | 211,505 | ||||||||||||||||||
Credit Suisse International | USD | 33,317 | BRL | 116,711 | 5/03/18 | (1,902 | ) | |||||||||||||||||
Credit Suisse International | EUR | 2,163 | NOK | 20,956 | 5/07/18 | (423 | ) | |||||||||||||||||
Credit Suisse International | AUD | 7,848 | CAD | 7,720 | 5/09/18 | 105,392 | ||||||||||||||||||
Credit Suisse International | JPY | 510,771 | CAD | 6,197 | 5/11/18 | 152,178 | ||||||||||||||||||
Credit Suisse International | JPY | 382,861 | AUD | 4,551 | 5/16/18 | (79,332 | ) | |||||||||||||||||
Credit Suisse International | CAD | 4,037 | NOK | 23,819 | 5/22/18 | (174,413 | ) | |||||||||||||||||
Credit Suisse International | NOK | 103,555 | CAD | 16,780 | 5/22/18 | 157,722 | ||||||||||||||||||
Credit Suisse International | EUR | 6,457 | USD | 7,922 | 5/24/18 | 112,481 | ||||||||||||||||||
Credit Suisse International | JPY | 564,097 | USD | 5,264 | 5/24/18 | 96,791 | ||||||||||||||||||
Credit Suisse International | USD | 13,292 | CAD | 16,972 | 5/24/18 | (67,523 | ) | |||||||||||||||||
Credit Suisse International | NOK | 104,930 | USD | 13,112 | 5/25/18 | 22,481 | ||||||||||||||||||
Credit Suisse International | EUR | 904 | USD | 1,118 | 5/30/18 | 23,930 | ||||||||||||||||||
Credit Suisse International | SEK | 110,588 | EUR | 10,765 | 5/30/18 | 370,524 | ||||||||||||||||||
Credit Suisse International | EUR | 4,606 | CAD | 7,376 | 5/31/18 | 174,344 | ||||||||||||||||||
Credit Suisse International | BRL | 116,711 | USD | 33,230 | 6/04/18 | 15,131 | ||||||||||||||||||
Credit Suisse International | AUD | 34,348 | CAD | 34,115 | 6/07/18 | 730,435 | ||||||||||||||||||
Credit Suisse International | NZD | 8,835 | AUD | 8,242 | 6/08/18 | (9,601 | ) | |||||||||||||||||
Credit Suisse International | EUR | 1,936 | TRY | 9,377 | 6/12/18 | (65,599 | ) | |||||||||||||||||
Credit Suisse International | TRY | 33,618 | EUR | 6,501 | 6/12/18 | (298,757 | ) | |||||||||||||||||
Credit Suisse International | TRY | 60,518 | USD | 14,633 | 6/21/18 | (38,606 | ) | |||||||||||||||||
Credit Suisse International | EUR | 4,310 | CNY | 33,909 | 6/22/18 | 123,403 | ||||||||||||||||||
Credit Suisse International | USD | 1,731 | CHF | 1,644 | 6/28/18 | (63,440 | ) | |||||||||||||||||
Credit Suisse International | USD | 2,643 | ZAR | 31,793 | 7/05/18 | (113,625 | ) | |||||||||||||||||
Credit Suisse International | USD | 1,842 | MXN | 34,308 | 7/23/18 | (30,921 | ) | |||||||||||||||||
Credit Suisse International | USD | 6,529 | MXN | 122,199 | 8/02/18 | (87,265 | ) | |||||||||||||||||
Credit Suisse International | MXN | 120,988 | USD | 6,387 | 8/06/18 | 13,171 | ||||||||||||||||||
Credit Suisse International | USD | 6,387 | MXN | 120,988 | 8/06/18 | (13,166 | ) | |||||||||||||||||
Credit Suisse International | CHF | 2,769 | SGD | 3,953 | 8/27/18 | 166,457 | ||||||||||||||||||
Credit Suisse International | GBP | 1,515 | ZAR | 27,009 | 10/17/18 | 19,372 | ||||||||||||||||||
Deutsche Bank AG | TRY | 25,120 | EUR | 5,226 | 5/08/18 | 139,886 | ||||||||||||||||||
Deutsche Bank AG | NOK | 23,668 | CAD | 3,916 | 5/14/18 | 99,272 | ||||||||||||||||||
Deutsche Bank AG | SEK | 98,720 | USD | 12,071 | 5/25/18 | 779,626 | ||||||||||||||||||
Deutsche Bank AG | EUR | 1,100 | USD | 1,364 | 5/30/18 | 32,128 | ||||||||||||||||||
Deutsche Bank AG | USD | 13,264 | COP | 35,986,701 | 6/21/18 | (460,945 | ) | |||||||||||||||||
Deutsche Bank AG | ILS | 136,555 | USD | 38,972 | 7/12/18 | 868,755 | ||||||||||||||||||
Goldman Sachs Bank USA | EUR | 4,247 | TRY | 21,357 | 5/08/18 | 117,995 | ||||||||||||||||||
Goldman Sachs Bank USA | EUR | 14,644 | USD | 18,133 | 5/30/18 | 414,505 | ||||||||||||||||||
Goldman Sachs Bank USA | USD | 36,286 | EUR | 29,034 | 5/30/18 | (1,156,515 | ) | |||||||||||||||||
Goldman Sachs Bank USA | SEK | 115,832 | EUR | 11,445 | 6/18/18 | 594,094 | ||||||||||||||||||
Goldman Sachs Bank USA | CHF | 12,790 | USD | 13,357 | 6/19/18 | 398,758 | ||||||||||||||||||
HSBC Bank USA | USD | 22,380 | NOK | 172,015 | 5/25/18 | (922,687 | ) | |||||||||||||||||
HSBC Bank USA | USD | 6,214 | EUR | 5,017 | 5/30/18 | (144,674 | ) | |||||||||||||||||
HSBC Bank USA | TWD | 380,571 | USD | 13,106 | 6/07/18 | 221,771 | ||||||||||||||||||
HSBC Bank USA | CAD | 239,638 | USD | 189,530 | 6/12/18 | 2,715,961 | ||||||||||||||||||
HSBC Bank USA | TRY | 25,921 | USD | 6,275 | 6/21/18 | (9,509 | ) | |||||||||||||||||
HSBC Bank USA | CHF | 19,179 | USD | 20,097 | 6/28/18 | 647,377 | ||||||||||||||||||
JPMorgan Chase Bank, NA | CAD | 7,720 | AUD | 7,848 | 5/09/18 | (105,276 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | CAD | 6,197 | JPY | 510,771 | 5/11/18 | (152,173 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | CAD | 3,916 | NOK | 23,667 | 5/14/18 | (99,291 | ) |
abfunds.com | AB INCOME FUND | 55 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 13,238 | PLN | 44,785 | 5/16/18 | $ | (476,404 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | CAD | 20,451 | JPY | 1,662,617 | 5/24/18 | (705,521 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | NOK | 62,930 | USD | 8,070 | 5/25/18 | 219,771 | ||||||||||||||||||
JPMorgan Chase Bank, NA | EUR | 22,447 | SEK | 233,357 | 5/30/18 | (457,436 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | AUD | 94,486 | USD | 72,998 | 6/07/18 | 1,859,586 | ||||||||||||||||||
JPMorgan Chase Bank, NA | JPY | 423,893 | NZD | 5,447 | 6/07/18 | (54,185 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | TWD | 411,617 | USD | 14,178 | 6/07/18 | 242,421 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 14,136 | AUD | 18,225 | 6/07/18 | (414,355 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | TRY | 9,377 | EUR | 1,936 | 6/12/18 | 65,608 | ||||||||||||||||||
JPMorgan Chase Bank, NA | SEK | 69,229 | USD | 7,992 | 6/14/18 | 61,024 | ||||||||||||||||||
JPMorgan Chase Bank, NA | CHF | 14,479 | USD | 15,130 | 6/28/18 | 447,403 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 3,778 | ZAR | 46,016 | 6/28/18 | (113,271 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | MXN | 34,307 | USD | 1,842 | 7/23/18 | 30,925 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,313 | MXN | 24,278 | 7/23/18 | (30,843 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 2,044 | IDR | 28,400,088 | 7/26/18 | (23,654 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 2,107 | MXN | 39,060 | 8/02/18 | (48,230 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 6,320 | SEK | 52,965 | 5/25/18 | (261,997 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | CAD | 7,376 | EUR | 4,606 | 5/31/18 | (174,257 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 24,902 | AUD | 31,648 | 6/07/18 | (1,074,376 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 20,455 | GBP | 14,243 | 6/13/18 | (807,963 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | MXN | 975,236 | USD | 53,747 | 6/14/18 | 1,943,451 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | CNY | 33,909 | EUR | 4,310 | 6/22/18 | (123,428 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | ZAR | 31,793 | USD | 2,643 | 7/05/18 | 113,637 | ||||||||||||||||||
Royal Bank of Scotland PLC | BRL | 42,991 | USD | 12,945 | 5/03/18 | 673,229 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 12,350 | BRL | 42,991 | 5/03/18 | (77,908 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | NOK | 23,819 | CAD | 4,037 | 5/22/18 | 174,396 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 5,335 | COP | 14,397,916 | 6/12/18 | (210,781 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 51,371 | MXN | 951,340 | 6/14/18 | (836,697 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | MXN | 122,199 | USD | 6,529 | 8/02/18 | 87,269 | ||||||||||||||||||
Standard Chartered Bank | BRL | 73,720 | USD | 22,298 | 5/03/18 | 1,253,885 | ||||||||||||||||||
Standard Chartered Bank | USD | 21,177 | BRL | 73,720 | 5/03/18 | (133,597 | ) | |||||||||||||||||
Standard Chartered Bank | INR | 769,729 | USD | 11,557 | 5/17/18 | (3,194 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 25,571 | INR | 1,677,183 | 5/17/18 | (380,825 | ) | |||||||||||||||||
Standard Chartered Bank | EUR | 20,673 | USD | 25,667 | 5/30/18 | 653,461 | ||||||||||||||||||
State Street Bank & Trust Co. | SEK | 3,593 | USD | 427 | 5/25/18 | 16,398 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 3,529 | SEK | 29,529 | 5/25/18 | (151,100 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 29,341 | USD | 36,541 | 5/30/18 | 1,041,213 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 1,242 | EUR | 1,000 | 5/30/18 | (32,140 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 23,845 | MYR | 93,981 | 7/12/18 | (81,219 | ) | |||||||||||||||||
UBS AG | SGD | 3,953 | CHF | 2,769 | 8/27/18 | (166,383 | ) | |||||||||||||||||
UBS AG | ZAR | 27,009 | GBP | 1,515 | 10/17/18 | (19,370 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 11,686,301 | |||||||||||||||||||||||
|
|
56 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CURRENCY OPTIONS WRITTEN (see Note D)
Description/ Counterparty | Exercise Price | Expiration Month | Contracts | Notional Amount (000) | Premiums Received | U.S. $ Value | ||||||||||||||||||
Call |
| |||||||||||||||||||||||
COP vs. USD/ | COP | 2,768.000 | 06/2018 | 36,745,200,000 | COP | 36,745,200 | $ | 121,055 | $ | (144,301 | ) | |||||||||||||
JPY vs. AUD/ | JPY | 79.500 | 05/2018 | 2,621,513,000 | JPY | 2,621,513 | 193,847 | (8,681 | ) | |||||||||||||||
JPY vs. CAD/ | JPY | 80.000 | 05/2018 | 2,754,000,000 | JPY | 2,754,000 | 129,104 | (5,038 | ) | |||||||||||||||
JPY vs. CAD/ | JPY | 80.000 | 05/2018 | 2,626,000,000 | JPY | 2,626,000 | 127,336 | (6,606 | ) | |||||||||||||||
NZD vs. AUD/ | NZD | 1.050 | 06/2018 | 35,872,000 | NZD | 35,872 | 129,627 | (31,827 | ) | |||||||||||||||
USD vs. MXN/ | USD | 21.500 | 07/2018 | 8,090,000 | USD | 8,090 | 138,347 | (20,832 | ) | |||||||||||||||
USD vs. MXN/ | USD | 22.000 | 08/2018 | 14,650,000 | USD | 14,650 | 285,236 | (29,154 | ) | |||||||||||||||
USD vs. MXN/ | USD | 22.000 | 08/2018 | 7,837,000 | USD | 7,837 | 142,100 | (19,569 | ) | |||||||||||||||
USD vs. TRY/ | USD | 4.370 | 07/2018 | 6,900,000 | USD | 6,900 | 182,850 | (55,559 | ) | |||||||||||||||
Put | ||||||||||||||||||||||||
BRL vs. USD/ | BRL | 3.500 | 06/2018 | 46,463,000 | BRL | 46,463 | 85,133 | (266,186 | ) | |||||||||||||||
BRL vs. USD/ | BRL | 3.550 | 06/2018 | 47,126,000 | BRL | 47,126 | 76,604 | (186,880 | ) | |||||||||||||||
CAD vs. AUD/ | CAD | 1.010 | 05/2018 | 33,199,000 | CAD | 33,199 | 136,227 | (491 | ) | |||||||||||||||
CAD vs. EUR/ | CAD | 1.640 | 05/2018 | 35,105,000 | CAD | 35,105 | 134,668 | (3,992 | ) | |||||||||||||||
CHF vs. GBP/ | CHF | 1.350 | 06/2018 | 12,878,000 | CHF | 12,878 | 73,320 | (182,096 | ) |
abfunds.com | AB INCOME FUND | 57 |
PORTFOLIO OF INVESTMENTS (continued)
Description/ Counterparty | Exercise Price | Expiration Month | Contracts | Notional Amount (000) | Premiums Received | U.S. $ Value | ||||||||||||||||||
CNH vs. EUR/ | CNH | 8.050 | 06/2018 | 173,478,000 | CNH | 173,478 | $ | 120,432 | $ | (16,172 | ) | |||||||||||||
INR vs. USD/ | INR | 71.320 | 02/2019 | 921,811,000 | INR | 921,811 | 119,685 | (145,191 | ) | |||||||||||||||
KRW vs. USD/ | KRW | 1,098.000 | 07/2018 | 14,685,750,000 | KRW | 14,685,750 | 87,740 | (78,458 | ) | |||||||||||||||
MXN vs. USD/ | MXN | 20.000 | 07/2018 | 266,500,000 | MXN | 266,500 | 195,424 | (163,616 | ) | |||||||||||||||
MXN vs. USD/ | MXN | 23.820 | 02/2019 | 307,874,000 | MXN | 307,874 | 172,200 | (95,118 | ) | |||||||||||||||
NOK vs. CAD/ | NOK | 6.180 | 05/2018 | 105,146,000 | NOK | 105,146 | 61,994 | (173,835 | ) | |||||||||||||||
NOK vs. CAD/ | NOK | 6.030 | 05/2018 | 104,922,000 | NOK | 104,922 | 67,773 | (481,548 | ) | |||||||||||||||
NOK vs. EUR/ | NOK | 9.920 | 05/2018 | 102,662,000 | NOK | 102,662 | 71,321 | (3,762 | ) | |||||||||||||||
SEK vs. EUR/ | SEK | 10.350 | 06/2018 | 221,490,000 | SEK | 221,490 | 129,924 | (604,246 | ) | |||||||||||||||
SGD vs. CHF/ | SGD | 1.480 | 08/2018 | 21,682,000 | SGD | 21,682 | 112,620 | (18,771 | ) | |||||||||||||||
TRY vs. CHF/ | TRY | 5.900 | 02/2019 | 72,570,000 | TRY | 72,570 | 132,672 | (77,803 | ) | |||||||||||||||
TRY vs. EUR/ | TRY | 5.050 | 05/2018 | 53,151,000 | TRY | 53,151 | 118,830 | (7,105 | ) | |||||||||||||||
TRY vs. EUR/ | TRY | 5.040 | 06/2018 | 54,242,000 | TRY | 54,242 | 113,041 | (140,156 | ) | |||||||||||||||
ZAR vs. GBP/ | ZAR | 19.520 | 10/2018 | 182,512,000 | ZAR | 182,512 | 165,573 | (137,737 | ) | |||||||||||||||
ZAR vs. USD/ | ZAR | 12.640 | 07/2018 | 168,696,000 | ZAR | 168,696 | 153,805 | (252,807 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||||||
$ | 3,778,488 | $ | (3,357,537 | ) | ||||||||||||||||||||
|
|
|
|
58 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
| Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||||||
CDX-NAHY Series 29, 5 Year Index, 12/20/22* | 5.00 | % | Quarterly | 3.39 | % | USD | 6,072 | $ | 476,191 | $ | 377,627 | $ | 98,564 | |||||||||||||||||||
CDX-NAHY Series 30, 5 Year Index, 6/20/23* | 5.00 | Quarterly | 3.61 | USD | 13,854 | 1,036,075 | 854,703 | 181,372 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 1,512,266 | $ | 1,232,330 | $ | 279,936 | |||||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 328,890 | 1/17/20 | 3 Month LIBOR | 2.170% | Quarterly/Semi-Annual | $ | (1,112,481 | ) | ||||||||||||||||
USD | 328,890 | 1/17/20 | 3 Month LIBOR | 2.204% | Quarterly/Semi-Annual | (894,776 | ) | |||||||||||||||||
USD | 132,955 | 1/17/23 | 2.389% | 3 Month LIBOR | Quarterly/Semi-Annual | 2,288,641 | ||||||||||||||||||
USD | 132,955 | 1/17/23 | 2.420% | 3 Month LIBOR | Quarterly/Semi-Annual | 2,092,744 | ||||||||||||||||||
USD | 109,350 | 4/20/23 | 2.850% | 3 Month LIBOR | Quarterly/Semi-Annual | 318,269 | ||||||||||||||||||
USD | 46,860 | 4/02/24 | 2.851% | 3 Month LIBOR | Quarterly/Semi-Annual | 154,486 | ||||||||||||||||||
USD | 30,755 | 2/10/25 | 2.034% | 3 Month LIBOR | Quarterly/Semi-Annual | 1,734,416 | ||||||||||||||||||
USD | 6,010 | 6/09/25 | 2.491% | 3 Month LIBOR | Quarterly/Semi-Annual | 139,607 | ||||||||||||||||||
USD | 10,000 | 1/11/27 | 2.285% | 3 Month LIBOR | Quarterly/Semi-Annual | 485,996 | ||||||||||||||||||
USD | 11,920 | 4/26/27 | 2.287% | 3 Month LIBOR | Quarterly/Semi-Annual | 666,017 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | 5,872,919 | |||||||||||||||||||||||
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||||||
Barclays Bank PLC |
| |||||||||||||||||||||||||||||||
CDX-CMBX. | 5.00 | % | Monthly | 11.55 | % | USD | 5,000 | $ | (1,065,222 | ) | $ | (129,581 | ) | $ | (935,641 | ) |
abfunds.com | AB INCOME FUND | 59 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX. | 3.00 | % | Monthly | 6.47 | % | USD | 1,146 | $ | (142,754 | ) | $ | (191,600 | ) | $ | 48,846 | |||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 5,000 | (622,833 | ) | (636,435 | ) | 13,602 | ||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 5,000 | (622,833 | ) | (536,436 | ) | (86,397 | ) | |||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 5,000 | (622,833 | ) | (528,676 | ) | (94,157 | ) | |||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 6,500 | (169,794 | ) | (367,230 | ) | 197,436 | ||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 15,000 | (391,000 | ) | (443,217 | ) | 52,217 | ||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 2,839 | (74,161 | ) | (117,659 | ) | 43,498 | ||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 1,136 | (29,675 | ) | (47,973 | ) | 18,298 | ||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 567 | (14,812 | ) | (23,499 | ) | 8,687 | ||||||||||||||||||||||
CDX-CMBX. | 5.00 | Monthly | 11.55 | USD | 4,000 | (852,178 | ) | 48,469 | (900,647 | ) | ||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 9,220 | (1,148,505 | ) | (1,166,462 | ) | 17,957 | ||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 660 | (82,214 | ) | (9,004 | ) | (73,210 | ) | |||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 23,700 | (621,730 | ) | (1,086,179 | ) | 464,449 |
60 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
CDX-CMBX. | 3.00 | % | Monthly | 6.47 | % | USD | 20,000 | $ | (2,489,667 | ) | $ | (3,022,656 | ) | $ | 532,989 | |||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 10,000 | (1,245,666 | ) | (1,658,058 | ) | 412,392 | ||||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX. | 5.00 | Monthly | 11.55 | USD | 16,500 | (3,515,233 | ) | (3,901,034 | ) | 385,801 | ||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 32,853 | (4,092,389 | ) | (4,789,929 | ) | 697,540 | ||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 8,827 | (1,099,550 | ) | (1,519,063 | ) | 419,513 | ||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 6,323 | (787,635 | ) | (1,072,707 | ) | 285,072 | ||||||||||||||||||||||
Morgan Stanley & Co. International PLC | ||||||||||||||||||||||||||||||||
CDX-CMBX. | 2.00 | Monthly | 2.68 | USD | 293 | (7,655 | ) | (12,586 | ) | 4,931 | ||||||||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX. | 3.00 | Monthly | 6.47 | USD | 547 | (68,138 | ) | (40,037 | ) | (28,101 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (19,766,477 | ) | $ | (21,251,552 | ) | $ | 1,485,075 | |||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
abfunds.com | AB INCOME FUND | 61 |
PORTFOLIO OF INVESTMENTS (continued)
VARIANCE SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Volatility Strike Price | Payment Frequency | Notional Amount (000) | Market Value | Upfront Premiums (Paid) Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||
AUD/JPY 1/14/20* | 11.12 | % | AUD | 314 | $ | (149 | ) | $ | – 0 | – | $ | (149 | ) | |||||||||||
AUD/JPY 3/3/20* | 12.75 | AUD | 160 | (761 | ) | – 0 | – | (761 | ) | |||||||||||||||
AUD/JPY 4/16/20* | 12.25 | AUD | 423 | (1,335 | ) | – 0 | – | (1,335 | ) | |||||||||||||||
Goldman Sachs Bank USA | ||||||||||||||||||||||||
AUD/JPY 3/10/20* | 12.90 | AUD | 72 | (373 | ) | – 0 | – | (373 | ) | |||||||||||||||
AUD/JPY 3/11/20* | 12.80 | AUD | 87 | (421 | ) | – 0 | – | (421 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (3,039 | ) | $ | – 0 | – | $ | (3,039 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Principal Amount (000) | Currency | Interest Rate | Maturity | U.S. $ Value at April 30, 2018 | |||||||||||||||
Barclays Capital, Inc. | 1,374 | USD | (5.00 | )%* | 5/01/19 | $ | 1,373,805 | |||||||||||||
Barclays Capital, Inc. | 2,563 | USD | 0.75 | % | 2/21/19 | 2,566,184 | ||||||||||||||
Barclays Capital, Inc.+ | 1,950 | USD | 0.00 | % | — | 1,949,860 | ||||||||||||||
Barclays Capital, Inc.+ | 1,422 | USD | 0.50 | % | — | 1,422,521 | ||||||||||||||
Credit Suisse | 15,265 | EUR | 0.00 | % | — | 17,844,149 | ||||||||||||||
HSBC Bank USA | 30,415 | USD | 1.89 | % | 5/15/18 | 30,445,464 | ||||||||||||||
HSBC Bank USA | 30,531 | USD | 1.90 | % | 7/12/18 | 30,560,255 | ||||||||||||||
HSBC Bank USA | 156,000 | USD | 1.94 | % | 7/18/18 | 156,100,880 | ||||||||||||||
HSBC Bank USA+ | 131,964 | USD | 1.79 | % | — | 132,245,896 | ||||||||||||||
JP Morgan Chase Bank | 10,253 | USD | 1.84 | % | 4/25/19 | 10,256,266 | ||||||||||||||
JP Morgan Chase Bank | 20,089 | USD | 1.93 | % | 7/23/18 | 20,102,751 | ||||||||||||||
|
| |||||||||||||||||||
$ | 404,868,031 | |||||||||||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on April 30, 2018. |
* | Interest payment due from counterparty. |
The type of underlying collateral and the remaining maturity of open reverse repurchase agreements on the statements of assets and liabilities is as follows:
Overnight and Continuous | Up to 30 Days | 31-90 Days | Greater than 90 Days | Total | ||||||||||||||||
Corporates – Non-Investment Grade | $ | 21,216,530 | $ | – 0 | – | $ | – 0 | – | $ | 3,939,989 | $ | 25,156,519 | ||||||||
Governments – Treasuries | 132,245,896 | – 0 | – | 237,209,350 | 10,256,266 | 379,711,512 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 153,462,426 | $ | – 0 | – | $ | 237,209,350 | $ | 14,196,255 | $ | 404,868,031 | |||||||||
|
|
|
|
|
|
|
|
|
|
(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, 2018, the aggregate market value of these securities amounted to $717,519,103 or 26.8% of net assets. |
62 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(b) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. |
(c) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(d) | Position, or a portion thereof, has been segregated to collateralize margin requirements for open futures contracts. |
(e) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(f) | Fair valued by the Adviser. |
(g) | Illiquid security. |
(h) | 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, 2018. |
(i) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at April 30, 2018. |
(j) | Non-income producing security. |
(k) | Defaulted. |
(l) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.81% of net assets as of April 30, 2018, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Aveta, Inc. | 12/15/17 | $ | – 0 | – | $ | – 0 | – | 0.00 | % | |||||||
Aveta, Inc. | 12/15/17 | – 0 | – | – 0 | – | 0.00 | % | |||||||||
BI-LO LLC/BI-LO Finance Corp. | 3/15/18 | 842,085 | 503,123 | 0.02 | % | |||||||||||
Creditcorp | 6/28/13 | 1,198,412 | 1,103,080 | 0.04 | % | |||||||||||
Exide Technologies | 12/01/17 | 2,718,048 | 2,874,204 | 0.11 | % | |||||||||||
Exide Technologies | 12/01/17 | 2,529,578 | 1,812,539 | 0.07 | % | |||||||||||
JP Morgan Madison Avenue Securities Trust Series 2014-CH1, Class M2 | 11/06/15 | 1,571,991 | 1,730,109 | 0.06 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | 2/19/15 | 861,788 | 14 | 0.00 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-6, Class R1 | 11/09/17 | 2,912,244 | 2,865,145 | 0.11 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2016-1, Class R | 7/28/17 | 3,148,581 | 2,819,102 | 0.11 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-4, Class R1 | 6/28/17 | 1,956,053 | 1,905,910 | 0.07 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-5, Class R1 | 9/18/17 | 1,758,337 | 1,636,701 | 0.06 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-3, Class R | 5/11/17 | 1,107,300 | 991,926 | 0.04 | % |
abfunds.com | AB INCOME FUND | 63 |
PORTFOLIO OF INVESTMENTS (continued)
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
SoFi Consumer Loan Program LLC Series 2017-2, Class R | 6/15/17 | $ | 953,251 | $ | 732,780 | 0.03 | % | |||||||||
SoFi Consumer Loan Program LLC Series 2016-5, Class R | 6/23/17 | 1,275,923 | 718,830 | 0.03 | % | |||||||||||
Tonon Luxembourg SA | 7/24/15 | 2,271,124 | 111,530 | 0.00 | % | |||||||||||
Vantage Drilling International | 6/17/16 | 73,412 | 75,460 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | 3,510,949 | 299,963 | 0.01 | % | |||||||||||
Virgolino de Oliveira Finance SA | 6/09/14 | 745,965 | 206,250 | 0.01 | % | |||||||||||
Virgolino de Oliveira Finance SA | 2/03/14 | 916,308 | 109,850 | 0.00 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust Series 2015-WF1, Class 1M2 | 9/06/16 | 930,392 | 1,034,613 | 0.04 | % |
(m) | Convertible security. |
(n) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(o) | Inverse interest only security. |
(p) | IO – Interest Only. |
(q) | Variable rate coupon, rate shown as of April 30, 2018. |
(r) | Defaulted matured security. |
(s) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at April 30, 2018. |
(t) | 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. |
(u) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Exide Technologies/Old | 4/30/15 | $ | 87,194 | $ | 100,674 | 0.00 | % |
(v) | Affiliated investments. |
(w) | 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. |
(x) | The rate shown represents the 7-day yield as of period end. |
64 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Currency Abbreviations:
ARS – Argentine Peso AUD – Australian Dollar BRL – Brazilian Real CAD – Canadian Dollar CHF – Swiss Franc CNH – Chinese Yuan Renminbi (Offshore) CNY – Chinese Yuan Renminbi COP – Colombian Peso DOP – Dominican Peso EGP – Egyptian Pound EUR – Euro GBP – Great British Pound IDR – Indonesian Rupiah ILS – Israeli Shekel INR – Indian Rupee JPY – Japanese Yen | KRW – South Korean Won LKR – Sri Lankan Rupee MXN – Mexican Peso MYR – Malaysian Ringgit NGN – Nigerian Naira NOK – Norwegian Krone NZD – New Zealand Dollar PLN – Polish Zloty RUB – Russian Ruble SEK – Swedish Krona SGD – Singapore Dollar TRY – Turkish Lira TWD – New Taiwan Dollar USD – United States Dollar UYU – Uruguayan Peso ZAR – South African Rand |
Glossary:
ABS – Asset-Backed Securities
ARPP7DRR – Argentina Central Bank 7-Day Repo Reference Rate
BADLAR – Argentina Deposit Rates Badlar Private Banks
BBA – British Bankers Association
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
CMBS – Commercial Mortgage-Backed Securities
COP – Certificate of Participation
EURIBOR – Euro Interbank Offered Rate
JSC – Joint Stock Company
LIBOR – London Interbank Offered Rates
OAT – Obligations Assimilables du Trésor
REIT – Real Estate Investment Trust
REMICs – Real Estate Mortgage Investment Conduits
See notes to financial statements.
abfunds.com | AB INCOME FUND | 65 |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $3,138,885,885) | $ | 3,071,106,117 | ||
Affiliated issuers (cost $15,156,127) | 15,156,127 | |||
Cash | 616,062 | |||
Cash collateral due from broker | 6,751,859 | |||
Foreign currencies, at value (cost $9,451,437) | 9,038,286 | |||
Receivable for investment securities sold | 9,959,578 | |||
Interest receivable | 38,251,715 | |||
Unrealized appreciation on forward currency exchange contracts | 26,108,669 | |||
Receivable for capital stock sold | 8,786,535 | |||
Unrealized appreciation on credit default swaps | 3,603,228 | |||
Receivable for variation margin on futures | 441,170 | |||
Upfront premiums paid on credit default swaps | 48,469 | |||
Affiliated dividends receivable | 12,994 | |||
Other assets | 13,120 | |||
|
| |||
Total assets | 3,189,893,929 | |||
|
| |||
Liabilities | ||||
Options written, at value (premiums received $3,778,488) | 3,357,537 | |||
Payable for reverse repurchase agreements | 404,868,031 | |||
Payable for investment securities purchased | 54,442,199 | |||
Upfront premiums received on credit default swaps | 21,300,021 | |||
Unrealized depreciation on forward currency exchange contracts | 14,422,368 | |||
Payable for capital stock repurchased | 5,197,001 | |||
Cash collateral due to broker | 2,218,000 | |||
Unrealized depreciation on credit default swaps | 2,118,153 | |||
Dividends payable | 854,823 | |||
Advisory fee payable | 556,737 | |||
Payable for variation margin on centrally cleared swaps | 257,994 | |||
Distribution fee payable | 124,163 | |||
Transfer Agent fee payable | 67,423 | |||
Administrative fee payable | 23,093 | |||
Unrealized depreciation on variance swaps | 3,039 | |||
Directors’ fees payable | 2,942 | |||
Accrued expenses | 192,588 | |||
|
| |||
Total liabilities | 510,006,112 | |||
|
| |||
Net Assets | $ | 2,679,887,817 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 346,536 | ||
Additional paid-in capital | 2,837,936,187 | |||
Distributions in excess of net investment income | (15,575,403 | ) | ||
Accumulated net realized loss on investment and foreign currency transactions | (90,411,014 | ) | ||
Net unrealized depreciation on investments and foreign currency denominated assets and liabilities | (52,408,489 | ) | ||
|
| |||
$ | 2,679,887,817 | |||
|
|
See notes to financial statements.
66 | AB INCOME FUND | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES (continued)
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
|
| |||||||||||
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 282,245,700 | 36,531,625 | $ | 7.73 | * | ||||||
| ||||||||||||
C | $ | 86,217,453 | 11,146,289 | $ | 7.74 | |||||||
| ||||||||||||
Advisor | $ | 2,311,424,664 | 298,858,000 | $ | 7.73 | |||||||
|
* | The maximum offering price per share for Class A shares was $8.07 which reflects a sales charge of 4.25%. |
See notes to financial statements.
abfunds.com | AB INCOME FUND | 67 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2018 (unaudited)
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $30,487) | $ | 60,012,610 | ||||||
Dividends | ||||||||
Affiliated issuers | 268,519 | |||||||
Unaffiliated issuers | 50,581 | |||||||
Other income | 5,518 | $ | 60,337,228 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 5,555,287 | |||||||
Distribution fee—Class A | 323,412 | |||||||
Distribution fee—Class C | 380,908 | |||||||
Transfer agency—Class A | 106,876 | |||||||
Transfer agency—Class C | 31,777 | |||||||
Transfer agency—Advisor Class | 877,362 | |||||||
Custodian | 203,140 | |||||||
Registration fees | 134,624 | |||||||
Audit and tax | 66,329 | |||||||
Printing | 57,949 | |||||||
Administrative | 33,611 | |||||||
Legal | 21,976 | |||||||
Directors’ fees | 13,953 | |||||||
Miscellaneous | 44,403 | |||||||
|
| |||||||
Total expenses before interest expense | 7,851,607 | |||||||
Interest expense | 3,077,904 | |||||||
Total expenses | 10,929,511 | |||||||
|
| |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (778,110 | ) | ||||||
|
| |||||||
Net expenses | 10,151,401 | |||||||
|
| |||||||
Net investment income | 50,185,827 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (2,418,148 | ) | ||||||
Forward currency exchange contracts | (2,728,172 | ) | ||||||
Futures | (26,176,796 | ) | ||||||
Options written | 8,568,146 | |||||||
Swaps | 589,298 | |||||||
Swaptions written | 295,916 | |||||||
Foreign currency transactions | (19,526,485 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (67,420,505 | ) | ||||||
Forward currency exchange contracts | (990,822 | ) | ||||||
Futures | 1,747,095 | |||||||
Options written | 1,523,542 | |||||||
Swaps | 14,247,181 | |||||||
Swaptions written | (145,261 | ) | ||||||
Foreign currency denominated assets and liabilities | 53,791 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (92,381,220 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (42,195,393 | ) | |||||
|
|
See notes to financial statements.
68 | AB INCOME FUND | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 50,185,827 | $ | 61,160,636 | ||||
Net realized gain (loss) on investment and foreign currency transactions | (41,396,241 | ) | 34,281,947 | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (50,984,979 | ) | (41,091,689 | ) | ||||
Contributions from Affiliates (see Note B) | – 0 | – | 346 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (42,195,393 | ) | 54,351,240 | |||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (7,309,711 | ) | (2,100,463 | ) | ||||
Class C | (1,871,873 | ) | (684,581 | ) | ||||
Advisor Class | (63,742,783 | ) | (57,585,904 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 761,315,191 | 1,120,697,788 | ||||||
|
|
|
| |||||
Total increase | 646,195,431 | 1,114,678,080 | ||||||
Net Assets | ||||||||
Beginning of period | 2,033,692,386 | 919,014,306 | ||||||
|
|
|
| |||||
End of period (including distributions in excess of net investment income of ($15,575,403) and undistributed net investment income of $7,163,137, respectively) | $ | 2,679,887,817 | $ | 2,033,692,386 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB INCOME FUND | 69 |
STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 2018 (unaudited)
Cash flows from operating activities | ||||||||
Net decrease in net assets from operations | $ | (42,195,393 | ) | |||||
Reconciliation of net decrease in net assets from operations to net decrease in cash from operating activities | ||||||||
Purchases of long-term investments | $ | (1,466,334,972 | ) | |||||
Purchases of short-term investments | (724,421,947 | ) | ||||||
Proceeds from disposition of long-term investments | 631,783,631 | |||||||
Proceeds from disposition of short-term investments | 788,986,802 | |||||||
Net realized loss on investment transactions and foreign currency transactions | 41,396,241 | |||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 50,984,979 | |||||||
Net accretion of bond discount and amortization of bond premium | 13,791,161 | |||||||
Inflation index adjustment | (221,390 | ) | ||||||
Increase in receivable for investments sold | (7,371,890 | ) | ||||||
Increase in interest receivable | (4,833,250 | ) | ||||||
Increase in affiliated dividends receivable | (50 | ) | ||||||
Increase due from custodian | (13,120 | ) | ||||||
Increase in cash collateral due from broker | (3,334,134 | ) | ||||||
Decrease in payable for investments purchased | (7,214,738 | ) | ||||||
Increase in cash collateral due to broker | 1,906,000 | |||||||
Increase in advisory fee payable | 90,820 | |||||||
Decrease in administrative fee payable | (981 | ) | ||||||
Decrease in Transfer Agent fee payable | (3,594 | ) | ||||||
Increase in distribution fee payable | 46,854 | |||||||
Increase in directors’ fee payable | 647 | |||||||
Decrease in accrued expenses | (440,727 | ) | ||||||
Proceeds from options written, net | 8,000,085 | |||||||
Proceeds from swaptions written, net | 49,011 | |||||||
Proceeds on swaps, net | 10,145,157 | |||||||
Payments for exchange-traded derivatives settlements | (20,294,107 | ) | ||||||
|
| |||||||
Total adjustments | (687,303,512 | ) | ||||||
|
| |||||||
Net cash provided by (used in) from operating activities | (729,498,905 | ) |
See notes to financial statements.
70 | AB INCOME FUND | abfunds.com |
STATEMENT OF CASH FLOWS (continued)
Cash flows from financing activities | ||||||||
Repurchase of Shares | $ | 742,048,818 | ||||||
Cash dividends paid (net of dividend reinvestments)* | (25,698,679 | ) | ||||||
Increase in reverse repurchase agreements | 35,809,704 | |||||||
|
| |||||||
Net cash provided by (used in) from financing activities | $ | 752,159,843 | ||||||
Effect of exchange rate on cash | (22,200,866 | ) | ||||||
|
| |||||||
Net increase in cash | 460,072 | |||||||
Cash at beginning of period | 9,194,276 | |||||||
|
| |||||||
Cash at end of period | $ | 9,654,348 | ||||||
|
| |||||||
* Reinvestment of dividends | $ | 46,792,139 | ||||||
Supplemental disclosure of cash flow information | ||||||||
Interest expense paid during the period | $ | 2,947,656 |
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 | 71 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 T, Class 1 and Class 2 shares. Class B, Class K, Class R, Class I, Class Z, Class T, Class 1 and Class 2 shares have not been issued. 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 eleven 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.
72 | 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 market inputs, as well as third party broker-dealers or counterparties.
abfunds.com | AB INCOME FUND | 73 |
NOTES TO FINANCIAL STATEMENTS (continued)
Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
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) |
74 | AB INCOME FUND | abfunds.com |
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.
abfunds.com | AB INCOME FUND | 75 |
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, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
| |||||||||||||||
Governments – Treasuries | $ | – 0 | – | $ | 1,685,773,885 | $ | – 0 | – | $ | 1,685,773,885 | ||||||
Corporates – Non-Investment Grade | – 0 | – | 496,322,509 | 7,249,326 | (a) | 503,571,835 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 192,985,514 | – 0 | – | 192,985,514 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 107,952,404 | – 0 | – | 107,952,404 | ||||||||||
Corporates – Investment Grade | – 0 | – | 102,301,741 | – 0 | – | 102,301,741 | ||||||||||
Local Governments – Provincial Bonds | – 0 | – | 91,098,183 | – 0 | – | 91,098,183 |
76 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset-Backed Securities | $ | – 0 | – | $ | 39,675,720 | $ | 28,978,091 | $ | 68,653,811 | |||||||
Emerging Markets – Corporate Bonds | – 0 | – | 62,507,027 | 411,493 | 62,918,520 | |||||||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 57,627,314 | 57,627,314 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 56,604,745 | – 0 | – | 56,604,745 | ||||||||||
Agencies | – 0 | – | 41,638,423 | – 0 | – | 41,638,423 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 711,550 | 38,051,564 | 38,763,114 | |||||||||||
Inflation-Linked Securities | – 0 | – | 10,772,482 | – 0 | – | 10,772,482 | ||||||||||
Quasi-Sovereigns | – 0 | – | 9,624,484 | – 0 | – | 9,624,484 | ||||||||||
Bank Loans | – 0 | – | 8,625,950 | – 0 | – | 8,625,950 | ||||||||||
Governments – Sovereign Agencies | – 0 | – | 8,416,869 | – 0 | – | 8,416,869 | ||||||||||
Common Stocks | 2,378,243 | – 0 | – | 5,611,502 | 7,989,745 | |||||||||||
Whole Loan Trusts | – 0 | – | – 0 | – | 4,530,314 | 4,530,314 | ||||||||||
Preferred Stocks | – 0 | – | – 0 | – | 3,721,026 | 3,721,026 | ||||||||||
Local Governments – Regional Bonds | – 0 | – | 3,388,548 | – 0 | – | 3,388,548 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 2,907,264 | – 0 | – | 2,907,264 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 857,427 | – 0 | – | 857,427 | ||||||||||
Options Purchased – Puts | – 0 | – | 228,325 | – 0 | – | 228,325 | ||||||||||
Options Purchased – Calls | – 0 | – | 110,586 | – 0 | – | 110,586 | ||||||||||
Mortgage Pass-Throughs | – 0 | – | 29,350 | – 0 | – | 29,350 | ||||||||||
Warrants | 1,046 | – 0 | – | 13,212 | (a) | 14,258 | ||||||||||
Short-Term Investments | 15,156,127 | – 0 | – | – 0 | – | 15,156,127 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 17,535,416 | 2,922,532,986 | 146,193,842 | 3,086,262,244 | ||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: |
| |||||||||||||||
Futures | 44,876 | – 0 | – | – 0 | – | 44,876 | (c) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 26,108,669 | – 0 | – | 26,108,669 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 1,512,266 | – 0 | – | 1,512,266 | (c) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 7,880,176 | – 0 | – | 7,880,176 | (c) | |||||||||
Liabilities: |
| |||||||||||||||
Futures | (4,118,171 | ) | – 0 | – | – 0 | – | (4,118,171 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (14,422,368 | ) | – 0 | – | (14,422,368 | ) | ||||||||
Currency Options Written | – 0 | – | (3,357,537 | ) | – 0 | – | (3,357,537 | ) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (2,007,257 | ) | – 0 | – | (2,007,257 | )(c) | ||||||||
Credit Default Swaps | – 0 | – | (19,766,477 | ) | – 0 | – | (19,766,477 | ) | ||||||||
Variance Swaps | – 0 | – | (3,039 | ) | – 0 | – | (3,039 | ) |
abfunds.com | AB INCOME FUND | 77 |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Reverse Repurchase Agreements | $ | (404,868,031 | ) | $ | – 0 | – | $ | – 0 | – | $ | (404,868,031 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Total(d) | $ | (391,405,910 | ) | $ | 2,918,477,419 | $ | 146,193,842 | $ | 2,673,265,351 | |||||||
|
|
|
|
|
|
|
|
(a) | The Fund 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 swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(d) | 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 | Asset-Backed Securities | ||||||||||
Balance as of 10/31/17 | $ | 8,839,957 | $ | 5,300,000 | $ | 23,774,688 | ||||||
Accrued discounts/(premiums) | 81,475 | – 0 | – | (138,913 | ) | |||||||
Realized gain (loss) | (102,040 | ) | – 0 | – | (1,028,414 | ) | ||||||
Change in unrealized appreciation/depreciation | 1,678,643 | – 0 | – | (1,416,064 | ) | |||||||
Purchases/Payups | 2,700,800 | – 0 | – | 10,177,362 | ||||||||
Sales/Paydowns | (6,209,788 | ) | – 0 | – | (2,390,568 | ) | ||||||
Transfers in to Level 3 | 260,279 | – 0 | – | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | (5,300,000 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 7,249,326 | $ | – 0 | – | $ | 28,978,091 | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(b) | $ | (370,624 | ) | $ | – 0 | – | $ | (1,469,324 | ) | |||
|
|
|
|
|
|
78 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Emerging Markets - Corporate Bonds | Collateralized Loan Obligations | Commercial Mortgage-Backed Securities | ||||||||||
Balance as of 10/31/17 | $ | 253,685 | $ | 14,845,194 | $ | 41,690,886 | ||||||
Accrued discounts/(premiums) | (1,094 | ) | 1,970 | 50,160 | ||||||||
Realized gain (loss) | – 0 | – | 11,582 | (403,800 | ) | |||||||
Change in unrealized appreciation/depreciation | (83,916 | ) | (56,679 | ) | 423,919 | |||||||
Purchases/Payups | – 0 | – | 43,224,258 | 2,562,925 | ||||||||
Sales/Paydowns | – 0 | – | (399,011 | ) | (6,272,526 | ) | ||||||
Transfers in to Level 3 | 242,818 | – 0 | – | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 411,493 | $ | 57,627,314 | $ | 38,051,564 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(b) | $ | (83,916 | ) | $ | (56,679 | ) | $ | (206,603 | ) | |||
|
|
|
|
|
| |||||||
Bank Loans | Common Stocks | Whole Loan Trusts | ||||||||||
Balance as of 10/31/17 | $ | 2,077,333 | $ | 4,609,736 | $ | 10,733,694 | ||||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | (8,760 | ) | ||||||
Realized gain (loss) | – 0 | – | 260,341 | (2,883,066 | ) | |||||||
Change in unrealized appreciation/depreciation | – 0 | – | 214,924 | 1,382,631 | ||||||||
Purchases/Payups | – 0 | – | 1,175,596 | – 0 | – | |||||||
Sales/Paydowns | – 0 | – | (1,630,150 | ) | (4,694,185 | ) | ||||||
Transfers in to Level 3 | – 0 | – | 981,055 | – 0 | – | |||||||
Transfers out of Level 3 | (2,077,333 | ) | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | – 0 | – | $ | 5,611,502 | $ | 4,530,314 | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(b) | $ | – 0 | – | $ | 189,888 | $ | (414,598 | ) | ||||
|
|
|
|
|
|
abfunds.com | AB INCOME FUND | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
Preferred Stocks | Warrants(a) | Total | ||||||||||
Balance as of 10/31/17 | $ | 3,578,937 | $ | – 0 | – | $ | 115,704,110 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | (15,162 | ) | ||||||
Realized gain (loss) | – 0 | – | – 0 | – | (4,145,397 | ) | ||||||
Change in unrealized appreciation/depreciation | 107,208 | 13,212 | 2,263,878 | |||||||||
Purchases/Payups | 2,548,299 | – 0 | – | 62,389,240 | ||||||||
Sales/Paydowns | (2,513,418 | ) | – 0 | – | (24,109,646 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | 1,484,152 | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (7,377,333 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 3,721,026 | $ | 13,212 | $ | 146,193,842 | (c) | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(b) | $ | 528,971 | $ | 13,212 | $ | (1,869,673 | ) | |||||
|
|
|
|
|
|
(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, 2018. Securities priced i) by third party vendors, or ii) by brokers are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/18 | Valuation Technique | Unobservable | Range / | |||||||
Corporates – Non-Investment Grade | $ | – 0 | – | Qualitative Assessment | $0.00 / N/A | |||||
$ | 165,778 | Recovery Analysis | Collateral Value | $100.00 / N/A | ||||||
|
| |||||||||
$ | 165,778 | |||||||||
|
| |||||||||
Common Stocks | $ | 1,285,808 | Market-Approach | EBITDA* Projection EBITDA* Multiples | $113.4MM / N/A 7.0X-9.0X / 8.0X | |||||
$ | 1,374,954 | Recovery Analysis | Liquidation Value | $202.56 / N/A | ||||||
$ | 533,524 | Market-Approach | EBITDA* Projection EBITDA* Multiples | $259.9MM / N/A 8.1X-10.1X / 9.1X | ||||||
|
| |||||||||
$ | 3,194,286 | |||||||||
|
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Fair Value at 4/30/18 | Valuation Technique | Unobservable | Range / | |||||||
Whole Loan Trusts | $ | 1,906,033 | Market-Approach | Underlying NAV of the collateral | $66.10 / N/A | |||||
$ | 122,747 | Discounted Cash Flow | Level Yield | $31.64 / N/A | ||||||
$ | 1,374,394 | Discounted Cash Flow | Cash Flow Yield | 98.19% / N/A | ||||||
$ | 319,884 | Recovery Analysis | Cumulative Loss | <20% / NA | ||||||
$ | 807,256 | Recovery Analysis | Cumulative Loss | <20% / NA | ||||||
|
| |||||||||
$ | 4,530,314 | |||||||||
|
| |||||||||
Preferred Stocks | $ | 1,176,200 | Market-Approach | EBITDA* Projection EBITDA* Multiples | $113.4MM / N/A 7.0X-9.0X / 8.0X | |||||
Warrants | $ | – 0 | – | Qualitative Assessment | $0.00 / N/A |
* | 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 level yield, cash flow yield, cumulative loss and delinquency rate in isolation would be expected to result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in collateral value, EBITDA projections/multiples and liquidation value 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. 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
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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, 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 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
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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 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.
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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, 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%, 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. Any fees waived and expenses borne by the Adviser from November 1, 2016 through October 31, 2017 are subject to repayment by the Fund until October 31, 2020; such waivers that are subject to repayment amount to $1,361,441. Any fees waived and expenses borne by the Adviser from November 1, 2017 through April 22, 2018 are subject to repayment by the Fund until October 31, 2021; such waivers that are subject to repayment amount to $396,862. In any case, no reimbursement payment 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 January 31, 2019. The Predecessor Fund did not have an Expense Cap. For the six months ended April 30, 2018, such reimbursement/waivers amounted to $727,844. Prior to April 21, 2016, the Predecessor Fund paid the Adviser a monthly
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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 shall not exceed 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 year ended October 31, 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, 2018, the reimbursement for such services amounted to $33,611.
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 $350,518 for the six months ended April 30, 2018.
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 charges of $36,590 from the sale of Class A shares and received $34,444 and $25,853 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, 2018.
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 contractually 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
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and expense. For the six months ended April 30, 2018, such waiver amounted to $50,266.
A summary of the Fund’s transactions in AB mutual funds for the six months ended April 30, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 79,428 | $ | 723,218 | $ | 787,490 | $ | 15,156 | $ | 269 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2018 amounted to $103,859, 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 $539,628 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 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.
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NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended April 30, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 577,476,448 | $ | 563,354,758 | ||||
U.S. government securities | 884,489,673 | 54,096,248 |
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 | $ | 73,947,089 | ||
Gross unrealized depreciation | (125,730,644 | ) | ||
|
| |||
Net unrealized depreciation | $ | (51,783,555 | ) | |
|
|
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”.
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
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NOTES TO FINANCIAL STATEMENTS (continued)
known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the six months ended April 30, 2018, 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 forward currency exchange contracts. 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 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, 2018, 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,
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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 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.
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
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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, 2018, the maximum payments for written put options amounted to $18,431,742,683. 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.
During the six months ended April 30, 2018, the Fund held purchased options for hedging and non-hedging purposes.
During the six months ended April 30, 2018, the Fund held written options and swaptions for hedging and non-hedging purposes.
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment 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
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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.
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
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generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2018, the Fund held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty. As of April 30, 2018, the Fund did not
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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 Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended April 30, 2018, the Fund held credit default 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, 2018, the Fund held variance swaps for non-hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 44,876 | * | Receivable/Payable for variation margin on futures | $ | 4,118,171 | * | ||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 279,936 | * | |||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | | 7,880,176 | * | Receivable/Payable for variation margin on centrally cleared swaps | | 2,007,257 | * |
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NOTES TO FINANCIAL STATEMENTS (continued)
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | $ | 26,108,669 | Unrealized depreciation on forward currency exchange contracts | $ | 14,422,368 | ||||||
Foreign exchange contracts | Investments in securities, at value | | 338,911 | Options written, at value | | 3,357,537 | ||||||
Credit contracts | Unrealized appreciation on credit default swaps | | 3,603,228 | Unrealized depreciation on credit default swaps | | 2,118,153 | ||||||
Equity contracts | Unrealized depreciation on variance swaps | | 3,039 | |||||||||
|
|
|
| |||||||||
Total | $ | 38,255,796 | $ | 26,026,525 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) | 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 | $ | (24,836,960 | ) | $ | 1,747,095 | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,339,836 | ) | – 0 | – | |||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | (2,728,172 | ) | | (990,822 | ) |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign exchange contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | $ | (1,035,774 | ) | $ | 79,047 | ||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (448,449 | ) | 130,886 | ||||||
Foreign exchange contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | | 8,300,320 | | 1,523,542 | |||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 267,826 | – 0 | – | ||||||
Credit contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 295,916 | (145,261 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (2,844,199 | ) | 7,556,258 | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 2,193,339 | 6,912,857 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | 1,240,158 | $ | (221,934 | ) | ||||
|
|
|
| |||||||
Total | $ | (20,935,831 | ) | $ | 16,591,668 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 862,556,904 | ||
Average original value of sale contracts | $ | 702,790,690 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 636,256,635 | ||
Average principal amount of sale contracts | $ | 1,490,932,439 | ||
Purchased Options: | ||||
Average notional amount | $ | 158,165,342 | ||
Options Written: | ||||
Average notional amount | $ | 479,613,630 | ||
Swaptions Written: | ||||
Average notional amount | $ | 84,293,500 | (a) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 877,995,487 | ||
Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 143,477,306 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 49,460,000 | (b) | |
Average notional amount of sale contracts | $ | 22,772,750 | (c) | |
Variance Swaps: | ||||
Average notional amount | $ | 3,638,025 | (d) |
(a) | Positions were open for one month during the period. |
(b) | Positions were open for four months during the period. |
(c) | Positions were open for three months during the period. |
(d) | Positions were open for five months during the period. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund as of April 30, 2018. Exchange-traded derivatives
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NOTES TO FINANCIAL STATEMENTS (continued)
and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 283,833 | $ | (283,833 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Bank of America, NA | 310,026 | (310,026 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Barclays Bank PLC | 286,433 | (286,433 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 2,738,850 | (1,109,240 | ) | (1,420,000 | ) | – 0 | – | 209,610 | ||||||||||||
Citibank, NA | 4,080,405 | (848,515 | ) | – 0 | – | – 0 | – | 3,231,890 | ||||||||||||
Credit Suisse International | 2,552,921 | (2,552,921 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 1,920,320 | (1,920,320 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs Bank USA | 1,539,144 | (1,539,144 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 3,585,109 | (1,076,870 | ) | (250,000 | ) | – 0 | – | 2,258,239 | ||||||||||||
JPMorgan Chase Bank, NA | 3,090,354 | (3,090,354 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co., Inc. | 2,057,088 | (2,057,088 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Royal Bank of Scotland PLC | 1,038,140 | (1,038,140 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank | 1,907,346 | (517,616 | ) | (548,000 | ) | – 0 | – | 841,730 | ||||||||||||
State Street Bank & Trust Co. | 1,057,611 | (264,459 | ) | – 0 | – | (120,097 | ) | 673,055 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 26,447,580 | $ | (16,894,959 | ) | $ | (2,218,000 | ) | $ | (120,097 | ) | $ | 7,214,524 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 553,387 | $ | (283,833 | ) | $ | – 0 | – | $ | – 0 | – | $ | 269,554 | |||||||
Bank of America, NA | 1,043,414 | (310,026 | ) | – 0 | – | (279,080 | ) | 454,308 | ||||||||||||
Barclays Bank PLC | 1,100,985 | (286,433 | ) | – 0 | – | (814,552 | ) | – 0 | – | |||||||||||
BNP Paribas SA | 1,109,240 | (1,109,240 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 848,515 | (848,515 | ) | – 0 | – | – 0 | – | – 0 | – |
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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 | |||||||||||||||
Citigroup Global Markets, Inc. | $ | 2,011,253 | $ | – 0 | – | $ | – 0 | – | $ | (2,011,253 | ) | $ | – 0 | – | ||||||
Credit Suisse International | 3,856,898 | (2,552,921 | ) | – 0 | – | (1,303,977 | ) | – 0 | – | |||||||||||
Deutsche Bank AG | 5,183,289 | (1,920,320 | ) | – 0 | – | (3,262,969 | ) | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 11,275,931 | (1,539,144 | ) | – 0 | – | (9,736,787 | ) | – 0 | – | |||||||||||
HSBC Bank USA | 1,076,870 | (1,076,870 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 3,424,581 | (3,090,354 | ) | – 0 | – | (334,227 | ) | – 0 | – | |||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co. International PLC/ Morgan Stanley Capital Services LLC | 3,092,369 | (2,057,088 | ) | – 0 | – | (620,800 | ) | 414,481 | ||||||||||||
Royal Bank of Scotland PLC | 1,770,550 | (1,038,140 | ) | – 0 | – | – 0 | – | 732,410 | ||||||||||||
Standard Chartered Bank | 517,616 | (517,616 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 264,459 | (264,459 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
UBS AG | 420,064 | – 0 | – | – 0 | – | (303,104 | ) | 116,960 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 37,549,421 | $ | (16,894,959 | ) | $ | – 0 | – | $ | (18,666,749 | ) | $ | 1,987,713 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund
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NOTES TO FINANCIAL STATEMENTS (continued)
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, 2018, 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 such the return of such excess collateral may be delayed or denied. For the six months ended April 30, 2018, the average amount of reverse repurchase agreements outstanding was $424,576,217 and the daily weighted average interest rate was 1.48%. At April 30, 2018, the Fund had reverse repurchase agreements outstanding in the amount of $404,868,031 as reported on the statement of assets and liabilities.
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NOTES TO FINANCIAL STATEMENTS (continued)
The following table presents the Fund’s RVP liabilities by counterparty net of the related collateral pledged by the Fund as of April 30, 2018:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged†* | Net Amount of RVP Liabilities | |||||||||
Barclays Capital, Inc. | $ | 7,312,370 | $ | (7,312,370) | $ | –0 | – | |||||
Credit Suisse | 17,844,149 | (17,844,149) | – 0 | – | ||||||||
HSBC Bank USA | 349,352,495 | (349,352,495) | – 0 | – | ||||||||
JP Morgan Chase Bank | 30,359,017 | (30,359,017) | – 0 | – | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 404,868,031 | $ | (404,868,031) | $ | – 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, and 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.
Unfunded loan commitments and funded loans are marked to market daily.
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NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2018, 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, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 24,037,366 | 23,455,002 | $ | 191,263,262 | $ | 191,015,549 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 665,715 | 161,151 | 5,252,454 | 1,312,042 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 642 | 11,746 | 5,010 | 95,630 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (8,593,906 | ) | (3,466,393 | ) | (67,577,581 | ) | (28,278,499 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 16,109,817 | 20,161,506 | $ | 128,943,145 | $ | 164,144,722 | ||||||||||||||||||
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 4,334,685 | 7,657,205 | $ | 34,355,275 | $ | 62,456,060 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 159,657 | 58,798 | 1,262,573 | 479,345 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (641 | ) | (11,732 | ) | (5,010 | ) | (95,630 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,012,642 | ) | (179,030 | ) | (7,974,907 | ) | (1,463,342 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 3,481,059 | 7,525,241 | $ | 27,637,931 | $ | 61,376,433 | ||||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 124,689,882 | 134,693,611 | $ | 988,445,240 | $ | 1,097,096,092 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,098,197 | 3,720,533 | 40,277,112 | 30,140,363 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (53,837,117 | ) | (28,723,376 | ) | (423,988,237 | ) | (232,059,822 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 75,950,962 | 109,690,768 | $ | 604,734,115 | $ | 895,176,633 | ||||||||||||||||||
|
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 (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and 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.
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NOTES TO FINANCIAL STATEMENTS (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 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 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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.
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, 2018.
abfunds.com | AB INCOME FUND | 105 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE I
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 and year ended December 31, 2015 were as follows:
2017 | 2016 | 2015 | ||||||||||
Distributions paid from: | ||||||||||||
Ordinary income | $ | 60,370,948 | $ | 53,039,602 | $ | 107,568,721 | ||||||
Net long-term capital gains | – 0 | – | – 0 | – | 3,863,457 | |||||||
|
|
|
|
|
| |||||||
Total taxable distributions | $ | 60,370,948 | $ | 53,039,602 | $ | 111,432,178 | ||||||
|
|
|
|
|
|
As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 20,428,559 | ||
Accumulated capital and other losses | (54,688,818 | )(a) | ||
Unrealized appreciation/(depreciation) | (4,651,856 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (38,912,115 | )(c) | |
|
|
(a) | As of October 31, 2017, the Fund had a net capital loss carryforward of $39,792,946. As of October 31, 2017, the cumulative deferred loss on straddles was $14,895,872. |
(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, the tax treatment of passive foreign investment companies (PFICs), the tax treatment of partnership investments, and the recognition for tax purposes of unrealized 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. |
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, 2017, the Fund had a net short-term capital loss carryforward of $1,316,731 and a net long-term capital loss carryforward of $38,476,215, which may be carried forward for an indefinite period.
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
106 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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
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 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 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) | Year Ended 2017 | April 21, 2016 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 8.09 | $ 8.08 | $ 7.99 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .15 | .36 | .17 | † | ||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.28 | ) | .05 | .08 | ||||||||
Contributions from Affiliates | – 0 | – | .00 | (d) | – 0 | – | ||||||
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.13 | ) | .41 | .25 | ||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.23 | ) | (.40 | ) | (.16 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 7.73 | $ 8.09 | $ 8.08 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | (1.64 | )% | 5.17 | % | 3.14 | %† | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $282,246 | $165,294 | $2,104 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(f) | 1.02 | %^ | 1.03 | % | 1.16 | %^ | ||||||
Expenses, before waivers/reimbursements(f) | 1.08 | %^ | 1.11 | % | 1.37 | %^ | ||||||
Net investment income(c) | 3.87 | %^ | 4.42 | % | 4.06 | %^† | ||||||
Portfolio turnover rate | 22 | % | 42 | % | 14 | % |
See footnote summary on page 111.
108 | AB INCOME FUND | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||
Six Months (unaudited) | Year Ended 2017 | April 21, 2016 | ||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 8.10 | $ 8.09 | $ 7.99 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .12 | .30 | .14 | † | ||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.28 | ) | .05 | .09 | ||||||||
Contributions from Affiliates | – 0 | – | .00 | (d) | – 0 | – | ||||||
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.16 | ) | .35 | .23 | ||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.20 | ) | (.34 | ) | (.13 | ) | ||||||
|
| |||||||||||
Net asset value, end of period | $ 7.74 | $ 8.10 | $ 8.09 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | (2.00 | )% | 4.37 | % | 2.85 | %† | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $86,217 | $62,121 | $1,133 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(f) | 1.77 | %^ | 1.78 | % | 1.90 | %^ | ||||||
Expenses, before waivers/reimbursements(f) | 1.83 | %^ | 1.87 | % | 2.15 | %^ | ||||||
Net investment income(c) | 3.12 | %^ | 3.68 | % | 3.34 | %^† | ||||||
Portfolio turnover rate | 22 | % | 42 | % | 14 | % |
See footnote summary on page 111.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||||||
Six Months (unaudited) | Year Ended 2017 | January 1, 2016(g) | Year Ended December 31, | |||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, beginning of period | $ 8.10 | $ 8.09 | $ 7.86 | $ 8.34 | $ 8.13 | $ 8.89 | $ 8.93 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||||||
Net investment income(b) | .16 | (c) | .41 | (c) | .29 | (c)† | .38 | .42 | .40 | .40 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.29 | ) | .02 | .22 | (.41 | ) | .19 | (.71 | ) | .57 | ||||||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (d) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | .00 | (d) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.13 | ) | .43 | .51 | (.03 | ) | .61 | (.31 | ) | .97 | ||||||||||||||||||
|
| |||||||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||||||
Dividends from net investment income | (.24 | ) | (.42 | ) | (.28 | ) | (.46 | ) | (.45 | ) | (.41 | ) | (.48 | ) | ||||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.05 | ) | – 0 | – | (.04 | ) | (.53 | ) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Total dividends and distributions | (.24 | ) | (.42 | ) | (.28 | ) | (.51 | ) | (.45 | ) | (.45 | ) | (1.01 | ) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Redemption fee | – 0 | – | – 0 | – | .00 | (d) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||||
Anti-Dilutive Effect of Share Repurchase Program | – 0 | – | – 0 | – | – 0 | – | .06 | .05 | – 0 | – | – 0 | – | ||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ 7.73 | $ 8.10 | $ 8.09 | $ 7.86 | $ 8.34 | $ 8.13 | $ 8.89 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Market value, end of period | �� | N/A | N/A | N/A | $ 7.67 | $ 7.47 | $ 7.13 | $ 8.10 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Discount, end of period | N/A | N/A | N/A | (2.42 | )% | (10.43 | )% | (12.30 | )% | (8.89 | )% | |||||||||||||||||
Total Return | ||||||||||||||||||||||||||||
Total investment return based on: | ||||||||||||||||||||||||||||
Market value | N/A | N/A | N/A | 9.71 | %(h) | 11.28 | %(h) | (6.50 | )%(h) | 13.80 | %(h) | |||||||||||||||||
Net asset value | (1.64 | )% | 5.44 | %(e) | 6.66 | %(e)† | .70 | %(h) | 8.96 | %(h) | (2.86 | )%(h) | 12.15 | %(h) | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||
Net assets, end of period (000,000’s omitted) | $2,311 | $1,806 | $916 | $1,696 | $1,902 | $1,976 | $2,159 | |||||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(f) | .77 | %^ | .81 | % | .88 | %^ | .75 | % | .67 | % | .63 | % | .64 | % | ||||||||||||||
Expenses, before waivers/reimbursements(f) | .83 | %^ | .93 | % | .96 | %^ | .75 | % | .67 | % | .63 | % | .64 | % | ||||||||||||||
Net investment income | 4.12 | %(c)^ | 5.11 | %(c) | 4.29 | %(c)^† | 4.57 | % | 5.02 | % | 4.74 | % | 4.34 | % | ||||||||||||||
Portfolio turnover rate | 22 | % | 42 | % | 14 | % | 34 | % | 32 | % | 107 | % | 58 | % |
See footnote summary on page 111.
110 | AB INCOME FUND | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(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. |
(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 Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | January 1, 2016 to October 31, 2016(g) | Year Ended December 31, | |||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | .77 | %^ | .77 | % | .88 | %^ | N/A | N/A | N/A | N/A | ||||||||||||||||||
Before waivers/reimbursements | .83 | %^ | .85 | % | 1.09 | %^ | N/A | N/A | N/A | N/A | ||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | 1.52 | %^ | 1.52 | % | 1.63 | %^ | N/A | N/A | N/A | N/A | ||||||||||||||||||
Before waivers/reimbursements | 1.58 | %^ | 1.61 | % | 1.87 | %^ | N/A | N/A | N/A | N/A | ||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Net of waivers/reimbursements | .52 | %^ | .54 | % | .61 | %^ | .61 | % | .61 | % | .57 | % | .55 | % | ||||||||||||||
Before waivers/reimbursements | .58 | %^ | .65 | % | .69 | %^ | .61 | % | .61 | % | .57 | % | .55 | % |
(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 year ended October 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment Income Per Share | Net Investment Income Ratio | Total Return | ||||
$ .003 | .04% | .03% |
^ | Annualized. |
See notes to financial statements.
abfunds.com | AB INCOME FUND | 111 |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(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
Paul J. DeNoon(2), Vice President Gershon M. Distenfeld(2), Douglas J. Peebles(2), Vice President Matthew S. 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 and Sheridan. |
112 | AB INCOME FUND | abfunds.com |
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 Income Fund (the “Fund”) at a meeting held on October 31-November 2, 2017 (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), who acted as their independent fee consultant, 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 review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their
abfunds.com | AB INCOME FUND | 113 |
business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The 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, 2016 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.
114 | AB INCOME FUND | abfunds.com |
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 performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended July 31, 2017 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 the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective since January 29, 2017) 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 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
abfunds.com | AB INCOME FUND | 115 |
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 advisory fee would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
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 the 15(c) service provider. 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 Fund’s expense ratio effective since January 29, 2017, when the advisory fee was reduced and the Adviser had set the Fund’s expense cap at a correspondingly lower level. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s 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
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
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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-0152-0418
APR 04.30.18
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 “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 INTERMEDIATE BOND PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
June 11, 2018
This report provides management’s discussion of fund performance for AB Intermediate Bond Portfolio for the semi-annual reporting period ended April 30, 2018.
The Fund’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk.
NAV RETURNS AS OF APRIL 30, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB INTERMEDIATE BOND PORTFOLIO | ||||||||
Class A Shares | -1.25% | 0.32% | ||||||
Class B Shares1 | -1.61% | -0.43% | ||||||
Class C Shares | -1.53% | -0.44% | ||||||
Advisor Class Shares2 | -1.03% | 0.57% | ||||||
Class R Shares2 | -1.28% | 0.06% | ||||||
Class K Shares2 | -1.16% | 0.32% | ||||||
Class I Shares2 | -1.03% | 0.57% | ||||||
Class Z Shares2 | -1.12% | 0.57% | ||||||
Bloomberg Barclays US Aggregate Bond Index | -1.87% | -0.32% |
1 | Effective January 31, 2009, Class B shares are no longer available for purchase to new investors. Please see Note A for additional information. |
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 Bloomberg Barclays US Aggregate Bond Index, for the six- and 12-month periods ended April 30, 2018.
During the six-month period, all share classes of the Fund outperformed the benchmark, before sales charges. Security selection contributed relative to the benchmark, as gains from selection within commercial mortgage-backed securities (“CMBS”) and agency risk-sharing bonds outweighed negative returns from selection in agency mortgage-backed securities (“MBS”). Country positioning and the Fund’s shorter-than-benchmark duration were also positive, as interest rates rose over the period. Currency positioning detracted from returns.
2 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
During the 12-month period, all share classes except Class B and C shares outperformed the benchmark, before sales charges. Security selection added to returns, as gains from CMBS, agency risk-sharing bonds and investment-grade corporates offset losses from selection in agency MBS. The Fund’s shorter-than-benchmark duration was also positive, as rates rose over the period. Country positioning contributed to returns, while currency positioning detracted.
During both periods, the Fund utilized currency forwards to hedge currency risk and actively manage currency positions. Credit default swaps were utilized for hedging and investment purposes, which contributed for the six-month period and detracted for the 12-month period. Treasury futures and interest rate swaps were utilized to manage duration, country exposure and yield-curve positioning. Variance swaps were used for hedging purposes during the six-month period, which had no material impact on performance.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets were volatile during the six-month period. Emerging-market debt had mixed returns, with some segments of the market helped by increasing oil prices and an improving global growth story, while the rise in global rates weighed on others. Investment-grade credit and high-yield markets fell in the period, trailing the positive returns of emerging-market local-currency government bonds and developed-market treasuries. US, Canadian, Australian and German treasury yields rose, while the UK and Japanese curves flattened and treasury yields in other developed markets moved in different directions. The passage of US tax reform buoyed market sentiment, while in Europe, despite some formal progress on Brexit, investor anxiety increased around a bifurcated outlook for the negotiation process. The US Federal Reserve (the “Fed”) raised interest rates twice in the period, and began to formally reduce its balance sheet, as universally anticipated by markets. The European Central Bank confirmed that its newly reduced pace of asset purchases would continue through September 2018, and further if necessary. At the end of the period, a severe spike in volatility shook a broad swath of capital markets. US Treasury yields rose dramatically, driven by higher inflation forecasts and expectations for continued rate increases from the Fed. Additionally, President Trump’s announcement of tariffs on Chinese imports weighed on capital markets worldwide, as investors feared the possible onset of a global trade war.
INVESTMENT POLICIES
The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Fund expects to invest in readily
(continued on next page)
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 3 |
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 Fund 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 Fund may invest up to 25% of its net assets in below investment-grade bonds. The Fund may use leverage for investment purposes.
The Fund 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 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 mortgage-related and other asset-backed securities, loan participations, inflation-indexed securities, structured securities, variable, floating, and inverse floating-rate instruments and preferred stock, and may use other investment techniques. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures contracts, forwards or swaps.
4 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
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 Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of 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
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 5 |
DISCLOSURES AND RISKS (continued)
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.
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.
Mortgage-Related and/or Other Asset-Backed Securities Risk: Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by non-governmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
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.
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.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may
6 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
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.
Active Trading Risk: The Fund expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate may greatly exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Fund’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Fund shareholders.
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; the applicable contingent deferred sales charge for Class B shares (3% year 1, 2% year 2, 1% year 3) 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.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 7 |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS A SHARES | 2.22% | |||||||||||
1 Year | 0.32% | -3.94% | ||||||||||
5 Years | 1.93% | 1.04% | ||||||||||
10 Years | 4.08% | 3.63% | ||||||||||
CLASS B SHARES | 1.53% | |||||||||||
1 Year | -0.43% | -3.37% | ||||||||||
5 Years | 1.19% | 1.19% | ||||||||||
10 Years2 | 3.66% | 3.66% | ||||||||||
CLASS C SHARES | 1.57% | |||||||||||
1 Year | -0.44% | -1.42% | ||||||||||
5 Years | 1.19% | 1.19% | ||||||||||
10 Years | 3.35% | 3.35% | ||||||||||
ADVISOR CLASS SHARES3 | 2.58% | |||||||||||
1 Year | 0.57% | 0.57% | ||||||||||
5 Years | 2.22% | 2.22% | ||||||||||
10 Years | 4.38% | 4.38% | ||||||||||
CLASS R SHARES3 | 1.94% | |||||||||||
1 Year | 0.06% | 0.06% | ||||||||||
5 Years | 1.70% | 1.70% | ||||||||||
10 Years | 3.86% | 3.86% | ||||||||||
CLASS K SHARES3 | 2.25% | |||||||||||
1 Year | 0.32% | 0.32% | ||||||||||
5 Years | 1.95% | 1.95% | ||||||||||
10 Years | 4.12% | 4.12% | ||||||||||
CLASS I SHARES3 | 2.59% | |||||||||||
1 Year | 0.57% | 0.57% | ||||||||||
5 Years | 2.20% | 2.20% | ||||||||||
10 Years | 4.39% | 4.39% | ||||||||||
CLASS Z SHARES3 | 2.69% | |||||||||||
1 Year | 0.57% | 0.57% | ||||||||||
Since Inception4 | 2.55% | 2.55% |
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 1.03%, 1.81%, 1.78%, 0.78%, 1.39%, 1.09%, 0.75% 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 Fund’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, Class B, Class C,
(footnotes continued on next page)
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HISTORICAL PERFORMANCE (continued)
Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. These waivers/reimbursements may not be terminated before January 31, 2019 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, 2018. |
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 Fund. |
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, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
1 Year | -2.47% | |||
5 Years | 1.38% | |||
10 Years | 3.68% | |||
CLASS B SHARES | ||||
1 Year | -1.95% | |||
5 Years | 1.50% | |||
10 Years1 | 3.69% | |||
CLASS C SHARES | ||||
1 Year | 0.12% | |||
5 Years | 1.53% | |||
10 Years | 3.39% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 2.14% | |||
5 Years | 2.54% | |||
10 Years | 4.42% | |||
CLASS R SHARES2 | ||||
1 Year | 1.63% | |||
5 Years | 2.03% | |||
10 Years | 3.90% | |||
CLASS K SHARES2 | ||||
1 Year | 1.89% | |||
5 Years | 2.28% | |||
10 Years | 4.16% | |||
CLASS I SHARES2 | ||||
1 Year | 2.13% | |||
5 Years | 2.54% | |||
10 Years | 4.43% | |||
CLASS Z SHARES2 | ||||
1 Year | 2.04% | |||
Since Inception3 | 2.74% |
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 Fund. |
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.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 11 |
EXPENSE EXAMPLE (continued)
Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 987.50 | $ | 3.79 | 0.77 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.98 | $ | 3.86 | 0.77 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 983.90 | $ | 7.48 | 1.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.26 | $ | 7.60 | 1.52 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 984.70 | $ | 7.48 | 1.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.26 | $ | 7.60 | 1.52 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 989.70 | $ | 2.57 | 0.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.22 | $ | 2.61 | 0.52 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 987.20 | $ | 5.03 | 1.02 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.74 | $ | 5.11 | 1.02 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 988.40 | $ | 3.80 | 0.77 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.98 | $ | 3.86 | 0.77 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 989.70 | $ | 2.57 | 0.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.22 | $ | 2.61 | 0.52 | % | ||||||||
Class Z | ||||||||||||||||
Actual | $ | 1,000 | $ | 988.80 | $ | 2.56 | 0.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.22 | $ | 2.61 | 0.52 | % |
* | 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. |
12 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $374.7
TOP TEN SECTORS (including derivatives)1
Mortgage Pass-Throughs | 20.9 | % | ||
Corporates – Investment Grade | 19.9 | |||
Government – Treasuries2 | 17.5 | |||
Commercial Mortgage-Backed Securities3 | 12.2 | |||
Asset-Backed Securities | 10.6 | |||
Collateralized Mortgage Obligations | 6.9 | |||
Inflation-Linked Securities | 4.3 | |||
Corporates – Non-Investment Grade3 | 2.7 | |||
U.S. Treasury Bills | 2.2 | |||
Interest Rate Swaps4 | -5.0 |
SECTOR BREAKDOWN (excluding derivatives)5
Mortgage Pass-Throughs | 19.3 | % | Emerging Markets – Corporate Bonds | 1.0 | % | |||||||||
Corporates – Investment Grade | 18.3 | Emerging Markets – Treasuries | 0.7 | |||||||||||
Governments – Treasuries | 15.7 | Governments – Sovereign Bonds | 0.5 | |||||||||||
Commercial Mortgage-Backed Securities | 9.9 | Local Governments – US Municipal Bonds | 0.4 | |||||||||||
Asset-Backed Securities | 9.7 | Common Stocks | 0.2 | |||||||||||
Collateralized Mortgage Obligations | 6.4 | Other | 0.1 | |||||||||||
Corporates – Non-Investment Grade | 4.1 | Short-Term | 9.7 | |||||||||||
Inflation-Linked Securities | 4.0 | 100.0 | % |
1 | All data are as of April 30, 2018. The Fund’s sectors include derivative exposure and are expressed as approximate percentages of the Fund’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 Fund’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, 2018. The Fund’s sector 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” represents the following categories: Quasi-Sovereigns and Emerging Markets – Sovereigns. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
MORTGAGE PASS-THROUGHS – 20.9% |
| |||||||||||
Agency Fixed Rate 30-Year – 16.2% | ||||||||||||
Federal Home Loan Mortgage Corp. Gold | U.S.$ | 220 | $ | 239,294 | ||||||||
Series 2007 | 30 | 32,503 | ||||||||||
Series 2016 | 1,539 | 1,582,026 | ||||||||||
Series 2017 | 1,207 | 1,239,578 | ||||||||||
Federal National Mortgage Association | 211 | 230,745 | ||||||||||
Series 2004 | 699 | 763,411 | ||||||||||
Series 2005 | 89 | 97,363 | ||||||||||
Series 2007 | 407 | 444,563 | ||||||||||
Series 2010 | 711 | 730,515 | ||||||||||
Series 2013 | 1,747 | 1,793,130 | ||||||||||
Series 2016 | 1,663 | 1,654,821 | ||||||||||
Series 2017 | 12,881 | 12,804,130 | ||||||||||
Series 2018 | 16,716 | 16,612,821 | ||||||||||
4.00%, 5/01/48, TBA | 7,789 | 7,933,827 | ||||||||||
4.50%, 5/01/48, TBA | 12,700 | 13,228,836 | ||||||||||
Government National Mortgage Association | 0 | ** | 3 | |||||||||
Series 1999 | 14 | 14,478 | ||||||||||
Series 2016 | 1,224 | 1,196,410 | ||||||||||
|
| |||||||||||
60,598,454 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate 15-Year – 4.7% | ||||||||||||
Federal National Mortgage Association | 4,303 | 4,190,378 | ||||||||||
Series 2017 | 1,223 | 1,191,362 |
14 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2018 | U.S.$ | 12,160 | $ | 12,303,450 | ||||||||
|
| |||||||||||
17,685,190 | ||||||||||||
|
| |||||||||||
Other Agency Fixed Rate Programs – 0.0% | ||||||||||||
Federal National Mortgage Association | 145 | 143,823 | ||||||||||
|
| |||||||||||
Agency ARMs – 0.0% | ||||||||||||
Federal Home Loan Mortgage Corp. | 29 | 30,416 | ||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 78,457,883 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 19.9% | ||||||||||||
Financial Institutions – 10.7% | ||||||||||||
Banking – 9.3% | ||||||||||||
ABN AMRO Bank NV | 200 | 202,572 | ||||||||||
Banco Santander SA | EUR | 300 | 394,349 | |||||||||
3.50%, 4/11/22 | U.S.$ | 400 | 394,948 | |||||||||
5.179%, 11/19/25 | 600 | 619,302 | ||||||||||
Bank of America Corp. | 900 | 874,908 | ||||||||||
3.824%, 1/20/28 | 905 | 880,873 | ||||||||||
Series G | 890 | 850,003 | ||||||||||
Bank of Nova Scotia (The) | 190 | 186,574 | ||||||||||
Banque Federative du Credit Mutuel SA | 565 | 558,101 | ||||||||||
BB&T Corp. | 319 | 316,100 | ||||||||||
BNP Paribas SA | 355 | 350,772 | ||||||||||
3.80%, 1/10/24(b) | 347 | 343,658 | ||||||||||
Series E | EUR | 345 | 427,883 | |||||||||
BPCE SA | U.S.$ | 313 | 307,670 | |||||||||
5.70%, 10/22/23(b) | 230 | 244,745 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Capital One Financial Corp. | U.S.$ | 901 | $ | 859,914 | ||||||
Citigroup, Inc. | 1,240 | 1,183,282 | ||||||||
3.70%, 1/12/26 | 1,000 | 971,380 | ||||||||
Citizens Bank NA/Providence RI | 380 | 373,715 | ||||||||
Commonwealth Bank of Australia/New York NY | 250 | 246,470 | ||||||||
Compass Bank | 895 | 863,263 | ||||||||
5.50%, 4/01/20 | 1,339 | 1,382,451 | ||||||||
Cooperatieve Rabobank UA | 1,373 | 1,367,234 | ||||||||
Cooperatieve Rabobank UA/NY | 250 | 246,795 | ||||||||
Credit Agricole SA/London | 378 | 374,515 | ||||||||
3.25%, 10/04/24(b) | 257 | 244,456 | ||||||||
3.375%, 1/10/22(b) | 355 | 350,644 | ||||||||
Credit Suisse Group Funding Guernsey Ltd. | 600 | 596,766 | ||||||||
Goldman Sachs Group, Inc. (The) | 710 | 684,099 | ||||||||
3.75%, 5/22/25 | 254 | 248,217 | ||||||||
3.85%, 7/08/24 | 905 | 900,285 | ||||||||
Series D | 1,282 | 1,354,728 | ||||||||
HSBC Bank USA NA | 360 | 371,948 | ||||||||
HSBC Holdings PLC | 902 | 888,046 | ||||||||
4.041%, 3/13/28 | 1,184 | 1,158,544 | ||||||||
JPMorgan Chase & Co. | 890 | 857,257 | ||||||||
3.54%, 5/01/28 | 1,615 | 1,543,520 | ||||||||
KeyBank NA/Cleveland OH | 629 | 620,540 | ||||||||
Lloyds Banking Group PLC | 920 | 881,075 | ||||||||
4.375%, 3/22/28 | 673 | 668,949 | ||||||||
Manufacturers & Traders Trust Co. | 550 | 542,520 | ||||||||
Mitsubishi UFJ Financial Group, Inc. | 234 | 233,050 |
16 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Morgan Stanley | U.S.$ | 1,500 | $ | 1,424,055 | ||||||||
5.625%, 9/23/19 | 478 | 495,146 | ||||||||||
Series G | 590 | 619,712 | ||||||||||
MUFG Bank Ltd. | 380 | 373,939 | ||||||||||
National Australia Bank Ltd./New York Series G | 300 | 296,862 | ||||||||||
Nationwide Building Society | 950 | 904,942 | ||||||||||
PNC Bank NA | 250 | 247,275 | ||||||||||
Santander Holdings USA, Inc. | 890 | 870,109 | ||||||||||
Santander UK PLC | 500 | 514,205 | ||||||||||
UBS AG/Stamford CT | 620 | 694,902 | ||||||||||
UBS Group Funding Switzerland AG | 436 | 433,532 | ||||||||||
US Bancorp | 380 | 384,537 | ||||||||||
Wells Fargo & Co. | 712 | 693,417 | ||||||||||
|
| |||||||||||
34,918,754 | ||||||||||||
|
| |||||||||||
Finance – 0.3% | ||||||||||||
Synchrony Financial | 910 | 846,227 | ||||||||||
|
| |||||||||||
Insurance – 0.9% | ||||||||||||
American International Group, Inc. | 940 | 1,230,394 | ||||||||||
Guardian Life Insurance Co. of America (The) | 744 | 745,920 | ||||||||||
Hartford Financial Services Group, Inc. (The) | 110 | 114,616 | ||||||||||
MetLife Capital Trust IV | 699 | 875,127 | ||||||||||
Nationwide Mutual Insurance Co. | 246 | 387,740 | ||||||||||
|
| |||||||||||
3,353,797 | ||||||||||||
|
| |||||||||||
REITS – 0.2% | ||||||||||||
American Tower Corp. | 261 | 261,832 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Trust F/1401 | U.S.$ | 565 | $ | 564,294 | ||||||||
|
| |||||||||||
826,126 | ||||||||||||
|
| |||||||||||
39,944,904 | ||||||||||||
|
| |||||||||||
Industrial – 8.4% | ||||||||||||
Basic – 1.1% | ||||||||||||
Anglo American Capital PLC | 200 | 198,318 | ||||||||||
Eastman Chemical Co. | 220 | 219,927 | ||||||||||
Glencore Funding LLC | 516 | 514,591 | ||||||||||
Minsur SA | 335 | 354,263 | ||||||||||
Mosaic Co. (The) | 193 | 191,857 | ||||||||||
Sociedad Quimica y Minera de Chile SA | 1,607 | 1,584,904 | ||||||||||
Vale Overseas Ltd. | 495 | 571,354 | ||||||||||
Yamana Gold, Inc. | 339 | 343,851 | ||||||||||
|
| |||||||||||
3,979,065 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.2% | ||||||||||||
Embraer Netherlands Finance BV | 540 | 571,050 | ||||||||||
General Electric Co. | 187 | 185,040 | ||||||||||
|
| |||||||||||
756,090 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.6% |
| |||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 740 | 752,210 | ||||||||||
Cox Communications, Inc. | 233 | 222,410 | ||||||||||
Time Warner Cable LLC | 230 | 195,781 | ||||||||||
5.00%, 2/01/20 | 740 | 759,210 | ||||||||||
Time Warner, Inc. | 390 | 402,714 | ||||||||||
|
| |||||||||||
2,332,325 | ||||||||||||
|
|
18 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Communications - Telecommunications – 1.3% | ||||||||||||
AT&T, Inc. | U.S.$ | 1,610 | $ | 1,532,994 | ||||||||
4.125%, 2/17/26 | 1,161 | 1,149,367 | ||||||||||
5.15%, 2/14/50 | 395 | 399,645 | ||||||||||
Crown Castle Towers LLC | 288 | 296,461 | ||||||||||
Rogers Communications, Inc. | CAD | 130 | 105,399 | |||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 740 | 746,209 | |||||||||
Verizon Communications, Inc. | 555 | 541,253 | ||||||||||
|
| |||||||||||
4,771,328 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.8% |
| |||||||||||
Ford Motor Credit Co. LLC | 603 | 576,329 | ||||||||||
5.875%, 8/02/21 | 1,291 | 1,372,333 | ||||||||||
General Motors Co. | 340 | 341,126 | ||||||||||
General Motors Financial Co., Inc. | 560 | 561,103 | ||||||||||
3.25%, 5/15/18 | 43 | 43,010 | ||||||||||
4.00%, 1/15/25 | 106 | 103,526 | ||||||||||
4.30%, 7/13/25 | 135 | 133,207 | ||||||||||
|
| |||||||||||
3,130,634 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.3% |
| |||||||||||
Becton Dickinson and Co. | 180 | 175,615 | ||||||||||
Biogen, Inc. | 683 | 685,220 | ||||||||||
Bunge Ltd. Finance Corp. | 6 | 6,347 | ||||||||||
CVS Health Corp. | 450 | 448,403 | ||||||||||
4.30%, 3/25/28 | 450 | 445,095 | ||||||||||
Gilead Sciences, Inc. | 910 | 902,811 | ||||||||||
Mylan NV | EUR | 344 | 432,209 | |||||||||
Reynolds American, Inc. | U.S.$ | 345 | 368,698 | |||||||||
Tyson Foods, Inc. | 164 | 163,218 | ||||||||||
3.95%, 8/15/24 | 541 | 540,199 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Zimmer Biomet Holdings, Inc. | U.S.$ | 377 | $ | 373,581 | ||||||||
Zoetis, Inc. | 334 | 335,329 | ||||||||||
|
| |||||||||||
4,876,725 | ||||||||||||
|
| |||||||||||
Energy – 1.3% | ||||||||||||
Cenovus Energy, Inc. | 42 | 40,310 | ||||||||||
5.70%, 10/15/19 | 169 | 174,013 | ||||||||||
Ecopetrol SA | 245 | 236,547 | ||||||||||
Encana Corp. | 415 | 417,963 | ||||||||||
Energy Transfer LP/Regency Energy Finance Corp. | 420 | 438,367 | ||||||||||
Energy Transfer Partners LP | 411 | 413,573 | ||||||||||
Energy Transfer Partners LP/Regency Energy Finance Corp. | 135 | 135,606 | ||||||||||
Enterprise Products Operating LLC | 235 | 245,225 | ||||||||||
Hess Corp. | 648 | 628,333 | ||||||||||
Noble Energy, Inc. | 463 | 460,449 | ||||||||||
4.15%, 12/15/21 | 290 | 294,588 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 594 | 561,918 | ||||||||||
Sabine Pass Liquefaction LLC | 482 | 496,084 | ||||||||||
Williams Partners LP | 403 | 408,569 | ||||||||||
|
| |||||||||||
4,951,545 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
Alfa SAB de CV | 530 | 542,588 | ||||||||||
|
| |||||||||||
Services – 0.4% | ||||||||||||
Expedia Group, Inc. | 636 | 579,510 | ||||||||||
S&P Global, Inc. | 584 | 604,977 | ||||||||||
Total System Services, Inc. | 116 | 115,026 | ||||||||||
|
| |||||||||||
1,299,513 | ||||||||||||
|
|
20 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Technology – 1.2% | ||||||||||||
Agilent Technologies, Inc. | U.S.$ | 217 | $ | 225,072 | ||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 181 | 175,892 | ||||||||||
3.875%, 1/15/27 | 395 | 377,126 | ||||||||||
Dell International LLC/EMC Corp. | 865 | 909,669 | ||||||||||
6.02%, 6/15/26(b) | 145 | 154,105 | ||||||||||
Hewlett Packard Enterprise Co. | 629 | 620,137 | ||||||||||
KLA-Tencor Corp. | 614 | 634,686 | ||||||||||
Lam Research Corp. | 269 | 264,992 | ||||||||||
Motorola Solutions, Inc. | 400 | 390,032 | ||||||||||
7.50%, 5/15/25 | 43 | 50,622 | ||||||||||
Seagate HDD Cayman | 336 | 325,954 | ||||||||||
VMware, Inc. | 283 | 272,042 | ||||||||||
|
| |||||||||||
4,400,329 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 545 | 536,825 | ||||||||||
|
| |||||||||||
31,576,967 | ||||||||||||
|
| |||||||||||
Utility – 0.8% | ||||||||||||
Electric – 0.8% | ||||||||||||
Abu Dhabi National Energy Co. PJSC | 710 | 703,702 | ||||||||||
Dominion Energy, Inc. | 750 | 780,668 | ||||||||||
Exelon Generation Co. LLC | 453 | 451,310 | ||||||||||
Israel Electric Corp., Ltd. | 580 | 595,225 | ||||||||||
TECO Finance, Inc. | 380 | 392,426 | ||||||||||
|
| |||||||||||
2,923,331 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 74,445,202 | |||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – TREASURIES – 17.1% | ||||||||||||
Singapore – 0.5% | ||||||||||||
Singapore Government Bond | SGD | 2,642 | $ | 1,927,477 | ||||||||
|
| |||||||||||
United States – 16.6% | ||||||||||||
U.S. Treasury Bonds | U.S.$ | 1,662 | 1,481,137 | |||||||||
2.75%, 11/15/47 | 1,572 | 1,466,627 | ||||||||||
2.875%, 8/15/45-11/15/46 | 1,556 | 1,491,856 | ||||||||||
3.00%, 5/15/45-5/15/47 | 2,876 | 2,824,485 | ||||||||||
3.125%, 8/15/44 | 10,677 | 10,748,434 | ||||||||||
4.375%, 2/15/38 | 960 | 1,156,200 | ||||||||||
4.50%, 2/15/36 | 416 | 503,313 | ||||||||||
5.375%, 2/15/31 | 1,744 | 2,191,445 | ||||||||||
6.125%, 11/15/27 | 2,345 | 2,966,425 | ||||||||||
7.50%, 11/15/24 | 995 | 1,269,869 | ||||||||||
U.S. Treasury Notes | 900 | 805,193 | ||||||||||
1.625%, 4/30/23 | 3,153 | 2,981,556 | ||||||||||
1.625%, 2/15/26(d) | 418 | 380,471 | ||||||||||
1.75%, 11/30/19-11/30/21 | 14,205 | 13,898,948 | ||||||||||
1.875%, 1/31/22-4/30/22 | 4,690 | 4,546,367 | ||||||||||
2.00%, 8/15/25 | 3,430 | 3,225,272 | ||||||||||
2.125%, 12/31/22 | 5,386 | 5,232,836 | ||||||||||
2.25%, 11/15/25(d) | 3,979 | 3,800,231 | ||||||||||
2.375%, 8/15/24 | 1,040 | 1,010,391 | ||||||||||
|
| |||||||||||
61,981,056 | ||||||||||||
|
| |||||||||||
Total Governments – Treasuries | 63,908,533 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 10.7% | ||||||||||||
Non-Agency Fixed Rate CMBS – 8.8% | ||||||||||||
BHMS Mortgage Trust | 890 | 874,186 | ||||||||||
CFCRE Commercial Mortgage Trust | 735 | 715,231 | ||||||||||
CGRBS Commercial Mortgage Trust | 1,305 | 1,299,765 | ||||||||||
Citigroup Commercial Mortgage Trust | 565 | 530,857 |
22 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2015-GC27, Class A5 | U.S.$ | 1,223 | $ | 1,190,778 | ||||||
Series 2015-GC35, Class A4 | 340 | 343,889 | ||||||||
Series 2016-C1, Class A4 | 1,359 | 1,318,029 | ||||||||
Series 2016-GC36, Class A5 | 425 | 423,091 | ||||||||
Series 2018-B2, Class A4 | 1,050 | 1,073,389 | ||||||||
Commercial Mortgage Trust | 360 | 347,857 | ||||||||
Series 2015-CR24, Class A5 | 430 | 431,001 | ||||||||
Series 2015-CR25, Class A4 | 1,045 | 1,052,234 | ||||||||
Series 2015-PC1, Class A5 | 685 | 696,134 | ||||||||
CSAIL Commercial Mortgage Trust | 332 | 329,159 | ||||||||
Series 2015-C3, Class A4 | 573 | 574,386 | ||||||||
Series 2015-C4, Class A4 | 1,450 | 1,461,088 | ||||||||
GS Mortgage Securities Corp. II | 1,135 | 1,129,205 | ||||||||
GS Mortgage Securities Trust | 766 | 743,359 | ||||||||
Series 2018-GS9, Class A4 | 1,125 | 1,148,368 | ||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 156 | 156,250 | ||||||||
Series 2006-LDP9, Class AM | 175 | 175,638 | ||||||||
Series 2011-C5, Class D | 127 | 124,692 | ||||||||
Series 2012-C6, Class D | 690 | 675,783 | ||||||||
Series 2012-C6, Class E | 389 | 343,073 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
JPMBB Commercial Mortgage Securities Trust | U.S.$ | 735 | $ | 744,109 | ||||||
Series 2015-C30, Class A5 | 425 | 429,924 | ||||||||
Series 2015-C31, Class A3 | 1,009 | 1,020,167 | ||||||||
Series 2015-C32, Class C | 540 | 531,777 | ||||||||
Series 2015-C33, Class A4 | 1,050 | 1,056,819 | ||||||||
LB-UBS Commercial Mortgage Trust | 219 | 166,644 | ||||||||
LSTAR Commercial Mortgage Trust | 39 | 38,536 | ||||||||
Series 2015-3, Class A2 | 509 | 503,391 | ||||||||
Series 2016-4, Class A2 | 615 | 591,315 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 730 | 744,970 | ||||||||
Morgan Stanley Capital I Trust | ||||||||||
Series 2005-IQ9, Class D | 365 | 357,842 | ||||||||
Series 2016-UB12, Class A4 | 660 | 654,531 | ||||||||
Prudential Securities Secured Financing Corp. | 466 | 5 | ||||||||
UBS Commercial Mortgage Trust | ||||||||||
Series 2018-C8, Class A4 | 720 | 730,610 | ||||||||
Series 2018-C9, Class A4 | 1,300 | 1,331,300 | ||||||||
UBS-Barclays Commercial Mortgage Trust | 1,098 | 1,073,780 | ||||||||
Wells Fargo Commercial Mortgage Trust | ||||||||||
Series 2015-C27, Class A5 | 1,040 | 1,028,073 | ||||||||
Series 2015-SG1, Class C | 516 | 500,570 |
24 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2016-LC25, Class C | U.S.$ | 545 | $ | 519,645 | ||||||||
Series 2016-NXS6, Class A4 | 900 | 849,630 | ||||||||||
Series 2016-NXS6, Class C | 600 | 589,049 | ||||||||||
Series 2018-C43, Class A4 | 900 | 916,844 | ||||||||||
WF-RBS Commercial Mortgage Trust | ||||||||||||
Series 2013-C11, Class XA | 7,996 | 365,274 | ||||||||||
Series 2013-C14, Class A5 | 655 | 652,388 | ||||||||||
Series 2014-C20, Class A2 | 506 | 506,784 | ||||||||||
|
| |||||||||||
33,061,419 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 1.9% | ||||||||||||
Ashford Hospitality Trust, Inc. | 750 | 750,000 | ||||||||||
BAMLL Commercial Mortgage Securities Trust | 1,330 | 1,335,245 | ||||||||||
BX Trust | 805 | 806,001 | ||||||||||
Credit Suisse Mortgage Trust | 450 | 454,219 | ||||||||||
Great Wolf Trust | 655 | 656,424 | ||||||||||
H/2 Asset Funding NRE | 236 | 235,835 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 593 | 594,759 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Morgan Stanley Capital I Trust | ||||||||||||
Series 2015-XLF2, Class AFSA | U.S.$ | 202 | $ | 202,492 | ||||||||
Series 2015-XLF2, Class SNMA | 185 | 184,210 | ||||||||||
RETL | 900 | 903,654 | ||||||||||
Starwood Retail Property Trust | 1,090 | 1,089,383 | ||||||||||
|
| |||||||||||
7,212,222 | ||||||||||||
|
| |||||||||||
Agency CMBS – 0.0% | ||||||||||||
Government National Mortgage Association | 847 | 8 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 40,273,649 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 10.6% | ||||||||||||
Autos - Fixed Rate – 6.1% | ||||||||||||
Ally Auto Receivables Trust | 160 | 159,812 | ||||||||||
Ally Master Owner Trust | 1,226 | 1,225,582 | ||||||||||
Americredit Automobile Receivables Trust | 148 | 147,527 | ||||||||||
AmeriCredit Automobile Receivables Trust | 351 | 349,440 | ||||||||||
Avis Budget Rental Car Funding AESOP LLC | 418 | 414,558 | ||||||||||
Series 2018-1A, Class A | 920 | 919,772 | ||||||||||
Bank of The West Auto Trust | 13 | 12,969 | ||||||||||
California Republic Auto Receivables Trust | 67 | 66,855 |
26 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
CarMax Auto Owner Trust | U.S.$ | 297 | $ | 295,771 | ||||||
Chrysler Capital Auto Receivables Trust | 84 | 84,447 | ||||||||
Series 2016-AA, Class A3 | 455 | 453,793 | ||||||||
CPS Auto Receivables Trust | 600 | 640,077 | ||||||||
Series 2017-D, Class A | 721 | 716,774 | ||||||||
CPS Auto Trust | 550 | 576,866 | ||||||||
DT Auto Owner Trust | 189 | 188,690 | ||||||||
Series 2018-1A, Class A | 888 | 886,194 | ||||||||
Exeter Automobile Receivables Trust | 270 | 285,355 | ||||||||
Series 2016-3A, Class A | 86 | 85,529 | ||||||||
Series 2016-3A, Class D | 350 | 364,061 | ||||||||
Series 2017-1A, Class D | 525 | 540,735 | ||||||||
Series 2017-2A, Class A | 257 | 256,287 | ||||||||
Series 2017-3A, Class A | 579 | 575,083 | ||||||||
Series 2017-3A, Class C | 385 | 384,015 | ||||||||
Series 2018-1A, Class A | 875 | 871,547 | ||||||||
Series 2018-2A, Class A | 1,120 | 1,119,944 | ||||||||
Fifth Third Auto Trust | 422 | 421,623 | ||||||||
First Investors Auto Owner Trust | 137 | 136,744 | ||||||||
Flagship Credit Auto Trust | 350 | 376,685 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2016-4, Class E | U.S.$ | 565 | $ | 575,006 | ||||||
Series 2017-2, Class A | 418 | 415,984 | ||||||||
Series 2017-3, Class A | 428 | 424,463 | ||||||||
Series 2017-4, Class A | 352 | 349,652 | ||||||||
Ford Credit Auto Owner Trust | 322 | 319,560 | ||||||||
Ford Credit Floorplan Master Owner Trust | 906 | 892,607 | ||||||||
Series 2016-1, Class A1 | 682 | 677,158 | ||||||||
Series 2017-1, Class A1 | 710 | 697,513 | ||||||||
GM Financial Automobile Leasing Trust | 163 | 162,580 | ||||||||
GMF Floorplan Owner Revolving Trust | 575 | 574,480 | ||||||||
Series 2016-1, Class A1 | 860 | 853,095 | ||||||||
Harley-Davidson Motorcycle Trust | 122 | 122,157 | ||||||||
Hertz Vehicle Financing II LP | 386 | 384,626 | ||||||||
Series 2015-3A, Class A | 180 | 176,951 | ||||||||
Series 2016-1A, Class A | 678 | 674,270 | ||||||||
Hertz Vehicle Financing LLC | 1,580 | 1,577,304 | ||||||||
Santander Drive Auto Receivables Trust | 299 | 298,306 | ||||||||
Westlake Automobile Receivables Trust | 244 | 243,852 |
28 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Wheels SPV 2 LLC | U.S.$ | 950 | $ | 937,538 | ||||||||
|
| |||||||||||
22,913,837 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 2.6% |
| |||||||||||
CLUB Credit Trust |
| |||||||||||
Series 2017-P1, Class B | 700 | 696,793 | ||||||||||
Series 2017-P2, Class A | 583 | 581,175 | ||||||||||
CNH Equipment Trust | 616 | 612,427 | ||||||||||
Marlette Funding Trust |
| |||||||||||
Series 2016-1A, Class A | 65 | 65,363 | ||||||||||
Series 2017-1A, Class A | 169 | 168,534 | ||||||||||
Series 2017-1A, Class C | 750 | 772,828 | ||||||||||
Series 2017-2A, Class A | 303 | 302,444 | ||||||||||
Series 2017-3A, Class A | 228 | 226,986 | ||||||||||
Series 2017-3A, Class B | 543 | 537,019 | ||||||||||
Prosper Marketplace Issuance Trust | 215 | 214,056 | ||||||||||
SBA Tower Trust | 688 | 688,406 | ||||||||||
SoFi Consumer Loan Program LLC |
| |||||||||||
Series 2016-2, Class A | 309 | 308,277 | ||||||||||
Series 2016-3, Class A | 356 | 354,657 | ||||||||||
Series 2017-1, Class A | 290 | 289,600 | ||||||||||
Series 2017-2, Class A | 407 | 407,467 | ||||||||||
Series 2017-3, Class A | 340 | 337,150 | ||||||||||
Series 2017-4, Class B | 870 | 845,971 | ||||||||||
Series 2017-5, Class A2 | 720 | 707,897 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2017-6, Class A2 | U.S.$ | 725 | $ | 718,936 | ||||||||
SoFi Consumer Loan Program Trust | 829 | 825,865 | ||||||||||
|
| |||||||||||
9,661,851 | ||||||||||||
|
| |||||||||||
Credit Cards - Fixed Rate – 1.6% | ||||||||||||
Barclays Dryrock Issuance Trust | ||||||||||||
Series 2015-2, Class A | 703 | 702,808 | ||||||||||
Series 2015-4, Class A | 630 | 627,775 | ||||||||||
GE Capital Credit Card Master Note Trust | 1,050 | 1,047,611 | ||||||||||
Synchrony Credit Card Master Note Trust | ||||||||||||
Series 2015-3, Class A | 859 | 856,442 | ||||||||||
Series 2016-1, Class A | 544 | 541,170 | ||||||||||
World Financial Network Credit Card Master Trust | ||||||||||||
Series 2016-B, Class A | 416 | 414,672 | ||||||||||
Series 2017-B, Class A | 685 | 677,152 | ||||||||||
Series 2018-A, Class A | 1,135 | 1,128,921 | ||||||||||
|
| |||||||||||
5,996,551 | ||||||||||||
|
| |||||||||||
Autos - Floating Rate – 0.3% | ||||||||||||
BMW Floorplan Master Owner Trust | 997 | 997,629 | ||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.0% | ||||||||||||
Credit-Based Asset Servicing & Securitization LLC | 70 | 70,837 | ||||||||||
|
| |||||||||||
Home Equity Loans - Floating Rate – 0.0% | ||||||||||||
Asset Backed Funding Certificates Trust | 34 | 33,970 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 39,674,675 | |||||||||||
|
|
30 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 6.9% | ||||||||||||
Risk Share Floating Rate – 4.7% | ||||||||||||
Bellemeade Re II Ltd. | U.S.$ | 140 | $ | 141,920 | ||||||||
Bellemeade Re Ltd. | 460 | 460,997 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 1,268 | 1,407,092 | ||||||||||
Series 2014-DN3, Class M3 | 764 | 837,277 | ||||||||||
Series 2014-DN4, Class M3 | 249 | 277,979 | ||||||||||
Series 2014-HQ3, Class M3 | 781 | 868,430 | ||||||||||
Series 2015-DNA1, Class M3 | 265 | 295,302 | ||||||||||
Series 2015-DNA2, Class M2 | 475 | 483,965 | ||||||||||
Series 2015-DNA3, Class M3 | 280 | 335,967 | ||||||||||
Series 2015-HQA1, Class M2 | 334 | 340,371 | ||||||||||
Series 2015-HQA2, Class M3 | 500 | 587,476 | ||||||||||
Series 2016-DNA1, Class M3 | 330 | 398,316 | ||||||||||
Series 2018-HQA1, Class M2 | 217 | 219,781 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | U.S.$ | 309 | $ | 330,398 | ||||||
Series 2014-C04, Class 2M2 | 144 | 162,228 | ||||||||
Series 2015-C01, Class 1M2 | 255 | 280,406 | ||||||||
Series 2015-C01, Class 2M2 | 308 | 334,696 | ||||||||
Series 2015-C02, Class 1M2 | 460 | 504,690 | ||||||||
Series 2015-C02, Class 2M2 | 307 | 331,092 | ||||||||
Series 2015-C03, Class 1M2 | 568 | 648,353 | ||||||||
Series 2015-C03, Class 2M2 | 551 | 614,418 | ||||||||
Series 2015-C04, Class 1M2 | 781 | 908,561 | ||||||||
Series 2015-C04, Class 2M2 | 543 | 611,696 | ||||||||
Series 2016-C01, Class 1M2 | 982 | 1,180,164 | ||||||||
Series 2016-C01, Class 2M2 | 478 | 570,871 | ||||||||
Series 2016-C02, Class 1M2 | 539 | 645,137 | ||||||||
Series 2016-C03, Class 2M2 | 1,206 | 1,414,626 | ||||||||
Series 2016-C05, Class 2M2 | 765 | 857,978 |
32 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2018-C01, Class 1M2 | U.S.$ | 760 | $ | 777,815 | ||||||||
JP Morgan Madison Avenue Securities Trust | 89 | 96,947 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 387 | 435,560 | ||||||||||
Series 2015-WF1, Class 2M2 | 104 | 121,732 | ||||||||||
|
| |||||||||||
17,482,241 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 1.1% | ||||||||||||
Federal Home Loan Mortgage Corp. REMICs | 1,610 | 279,987 | ||||||||||
Series 4719, Class JS | 1,878 | 309,648 | ||||||||||
Federal National Mortgage Association REMICs | 1,126 | 207,135 | ||||||||||
Series 2012-70, Class SA | 2,060 | 393,615 | ||||||||||
Series 2015-90, Class SL | 2,295 | 373,744 | ||||||||||
Series 2016-77, Class DS | 2,306 | 387,905 | ||||||||||
Series 2017-16, Class SG | 2,275 | 404,289 | ||||||||||
Series 2017-26, Class TS | 2,144 | 383,627 | ||||||||||
Series 2017-62, Class AS | 2,223 | 394,281 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2017-81, Class SA | U.S.$ | 2,266 | $ | 415,053 | ||||||||
Series 2017-97, Class LS | 1,985 | 363,672 | ||||||||||
Government National Mortgage Association | 2,219 | 377,812 | ||||||||||
|
| |||||||||||
4,290,768 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.8% | ||||||||||||
Alternative Loan Trust | 180 | 159,950 | ||||||||||
Series 2006-24CB, Class A16 | 332 | 286,834 | ||||||||||
Series 2006-28CB, Class A14 | 230 | 191,868 | ||||||||||
Series 2006-J1, Class 1A13 | 188 | 171,047 | ||||||||||
Citigroup Mortgage Loan Trust, Inc. | 318 | 320,650 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 95 | 79,826 | ||||||||||
Credit Suisse Mortgage Trust | 335 | 274,287 | ||||||||||
First Horizon Alternative Mortgage Securities Trust | 307 | 257,308 | ||||||||||
JP Morgan Alternative Loan Trust | 824 | 794,115 | ||||||||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates | 452 | 390,992 | ||||||||||
|
| |||||||||||
2,926,877 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate – 0.3% | ||||||||||||
Deutsche Alt-A Securities Mortgage Loan Trust | 719 | 438,593 |
34 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
HomeBanc Mortgage Trust | U.S.$ | 252 | $ | 223,076 | ||||||||
Impac Secured Assets Corp. | 365 | 304,034 | ||||||||||
Residential Accredit Loans, Inc. Trust | 712 | 239,313 | ||||||||||
|
| |||||||||||
1,205,016 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.0% | ||||||||||||
Federal National Mortgage Association Grantor Trust | 65 | 60,966 | ||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 25,965,868 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 4.5% | ||||||||||||
Industrial – 2.6% | ||||||||||||
Basic – 0.2% | ||||||||||||
NOVA Chemicals Corp. | 331 | 332,000 | ||||||||||
SPCM SA | 286 | 277,251 | ||||||||||
|
| |||||||||||
609,251 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.1% | ||||||||||||
Altice France SA/France | EUR | 222 | 274,119 | |||||||||
CSC Holdings LLC | U.S.$ | 120 | 126,305 | |||||||||
|
| |||||||||||
400,424 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.5% | ||||||||||||
Arqiva Broadcast Finance PLC | GBP | 300 | 434,205 | |||||||||
CenturyLink, Inc. | U.S.$ | 79 | 80,547 | |||||||||
Sprint Capital Corp. | 970 | 998,838 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Windstream Services LLC/Windstream Finance Corp. | U.S.$ | 750 | $ | 437,138 | ||||||||
|
| |||||||||||
1,950,728 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Adient Global Holdings Ltd. | 379 | 355,024 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.3% | ||||||||||||
International Game Technology PLC | 360 | 378,410 | ||||||||||
6.50%, 2/15/25(b) | 520 | 555,033 | ||||||||||
KB Home | 286 | 288,465 | ||||||||||
|
| |||||||||||
1,221,908 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
First Quality Finance Co., Inc. | 475 | 471,400 | ||||||||||
Spectrum Brands, Inc. | 364 | 364,025 | ||||||||||
Valeant Pharmaceuticals International, Inc. | 375 | 337,594 | ||||||||||
|
| |||||||||||
1,173,019 | ||||||||||||
|
| |||||||||||
Energy – 0.6% | ||||||||||||
Antero Resources Corp. | 100 | 100,688 | ||||||||||
Diamond Offshore Drilling, Inc. | 567 | 408,013 | ||||||||||
Nabors Industries, Inc. | 721 | 708,166 | ||||||||||
PDC Energy, Inc. | 465 | 468,432 | ||||||||||
SM Energy Co. | 35 | 35,189 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 459 | 451,426 | ||||||||||
|
| |||||||||||
2,171,914 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.3% | ||||||||||||
General Cable Corp. | 655 | 672,338 | ||||||||||
Global Partners LP/GLP Finance Corp. | 361 | 359,942 | ||||||||||
|
| |||||||||||
1,032,280 | ||||||||||||
|
| |||||||||||
Technology – 0.1% | ||||||||||||
Western Digital Corp. | 560 | 552,457 | ||||||||||
|
|
36 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Transportation - Services – 0.1% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | U.S.$ | 309 | $ | 295,806 | ||||||||
|
| |||||||||||
9,762,811 | ||||||||||||
|
| |||||||||||
Financial Institutions – 1.8% | ||||||||||||
Banking – 1.6% | ||||||||||||
Banco Bilbao Vizcaya Argentaria SA | 600 | 580,128 | ||||||||||
Bank of America Corp. | 330 | 329,320 | ||||||||||
Series Z | 58 | 61,478 | ||||||||||
Barclays Bank PLC | 129 | 148,461 | ||||||||||
Barclays PLC | 361 | 361,278 | ||||||||||
CIT Group, Inc. | 383 | 391,142 | ||||||||||
Citigroup, Inc. | 216 | 220,218 | ||||||||||
Credit Suisse Group AG | 363 | 393,917 | ||||||||||
Goldman Sachs Group, Inc. (The) | 477 | 457,643 | ||||||||||
Intesa Sanpaolo SpA | EUR | 200 | 296,466 | |||||||||
Series E | 141 | 184,520 | ||||||||||
Lloyds Banking Group PLC | U.S.$ | 402 | 434,080 | |||||||||
Royal Bank of Scotland Group PLC | EUR | 50 | 60,026 | |||||||||
8.625%, 8/15/21(c) | U.S.$ | 570 | 624,310 | |||||||||
Series U | 700 | 705,355 | ||||||||||
Standard Chartered PLC | 400 | 377,324 | ||||||||||
7.50%, 4/02/22(b)(c) | 363 | 383,419 | ||||||||||
|
| |||||||||||
6,009,085 | ||||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Finance – 0.2% | ||||||||||||
Navient Corp. | U.S.$ | 440 | $ | 456,900 | ||||||||
7.25%, 1/25/22 | 99 | 104,987 | ||||||||||
|
| |||||||||||
561,887 | ||||||||||||
|
| |||||||||||
6,570,972 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
AES Corp./VA | 371 | 373,234 | ||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 16,707,017 | |||||||||||
|
| |||||||||||
INFLATION-LINKED SECURITIES – 4.3% | ||||||||||||
Japan – 1.0% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 374,630 | 3,636,122 | |||||||||
|
| |||||||||||
United States – 3.3% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 5,889 | 5,861,946 | |||||||||
0.125%, 4/15/20 (TIPS) | 1,712 | 1,697,118 | ||||||||||
0.375%, 7/15/25 (TIPS) | 5,084 | 4,978,526 | ||||||||||
|
| |||||||||||
12,537,590 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 16,173,712 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 1.1% | ||||||||||||
Industrial – 1.0% | ||||||||||||
Capital Goods – 0.1% | ||||||||||||
Odebrecht Finance Ltd. | 541 | 139,308 | ||||||||||
7.125%, 6/26/42(b) | 394 | 107,050 | ||||||||||
|
| |||||||||||
246,358 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
MTN Mauritius Investment Ltd. | 377 | 381,241 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.4% | ||||||||||||
BRF GmbH | 210 | 184,800 |
38 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BRF SA | U.S.$ | 203 | $ | 183,715 | ||||||||
Marfrig Holdings Europe BV | 350 | 353,500 | ||||||||||
Minerva Luxembourg SA | 233 | 221,350 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 615 | 490,462 | ||||||||||
Virgolino de Oliveira Finance SA | 660 | 41,785 | ||||||||||
|
| |||||||||||
1,475,612 | ||||||||||||
|
| |||||||||||
Energy – 0.3% | ||||||||||||
Petrobras Global Finance BV | 562 | 533,748 | ||||||||||
6.125%, 1/17/22 | 23 | 24,341 | ||||||||||
6.25%, 3/17/24 | 411 | 430,111 | ||||||||||
Ultrapar International SA | 379 | 379,711 | ||||||||||
|
| |||||||||||
1,367,911 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg SARL | 315 | 308,738 | ||||||||||
|
| |||||||||||
3,779,860 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Genneia SA | 261 | 279,923 | ||||||||||
Terraform Global Operating LLC | 153 | 154,955 | ||||||||||
|
| |||||||||||
434,878 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 4,214,738 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentina POM Politica Monetaria | ARS | 6,500 | 329,936 | |||||||||
|
| |||||||||||
Brazil – 0.7% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 9,270 | 2,705,118 | |||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 3,035,054 | |||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.6% | ||||||||||||
Mexico – 0.1% | ||||||||||||
Mexico Government International Bond | U.S.$ | 552 | $ | 534,888 | ||||||||
|
| |||||||||||
Qatar – 0.2% | ||||||||||||
Qatar Government International Bond | 720 | 717,012 | ||||||||||
|
| |||||||||||
Saudi Arabia – 0.3% | ||||||||||||
Saudi Government International Bond | 938 | 924,971 | ||||||||||
|
| |||||||||||
Total Governments – Sovereign Bonds | 2,176,871 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.4% | ||||||||||||
United States – 0.4% | ||||||||||||
State of California | ||||||||||||
Series 2010 | 970 | 1,448,705 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.2% | ||||||||||||
Financials – 0.2% | ||||||||||||
Insurance – 0.2% | ||||||||||||
Mt Logan Re Ltd. (Preference Shares)(e)(k)(l) | 626 | 611,373 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
QUASI-SOVEREIGNS – 0.1% | ||||||||||||
Quasi-Sovereign Bonds – 0.1% | ||||||||||||
Chile – 0.1% | ||||||||||||
Corp. Nacional del Cobre de Chile | U.S.$ | 313 | 297,941 | |||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.1% | ||||||||||||
Egypt – 0.1% | ||||||||||||
Egypt Government International Bond | 235 | 241,169 | ||||||||||
|
| |||||||||||
40 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
SHORT-TERM INVESTMENTS – 10.5% | ||||||||||||
Governments – Treasuries – 6.6% | ||||||||||||
Japan – 6.6% | ||||||||||||
Japan Treasury Discount Bill | JPY | 864,150 | $ | 7,909,203 | ||||||||
Series 748 | 1,832,050 | 16,762,520 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 24,671,723 | |||||||||||
|
| |||||||||||
U.S. Treasury Bills – 2.2% | ||||||||||||
U.S. Treasury Bill | U.S.$ | 8,384 | 8,360,158 | |||||||||
|
| |||||||||||
Agency Discount Note – 1.0% | ||||||||||||
Federal Home Loan Bank Discount Notes | 3,755 | 3,732,881 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
Investment Companies – 0.7% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, | 2,815,558 | 2,815,558 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 39,580,320 | |||||||||||
|
| |||||||||||
Total Investments – 108.7% | 407,212,710 | |||||||||||
Other assets less liabilities – (8.7)% | (32,554,437 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 374,658,273 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 335 | June 2018 | USD | 33,500 | $ | 38,215,030 | $ | 38,025,117 | $ | (189,913 | ) | |||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 63 | June 2018 | USD | 6,300 | 9,838,992 | 9,898,875 | 59,883 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 14 | June 2018 | JPY | 1,400,000 | $ | 19,315,323 | $ | 19,291,621 | $ | 23,702 | ||||||||||||||||||
Euro-BOBL Futures | 105 | June 2018 | EUR | 10,500 | 16,529,020 | 16,610,533 | (81,513 | ) | ||||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 82 | June 2018 | USD | 16,400 | 17,420,931 | 17,387,844 | 33,087 | |||||||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 165 | June 2018 | USD | 16,500 | 19,831,038 | 19,738,125 | 92,913 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (61,841 | ) | ||||||||||||||||||||||||||
|
|
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. | NZD | 1,154 | USD | 834 | 6/07/18 | $ | 22,365 | |||||||||||||||||
Bank of America, NA | CAD | 3,940 | USD | 3,120 | 6/12/18 | 48,538 | ||||||||||||||||||
Barclays Bank PLC | BRL | 1,346 | USD | 406 | 5/03/18 | 22,149 | ||||||||||||||||||
Barclays Bank PLC | USD | 387 | BRL | 1,346 | 5/03/18 | (2,440 | ) | |||||||||||||||||
BNP Paribas SA | NZD | 1,872 | USD | 1,333 | 6/07/18 | 15,987 | ||||||||||||||||||
BNP Paribas SA | GBP | 2,013 | USD | 2,863 | 6/13/18 | 86,616 | ||||||||||||||||||
Citibank, NA | BRL | 4,443 | USD | 1,280 | 6/04/18 | 15,488 | ||||||||||||||||||
Citibank, NA | USD | 1,585 | TWD | 45,780 | 6/07/18 | (35,190 | ) | |||||||||||||||||
Citibank, NA | USD | 1,498 | CNY | 9,414 | 6/28/18 | (13,619 | ) | |||||||||||||||||
Citibank, NA | USD | 1,150 | KRW | 1,222,895 | 7/26/18 | (5,248 | ) | |||||||||||||||||
Credit Suisse International | AUD | 1,900 | CAD | 1,888 | 6/07/18 | 40,414 | ||||||||||||||||||
Credit Suisse International | CHF | 896 | USD | 939 | 6/28/18 | 30,285 | ||||||||||||||||||
Goldman Sachs Bank USA | USD | 1,477 | MYR | 5,793 | 7/12/18 | (12,164 | ) | |||||||||||||||||
HSBC Bank USA | USD | 923 | AUD | 1,173 | 6/07/18 | (39,824 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,124 | PLN | 3,802 | 5/16/18 | (40,445 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | EUR | 2,366 | USD | 2,937 | 5/30/18 | 74,358 | ||||||||||||||||||
JPMorgan Chase Bank, NA | AUD | 1,370 | USD | 1,060 | 6/07/18 | 28,571 | ||||||||||||||||||
JPMorgan Chase Bank, NA | TWD | 88,128 | USD | 3,035 | 6/07/18 | 51,903 | ||||||||||||||||||
JPMorgan Chase Bank, NA | CHF | 1,077 | USD | 1,125 | 6/28/18 | 33,265 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | SGD | 2,547 | USD | 1,930 | 5/17/18 | 9,106 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 995 | GBP | 693 | 6/13/18 | (39,311 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | JPY | 3,154,745 | USD | 29,548 | 6/18/18 | 598,941 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 1,745 | CAD | 2,202 | 6/12/18 | (28,332 | ) | |||||||||||||||||
Standard Chartered Bank | BRL | 1,346 | USD | 387 | 5/03/18 | 2,440 | ||||||||||||||||||
Standard Chartered Bank | USD | 385 | BRL | 1,346 | 5/03/18 | (351 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 727 | INR | 47,676 | 5/17/18 | (10,825 | ) | |||||||||||||||||
Standard Chartered Bank | BRL | 1,346 | USD | 384 | 6/04/18 | 530 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 282 | EUR | 229 | 5/30/18 | (5,656 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 495 | JPY | 53,854 | 6/18/18 | (1,212 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 846,339 | |||||||||||||||||||||||
|
|
42 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||||||
CDX-NAIG Series 30, 5 Year Index, 6/20/23* | (1.00 | )% | Quarterly | 0.61 | % | USD | 5,620 | $ | (110,438 | ) | $ | (98,680 | ) | $ | (11,758 | ) |
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||||
Notional Amount | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CAD 27,970 | 4/06/20 | | 3 Month CDOR | | 2.181% | | Semi-Annual/ Semi-Annual |
| $ | (18,092 | ) | $ | — | $ | (18,092 | ) | ||||||||||||
EUR 18,230 | 4/10/20 | -0.149% | | 6 Month EURIBOR | | | Annual/ Semi-Annual |
| (5,706 | ) | 447 | (6,153 | ) | |||||||||||||||
EUR 2,280 | 4/10/20 | -0.150% | | 6 Month EURIBOR | | | Annual/ Semi-Annual |
| (661 | ) | 56 | (717 | ) | |||||||||||||||
EUR 7,600 | 4/11/20 | -0.148% | | 6 Month EURIBOR | | | Annual/ Semi-Annual |
| (2,447 | ) | (185 | ) | (2,262 | ) | ||||||||||||||
SEK 30,420 | 3/31/22 | | 3 Month STIBOR | | 0.341% | | Quarterly/ Annual | 9,026 | 14 | 9,012 | ||||||||||||||||||
NZD 6,235 | 3/31/22 | | 3 Month BKBM | | 2.936% | | Quarterly/ Semi-Annual | 64,293 | — | 64,293 | ||||||||||||||||||
USD 2,630 | 1/14/24 | 2.980% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| (27,661 | ) | — | (27,661 | ) | |||||||||||||||
USD 2,300 | 2/14/24 | 2.889% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 143 | — | 143 | |||||||||||||||||
USD 3,600 | 11/10/25 | 2.256% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 149,772 | — | 149,772 | |||||||||||||||||
USD 456 | 6/28/26 | 1.460% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 49,407 | — | 49,407 | |||||||||||||||||
USD 985 | 11/08/26 | 1.657% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 93,227 | — | 93,227 | |||||||||||||||||
USD 1,240 | 11/09/26 | 1.672% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 115,937 | — | 115,937 | |||||||||||||||||
USD 1,670 | 7/12/27 | 2.355% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 76,765 | — | 76,765 | |||||||||||||||||
USD 2,160 | 3/28/28 | 2.920% | | 3 Month LIBOR | | | Semi-Annual/ Quarterly |
| 14,409 | — | 14,409 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 518,412 | $ | 332 | $ | 518,080 | |||||||||||||||||||||||
|
|
|
|
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||||||
Sprint Communications, Inc., | (5.00 | )% | Quarterly | 0.41 | % | USD | 452 | $ | (26,126 | ) | $ | (6,316 | ) | $ | (19,810 | ) | ||||||||||||||||
Sprint Communications, Inc., | (5.00 | ) | Quarterly | 0.41 | USD | 518 | (29,940 | ) | (7,505 | ) | (22,435 | ) | ||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 57 | (112 | ) | 723 | (835 | ) | |||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 20 | (39 | ) | 184 | (223 | ) | |||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 2,085 | (4,077 | ) | 26,278 | (30,355 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 7, 1/17/47* | (3.00 | ) | Monthly | 5.06 | USD | 2,150 | 197,728 | 138,853 | 58,875 | |||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 777 | (1,520 | ) | 8,212 | (9,732 | ) | |||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 695 | (1,359 | ) | 9,444 | (10,803 | ) | |||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 2,592 | (5,068 | ) | 27,633 | (32,701 | ) | |||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 169 | (331 | ) | 1,614 | (1,945 | ) | |||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.47 | USD | 762 | (1,491 | ) | 10,269 | (11,760 | ) | |||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 297 | (36,996 | ) | (47,326 | ) | 10,330 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 269 | (33,486 | ) | (41,612 | ) | 8,126 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 201 | (25,038 | ) | (27,670 | ) | 2,632 |
44 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 6.47 | % | USD | 41 | $ | (5,107 | ) | $ | (6,855 | ) | $ | 1,748 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 85 | (10,588 | ) | (11,979 | ) | 1,391 | ||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 291 | (36,224 | ) | (44,810 | ) | 8,586 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 155 | (19,308 | ) | (11,124 | ) | (8,184 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 509 | (63,404 | ) | (34,178 | ) | (29,226 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 2,150 | (267,819 | ) | (129,152 | ) | (138,667 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 1,882 | (234,411 | ) | (79,861 | ) | (154,550 | ) | |||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 850 | (22,251 | ) | (17,259 | ) | (4,992 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 322 | (40,110 | ) | (42,116 | ) | 2,006 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 52 | (6,477 | ) | (6,327 | ) | (150 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 179 | (22,297 | ) | (21,252 | ) | (1,045 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 181 | (22,546 | ) | (21,481 | ) | (1,065 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 46 | (5,730 | ) | (2,741 | ) | (2,989 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 530 | (66,020 | ) | (59,266 | ) | (6,754 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 531 | (66,145 | ) | (45,335 | ) | (20,810 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 745 | (92,802 | ) | (54,196 | ) | (38,606 | ) | |||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 313 | (38,989 | ) | (53,865 | ) | 14,876 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 6.47 | % | USD | 325 | $ | (40,484 | ) | $ | (51,856 | ) | $ | 11,372 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 224 | (27,903 | ) | (38,002 | ) | 10,099 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 574 | (71,502 | ) | (78,991 | ) | 7,489 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 260 | (32,388 | ) | (36,729 | ) | 4,341 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 20 | (2,490 | ) | (3,153 | ) | 663 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 26 | (3,239 | ) | (2,419 | ) | (820 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 52 | (6,477 | ) | (5,331 | ) | (1,146 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 104 | (12,955 | ) | (11,654 | ) | (1,301 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 52 | (6,478 | ) | (4,927 | ) | (1,551 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 356 | (44,346 | ) | (39,369 | ) | (4,977 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 311 | (38,740 | ) | (27,894 | ) | (10,846 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 219 | (27,280 | ) | (15,070 | ) | (12,210 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 760 | (94,671 | ) | (62,802 | ) | (31,869 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 1,125 | (140,138 | ) | (89,271 | ) | (50,867 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 1,469 | (182,988 | ) | (74,570 | ) | (108,418 | ) | |||||||||||||||||||||
Morgan Stanley & Co. International PLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 6.47 | USD | 800 | (99,587 | ) | (122,720 | ) | 23,133 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (1,819,749 | ) | $ | (1,213,774 | ) | $ | (605,975 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
46 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
VARIANCE SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Volatility Strike Price | Payment Frequency | Notional Amount (000) | Market Value | Upfront Premiums (Paid) Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||
AUD/JPY 1/14/20* | 11.12 | % | AUD | 48 | $ | (23 | ) | $ | – 0 | – | $ | (23 | ) | |||||||||||
AUD/JPY 3/3/20* | 12.75 | AUD | 24 | (115 | ) | – 0 | – | (115 | ) | |||||||||||||||
Goldman Sachs Bank USA | ||||||||||||||||||||||||
AUD/JPY 3/10/20* | 12.90 | AUD | 11 | (57 | ) | – 0 | – | (57 | ) | |||||||||||||||
AUD/JPY 3/11/20* | 12.80 | AUD | 13 | (65 | ) | – 0 | – | (65 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (260 | ) | $ | – 0 | – | $ | (260 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
** | Principal amount less than 500. |
(a) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at April 30, 2018. |
(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, 2018, the aggregate market value of these securities amounted to $69,905,845 or 18.7% of net assets. |
(c) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(d) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(e) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(f) | IO – Interest Only. |
(g) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.29% of net assets as of April 30, 2018, 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 | $ | 139,517 | $ | 141,920 | 0.04 | % | |||||||||
H/2 Asset Funding NRE | 6/19/15 | 235,835 | 235,835 | 0.06 | % | |||||||||||
JP Morgan Madison Avenue Securities Trust | 11/06/15 | 88,087 | 96,947 | 0.03 | % | |||||||||||
Prudential Securities Secured Financing Corp. | 3/18/99 | 5 | 5 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | 365,927 | 41,785 | 0.01 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 386,816 | 435,560 | 0.12 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 103,521 | 121,732 | 0.03 | % |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
(h) | Variable rate coupon, rate shown as of April 30, 2018. |
(i) | Inverse interest only security. |
(j) | Defaulted matured security. |
(k) | Non-income producing security. |
(l) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Mt Logan Re Ltd. (Preference Shares) | 1/02/14-12/30/14 | $ | 626,000 | $ | 611,373 | 0.16 | % |
(m) | Affiliated investments. |
(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) | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
ARS – Argentine Peso
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CHF – Swiss Franc
CNY – Chinese Yuan Renminbi
EUR – Euro
GBP – Great British Pound
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
MYR – Malaysian Ringgit
NZD – New Zealand Dollar
PLN – Polish Zloty
SEK – Swedish Krona
SGD – Singapore Dollar
TWD – New Taiwan Dollar
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
ARMs – Adjustable Rate Mortgages
ARPP7DRR – Argentina Central Bank 7-Day Repo Reference Rate
BKBM – Bank Bill Benchmark (New Zealand)
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
CDOR – Canadian Dealer Offered Rate
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
CPI – Consumer Price Index
EURIBOR – Euro Interbank Offered Rate
LIBOR – London Interbank Offered Rates
OSE – Osaka Securities Exchange
PJSC – Public Joint Stock Company
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.
48 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $409,379,791) | $ | 404,397,152 | ||
Affiliated issuers (cost $2,815,558) | 2,815,558 | |||
Cash | 10,012 | |||
Cash collateral due from broker | 917,128 | |||
Foreign currencies, at value (cost $211,001) | 190,437 | |||
Receivable for investment securities sold | 15,060,149 | |||
Unaffiliated interest and dividends receivable | 2,136,311 | |||
Unrealized appreciation on forward currency exchange contracts | 1,080,956 | |||
Receivable for capital stock sold | 563,896 | |||
Upfront premiums paid on credit default swaps | 223,210 | |||
Unrealized appreciation on credit default swaps | 165,667 | |||
Receivable for variation margin on futures | 61,543 | |||
Affiliated dividends receivable | 4,509 | |||
|
| |||
Total assets | 427,626,528 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased | 49,474,908 | |||
Upfront premiums received on credit default swaps | 1,436,984 | |||
Unrealized depreciation on credit default swaps | 771,642 | |||
Payable for capital stock redeemed | 520,491 | |||
Unrealized depreciation on forward currency exchange contracts | 234,617 | |||
Dividends payable | 179,407 | |||
Advisory fee payable | 67,241 | |||
Distribution fee payable | 58,963 | |||
Transfer Agent fee payable | 47,154 | |||
Payable for variation margin on centrally cleared swaps | 19,779 | |||
Administrative fee payable | 19,569 | |||
Directors’ fees payable | 3,318 | |||
Unrealized depreciation on variance swaps | 260 | |||
Accrued expenses | 133,922 | |||
|
| |||
Total liabilities | 52,968,255 | |||
|
| |||
Net Assets | $ | 374,658,273 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 34,518 | ||
Additional paid-in capital | 383,316,303 | |||
Undistributed net investment income | 523,599 | |||
Accumulated net realized loss on investment and foreign currency transactions | (4,872,072 | ) | ||
Net unrealized depreciation on investments and foreign currency denominated assets and liabilities | (4,344,075 | ) | ||
|
| |||
$ | 374,658,273 | |||
|
|
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 49 |
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 | $ | 226,545,395 | 20,877,611 | $ | 10.85 | * | ||||||
|
|
|
|
|
|
| ||||||
B | $ | 626,310 | 57,701 | $ | 10.85 | |||||||
|
|
|
|
|
|
| ||||||
C | $ | 13,606,052 | 1,256,665 | $ | 10.83 | |||||||
|
|
|
|
|
|
| ||||||
Advisor | $ | 82,584,669 | 7,607,455 | $ | 10.86 | |||||||
|
|
|
|
|
|
| ||||||
R | $ | 2,496,053 | 230,087 | $ | 10.85 | |||||||
|
|
|
|
|
|
| ||||||
K | $ | 6,110,173 | 562,643 | $ | 10.86 | |||||||
|
|
|
|
|
|
| ||||||
I | $ | 2,853,855 | 262,648 | $ | 10.87 | |||||||
|
|
|
|
|
|
| ||||||
Z | $ | 39,835,766 | 3,663,130 | $ | 10.87 | |||||||
|
|
|
|
|
|
|
* | The maximum offering price per share for Class A shares was $11.33 which reflects a sales charge of 4.25%. |
See notes to financial statements.
50 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2018 (unaudited)
Investment Income | ||||||||
Interest | $ | 5,240,008 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 26,716 | |||||||
Affiliated issuers | 28,386 | $ | 5,295,110 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 832,047 | |||||||
Distribution fee—Class A | 291,598 | |||||||
Distribution fee—Class B | 3,404 | |||||||
Distribution fee—Class C | 73,219 | |||||||
Distribution fee—Class R | 6,096 | |||||||
Distribution fee—Class K | 7,433 | |||||||
Transfer agency—Class A | 157,099 | |||||||
Transfer agency—Class B | 615 | |||||||
Transfer agency—Class C | 10,004 | |||||||
Transfer agency—Advisor Class | 50,510 | |||||||
Transfer agency—Class R | 3,065 | |||||||
Transfer agency—Class K | 5,947 | |||||||
Transfer agency—Class I | 1,046 | |||||||
Transfer agency—Class Z | 3,510 | |||||||
Custodian | 104,174 | |||||||
Registration fees | 63,500 | |||||||
Audit and tax | 45,331 | |||||||
Printing | 30,817 | |||||||
Administrative | 29,783 | |||||||
Legal | 21,603 | |||||||
Directors’ fees | 14,139 | |||||||
Miscellaneous | 9,381 | |||||||
|
| |||||||
Total expenses | 1,764,321 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (425,213 | ) | ||||||
|
| |||||||
Net expenses | 1,339,108 | |||||||
|
| |||||||
Net investment income | 3,956,002 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (1,843,246 | ) | ||||||
Forward currency exchange contracts | (576,116 | ) | ||||||
Futures | (933,035 | ) | ||||||
Swaps | 405,798 | |||||||
Foreign currency transactions | (274,934 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (7,372,226 | ) | ||||||
Forward currency exchange contracts | 886,650 | |||||||
Futures | 146,821 | |||||||
Swaps | 1,164,036 | |||||||
Foreign currency denominated assets and liabilities | (36,552 | ) | ||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (8,432,804 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (4,476,802 | ) | |||||
|
|
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 51 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 3,956,002 | $ | 7,729,869 | ||||
Net realized loss on investment and foreign currency transactions | (3,221,533 | ) | (1,713,043 | ) | ||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (5,211,271 | ) | (403,213 | ) | ||||
Contributions from Affiliates | – 0 | – | 848 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (4,476,802 | ) | 5,614,461 | |||||
Dividends and Distributions to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (2,613,372 | ) | (4,943,450 | ) | ||||
Class B | (5,056 | ) | (12,336 | ) | ||||
Class C | (109,016 | ) | (399,665 | ) | ||||
Advisor Class | (936,023 | ) | (1,410,824 | ) | ||||
Class R | (24,389 | ) | (51,715 | ) | ||||
Class K | (66,988 | ) | (107,449 | ) | ||||
Class I | (31,172 | ) | (61,860 | ) | ||||
Class Z | (439,121 | ) | (438,598 | ) | ||||
Net realized gain on investment transactions | ||||||||
Class A | – 0 | – | (859,057 | ) | ||||
Class B | – 0 | – | (3,644 | ) | ||||
Class C | – 0 | – | (145,770 | ) | ||||
Advisor Class | – 0 | – | (198,792 | ) | ||||
Class R | – 0 | – | (10,587 | ) | ||||
Class K | – 0 | – | (19,032 | ) | ||||
Class I | – 0 | – | (10,045 | ) | ||||
Class Z | – 0 | – | (60,304 | ) | ||||
Tax return of capital | ||||||||
Class A | – 0 | – | (738,365 | ) | ||||
Class B | – 0 | – | (1,842 | ) | ||||
Class C | – 0 | – | (59,695 | ) | ||||
Advisor Class | – 0 | – | (210,724 | ) | ||||
Class R | – 0 | – | (7,724 | ) | ||||
Class K | – 0 | – | (16,049 | ) | ||||
Class I | – 0 | – | (9,239 | ) | ||||
Class Z | – 0 | – | (65,510 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | 23,241,461 | (9,872,834 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | 14,539,522 | (14,100,649 | ) | |||||
Net Assets | ||||||||
Beginning of period | 360,118,751 | 374,219,400 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $523,599 and $792,734, respectively) | $ | 374,658,273 | $ | 360,118,751 | ||||
|
|
|
|
See notes to financial statements.
52 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 “Fund”), a diversified portfolio. The Fund offers Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class T and Class Z shares. Class T shares have been authorized but currently are not 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 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 Fund 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 Fund’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 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 Fund is an
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 53 |
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 Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the 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
54 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
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.) |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. 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.
56 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of April 30, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Mortgage Pass-Throughs | $ | – 0 | – | $ | 78,457,883 | $ | – 0 | – | $ | 78,457,883 | ||||||
Corporates – Investment Grade | – 0 | – | 74,445,202 | – 0 | – | 74,445,202 | ||||||||||
Governments – Treasuries | – 0 | – | 63,908,533 | – 0 | – | 63,908,533 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 33,732,775 | 6,540,874 | 40,273,649 | |||||||||||
Asset-Backed Securities | – 0 | – | 30,520,444 | 9,154,231 | 39,674,675 | |||||||||||
Collateralized Mortgage Obligations | – 0 | – | 25,904,902 | 60,966 | 25,965,868 | |||||||||||
Corporates – Non-Investment Grade | – 0 | – | 16,707,017 | – 0 | – | 16,707,017 | ||||||||||
Inflation-Linked Securities | – 0 | – | 16,173,712 | – 0 | – | 16,173,712 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 4,172,953 | 41,785 | 4,214,738 | |||||||||||
Emerging Markets – Treasuries | – 0 | – | 3,035,054 | – 0 | – | 3,035,054 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 2,176,871 | – 0 | – | 2,176,871 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 1,448,705 | – 0 | – | 1,448,705 | ||||||||||
Common Stocks | – 0 | – | – 0 | – | 611,373 | 611,373 | ||||||||||
Quasi-Sovereigns | – 0 | – | 297,941 | – 0 | – | 297,941 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 241,169 | – 0 | – | 241,169 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Governments – Treasuries | – 0 | – | 24,671,723 | – 0 | – | 24,671,723 | ||||||||||
U.S. Treasury Bills | – 0 | – | 8,360,158 | – 0 | – | 8,360,158 | ||||||||||
Agency Discount Notes | – 0 | – | 3,732,881 | – 0 | – | 3,732,881 | ||||||||||
Investment Companies | 2,815,558 | – 0 | – | – 0 | – | 2,815,558 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 2,815,558 | 387,987,923 | 16,409,229 | 407,212,710 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 209,585 | – 0 | – | – 0 | – | 209,585 | (b) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 1,080,956 | – 0 | – | 1,080,956 | ||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 572,979 | – 0 | – | 572,979 | (b) | |||||||||
Credit Default Swaps | – 0 | – | 197,728 | – 0 | – | 197,728 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (271,426 | ) | – 0 | – | – 0 | – | (271,426 | )(b) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (234,617 | ) | – 0 | – | (234,617 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (110,438 | ) | – 0 | – | (110,438 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (54,567 | ) | – 0 | – | (54,567 | )(b) | ||||||||
Credit Default Swaps | – 0 | – | (2,017,477 | ) | – 0 | – | (2,017,477 | ) | ||||||||
Variance Swaps | – 0 | – | (260 | ) | – 0 | – | (260 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 2,753,717 | $ | 387,422,227 | $ | 16,409,229 | $ | 406,585,173 | ||||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
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NOTES TO FINANCIAL STATEMENTS (continued)
(b) | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(c) | 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.
Commercial Mortgage-Backed Securities | Asset-Backed Securities | Collateralized Mortgage Obligations | ||||||||||
Balance as of 10/31/17 | $ | 6,323,878 | $ | 8,199,060 | $ | 610,816 | ||||||
Accrued discounts/(premiums) | 1,000 | 177 | – 0 | – | ||||||||
Realized gain (loss) | (66,268 | ) | 293 | – 0 | – | |||||||
Change in unrealized appreciation/depreciation | (51,771 | ) | (89,817 | ) | 150 | |||||||
Purchases/Payups | 1,330,000 | 2,404,909 | – 0 | – | ||||||||
Sales/Paydowns | (995,965 | ) | (1,360,391 | ) | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (550,000 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 6,540,874 | $ | 9,154,231 | $ | 60,966 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(a) | $ | (124,945 | ) | $ | (89,817 | ) | $ | 150 | ||||
|
|
|
|
|
| |||||||
Emerging Markets - Corporate Bonds | Common Stocks | Total | ||||||||||
Balance as of 10/31/17 | $ | – 0 | – | $ | 652,741 | $ | 15,786,495 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | 1,177 | |||||||
Realized gain (loss) | – 0 | – | – 0 | – | (65,975 | ) | ||||||
Change in unrealized appreciation/depreciation | 7,961 | (41,368 | ) | (174,845 | ) | |||||||
Purchases/Payups | – 0 | – | – 0 | – | 3,734,909 | |||||||
Sales/Paydowns | – 0 | – | – 0 | – | (2,356,356 | ) | ||||||
Transfers in to Level 3 | 33,824 | – 0 | – | 33,824 | ||||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (550,000 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 41,785 | $ | 611,373 | $ | 16,409,229 | (b) | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(a) | $ | 7,961 | $ | (41,368 | ) | $ | (248,019 | ) | ||||
|
|
|
|
|
|
(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)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at April 30, 2018. Securities priced (i) by third party vendors or (ii) by brokers, which approximates fair value, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 4/30/18 | Valuation Technique | Unobservable Input | Range / Weighted Average | |||||
Common Stocks | $ 611,373 | Market Approach | NAV Equivalent | $ 976.63 / N/A |
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 NAV Equivalent in isolation would be expected to result in a significantly 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. 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 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, 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 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
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 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 Fund 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 up to $5 billion, ..35% of the excess over $5 billion up to $8 billion and .30% in excess of $8 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 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, 2019 and then may be extended by the Adviser for additional one year terms. For the six months ended April 30, 2018, such reimbursements/waivers amounted to $420,175.
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NOTES TO FINANCIAL STATEMENTS (continued)
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, 2018, the Adviser voluntarily agreed to waive such fees in the amount of $29,783.
During the year ended October 31, 2017, the Adviser reimbursed the Fund $848 for trading losses incurred due to a trade entry error.
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. Such compensation retained by ABIS amounted to $96,679 for the six months ended April 30, 2018.
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 charges of $2,323 from the sale of Class A shares and received $985, $283 and $1,388 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, 2018.
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 contractually 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, 2018, such waiver amounted to $5,038.
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 617 | $ | 121,078 | $ | 118,879 | $ | 2,816 | $ | 28 |
Brokerage commissions paid on investment transactions for the six months ended April 30, 2018 amounted to $11,857, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
62 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 .30% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to both Class B and Class C shares, .50% of the Fund’s average daily net assets attributable to Class R shares and .25% of the Fund’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 Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $0, $1,191,391, $136,195 and $53,632 for Class B, Class C, Class R and Class K shares, respectively. 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 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, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 56,085,255 | $ | 30,151,926 | ||||
U.S. government securities | 379,521,876 | 352,649,557 |
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 | $ | 5,296,306 | ||
Gross unrealized depreciation | (9,594,360 | ) | ||
|
| |||
Net unrealized depreciation | $ | (4,298,054 | ) | |
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 63 |
NOTES TO FINANCIAL STATEMENTS (continued)
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”.
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.
64 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the six months ended April 30, 2018, 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 forward currency exchange contracts. 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 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, 2018, the Fund held forward currency exchange contracts for hedging and non-hedging purposes.
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 65 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
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NOTES TO FINANCIAL STATEMENTS (continued)
and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2018, the Fund held interest rate swaps for hedging and non-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.
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NOTES TO FINANCIAL STATEMENTS (continued)
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty. As of April 30, 2018, the Fund 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 Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended April 30, 2018, the Fund held credit default swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of
68 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 209,585 | * | Receivable/Payable for variation margin on futures | $ | 271,426 | * | ||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 11,758 | * | |||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps |
| 572,965 | * | Receivable/Payable for variation margin on centrally cleared swaps |
| 54,885 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 1,080,956 |
| Unrealized depreciation on forward currency exchange contracts |
| 234,617 |
| ||||
Credit contracts | Unrealized appreciation on credit default swaps | 165,667 | Unrealized depreciation on credit default swaps | 771,642 | ||||||||
Equity contracts | Unrealized depreciation on variance swaps | 260 | ||||||||||
|
|
|
| |||||||||
Total | $ | 2,029,173 | $ | 1,344,588 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) on Derivatives 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 | $ | (933,035 | ) | $ | 146,821 | ||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | (576,116 | ) | 886,650 | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 230,450 | 564,922 | |||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 175,348 | 599,374 | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | – 0 | – | (260 | ) | |||||
|
|
|
| |||||||
Total | $ | (1,103,353 | ) | $ | 2,197,507 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 76,704,889 | ||
Average original value of sale contracts | $ | 78,969,979 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 13,284,974 | ||
Average principal amount of sale contracts | $ | 58,544,743 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 67,964,382 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 5,620,000 | ||
Average notional amount of sale contracts | $ | 1,890,000 | ||
Variance Swaps: | ||||
Average notional amount | $ | 650,305 |
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.
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NOTES TO FINANCIAL STATEMENTS (continued)
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund as of April 30, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 22,365 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 22,365 | |||||||
Bank of America, NA | 48,538 | – 0 | – | – 0 | – | – 0 | – | 48,538 | ||||||||||||
Barclays Bank PLC | 22,149 | (2,440 | ) | – 0 | – | – 0 | – | 19,709 | ||||||||||||
BNP Paribas SA | 102,603 | – 0 | – | – 0 | – | – 0 | – | 102,603 | ||||||||||||
Citibank, NA | 15,488 | (15,488 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 268,427 | (268,427 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 188,097 | (40,445 | ) | – 0 | – | – 0 | – | 147,652 | ||||||||||||
Morgan Stanley & Co., Inc. | 608,047 | (138,898 | ) | – 0 | – | – 0 | – | 469,149 | ||||||||||||
Standard Chartered Bank | 2,970 | (2,970 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,278,684 | $ | (468,668 | ) | $ | – 0 | – | $ | – 0 | – | $ | 810,016 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 2,440 | $ | (2,440 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Citibank, NA | 110,123 | (15,488 | ) | – 0 | – | – 0 | – | 94,635 | ||||||||||||
Citigroup Global Markets, Inc. | 111,327 | – 0 | – | – 0 | – | – 0 | – | 111,327 | ||||||||||||
Credit Suisse International | 625,282 | (268,427 | ) | – 0 | – | (356,855 | ) | – 0 | – | |||||||||||
Deutsche Bank AG | 352,463 | – 0 | – | – 0 | – | (263,485 | ) | 88,978 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 785,176 | – 0 | – | – 0 | – | (785,176 | ) | – 0 | – | |||||||||||
HSBC Bank USA | 39,824 | – 0 | – | – 0 | – | – 0 | – | 39,824 | ||||||||||||
JPMorgan Chase Bank, NA | 40,445 | (40,445 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley & Co. International PLC | 138,898 | (138,898 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Royal Bank of Scotland PLC | 28,332 | – 0 | – | – 0 | – | – 0 | – | 28,332 | ||||||||||||
Standard Chartered Bank | 11,176 | (2,970 | ) | – 0 | – | – 0 | – | 8,206 | ||||||||||||
State Street Bank & Trust Co. | 6,868 | – 0 | – | – 0 | – | – 0 | – | 6,868 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 2,252,354 | $ | (468,668 | ) | $ | – 0 | – | $ | (1,405,516 | ) | $ | 378,170 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 71 |
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. TBA and Dollar Rolls
The Fund 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 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. For the six months ended April 30, 2018, the Fund earned drop income of $405,741 which is included in interest income in the accompanying statement of operations.
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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, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 1,100,027 | 1,441,055 | $ | 12,133,247 | $ | 15,957,028 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 179,693 | 448,010 | 1,971,868 | 4,947,934 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class B | 8,207 | 26,419 | 90,276 | 292,232 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 31,240 | 1,790,738 | 343,249 | 19,828,064 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,086,450 | ) | (3,936,642 | ) | (22,931,123 | ) | (43,496,748 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (767,283 | ) | (230,420 | ) | $ | (8,392,483 | ) | $ | (2,471,490 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||
Shares sold | 5,644 | 10,541 | $ | 62,173 | $ | 116,178 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 431 | 1,521 | 4,731 | 16,789 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (8,206 | ) | (26,411 | ) | (90,276 | ) | (292,232 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (7,032 | ) | (17,214 | ) | (77,500 | ) | (189,992 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (9,163 | ) | (31,563 | ) | $ | (100,872 | ) | $ | (349,257 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 143,284 | 235,175 | $ | 1,579,753 | $ | 2,598,185 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 7,104 | 41,607 | 77,785 | 457,225 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (31,299 | ) | (1,794,039 | ) | (343,249 | ) | (19,828,064 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (277,075 | ) | (804,733 | ) | (3,043,452 | ) | (8,862,049 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (157,986 | ) | (2,321,990 | ) | $ | (1,729,163 | ) | $ | (25,634,703 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 3,271,494 | 3,558,736 | $ | 35,968,078 | $ | 39,217,553 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 46,607 | 100,138 | 511,827 | 1,107,548 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,772,850 | ) | (2,587,093 | ) | (19,420,988 | ) | (28,536,859 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,545,251 | 1,071,781 | $ | 17,058,917 | $ | 11,788,242 | ||||||||||||||||||
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 73 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 29,612 | 100,402 | $ | 325,892 | $ | 1,108,586 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 2,220 | 6,274 | 24,346 | 69,262 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (44,858 | ) | (132,743 | ) | (495,252 | ) | (1,467,549 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (13,026 | ) | (26,067 | ) | $ | (145,014 | ) | $ | (289,701 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 97,583 | 158,517 | $ | 1,074,673 | $ | 1,764,118 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 6,058 | 12,863 | 66,492 | 142,184 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (69,629 | ) | (150,357 | ) | (767,285 | ) | (1,656,583 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 34,012 | 21,023 | $ | 373,880 | $ | 249,719 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 71,147 | 44,879 | $ | 774,083 | $ | 493,946 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 2,791 | 7,290 | 30,687 | 80,647 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (56,628 | ) | (39,277 | ) | (626,481 | ) | (433,148 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 17,310 | 12,892 | $ | 178,289 | $ | 141,445 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 1,971,322 | 1,172,124 | $ | 21,787,980 | $ | 13,024,067 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 39,975 | 50,947 | 439,122 | 564,384 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (563,091 | ) | (619,318 | ) | (6,229,195 | ) | (6,895,540 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,448,206 | 603,753 | $ | 15,997,907 | $ | 6,692,911 | ||||||||||||||||||
|
NOTE F
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
74 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
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
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 75 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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.
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.
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.
Active Trading Risk—The Fund expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to greatly exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Fund’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Fund shareholders.
76 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
NOTE G
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, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 were as follows:
2017 | 2016 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 8,551,774 | $ | 11,308,484 | ||||
Net long-term capital gains | 181,353 | – 0 | – | |||||
|
|
|
| |||||
Total taxable distributions | 8,733,127 | 11,308,484 | ||||||
Return of capital | 1,109,149 | – 0 | – | |||||
|
|
|
| |||||
Total distributions paid | $ | 9,842,276 | $ | 11,308,484 | ||||
|
|
|
|
As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital and other losses | $ | (1,941,842 | )(a) | |
Unrealized appreciation/(depreciation) | 2,375,917 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 434,075 | (c) | |
|
|
(a) | As of October 31, 2017, the Fund had a net capital loss carryforward of $1,912,685. As of October 31, 2017, the cumulative deferred loss on straddles was $29,157. |
(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, the tax treatment of passive foreign investment companies (PFICs), the recognition for tax purposes of unrealized gains/losses on certain derivative instruments and corporate restructuring. |
(c) | Other differences in book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to dividends payable and the tax treatment of defaulted securities. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 77 |
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, 2017, the Fund had a net short-term capital loss carryforward of $1,008,599 and a net long-term capital loss carryforward of $904,086 which may be carried forward for an indefinite period.
NOTE I
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 J
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.
78 | AB INTERMEDIATE BOND PORTFOLIO | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.40 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | .24 | † | .26 | .28 | .35 | .26 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.25 | ) | (.06 | ) | .27 | (.12 | ) | .23 | (.35 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.14 | ) | .18 | .53 | .16 | .58 | (.09 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.12 | ) | (.23 | ) | (.36 | ) | (.34 | ) | (.34 | ) | (.31 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.12 | ) | (.30 | ) | (.36 | ) | (.34 | ) | (.34 | ) | (.31 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.85 | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.25 | )% | 1.68 | %† | 4.93 | % | 1.45 | % | 5.34 | %* | (.81 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $226,545 | $240,386 | $245,683 | $252,965 | $273,962 | $301,764 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .77 | %^ | .79 | % | .85 | % | .88 | % | .90 | % | .89 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.01 | %^ | 1.03 | % | 1.03 | % | 1.06 | % | 1.06 | % | 1.02 | % | ||||||||||||
Net investment income(b) | 2.09 | %^ | 2.16 | %† | 2.35 | % | 2.51 | % | 3.15 | % | 2.32 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 79 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.41 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | .15 | † | .18 | .20 | .28 | .18 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.25 | ) | (.05 | ) | .27 | (.12 | ) | .22 | (.36 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.18 | ) | .10 | .45 | .08 | .50 | (.18 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.08 | ) | (.16 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.02 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.08 | ) | (.22 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.85 | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.61 | )% | .92 | %† | 4.15 | % | .72 | % | 4.61 | %* | (1.59 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $626 | $743 | $1,106 | $1,692 | $3,017 | $5,348 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.52 | %^ | 1.54 | % | 1.60 | % | 1.60 | % | 1.60 | % | 1.58 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.80 | %^ | 1.81 | % | 1.81 | % | 1.80 | % | 1.78 | % | 1.74 | % | ||||||||||||
Net investment income(b) | 1.34 | %^ | 1.38 | %† | 1.59 | % | 1.77 | % | 2.48 | % | 1.59 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
80 | AB INTERMEDIATE BOND 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.08 | $ 11.21 | $ 11.04 | $ 11.22 | $ 10.98 | $ 11.38 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | .15 | † | .18 | .20 | .27 | .18 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | (.06 | ) | .27 | (.12 | ) | .23 | (.35 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.17 | ) | .09 | .45 | .08 | .50 | (.17 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.08 | ) | (.16 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.02 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.08 | ) | (.22 | ) | (.28 | ) | (.26 | ) | (.26 | ) | (.23 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.83 | $ 11.08 | $ 11.21 | $ 11.04 | $ 11.22 | $ 10.98 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.53 | )% | .83 | %† | 4.16 | % | .73 | % | 4.63 | %* | (1.51 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $13,606 | $15,676 | $41,886 | $40,928 | $42,690 | $47,530 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.52 | %^ | 1.55 | % | 1.60 | % | 1.60 | % | 1.60 | % | 1.59 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.76 | %^ | 1.78 | % | 1.78 | % | 1.78 | % | 1.77 | % | 1.73 | % | ||||||||||||
Net investment income(b) | 1.34 | %^ | 1.38 | %† | 1.60 | % | 1.79 | % | 2.46 | % | 1.62 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 81 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.24 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.41 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .13 | .27 | † | .29 | .31 | .39 | .29 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | (.07 | ) | .28 | (.12 | ) | .22 | (.36 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.11 | ) | .20 | .57 | .19 | .61 | (.07 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.14 | ) | (.25 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.14 | ) | (.33 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.86 | $ 11.11 | $ 11.24 | $ 11.06 | $ 11.24 | $ 11.00 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.03 | )% | 1.84 | %† | 5.29 | % | 1.73 | % | 5.65 | %* | (.61 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $82,585 | $67,357 | $56,068 | $22,705 | $26,352 | $73,445 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .52 | %^ | .54 | % | .60 | % | .60 | % | .60 | % | .59 | % | ||||||||||||
Expenses, before waivers/reimbursements | .76 | %^ | .78 | % | .78 | % | .77 | % | .75 | % | .72 | % | ||||||||||||
Net investment income(b) | 2.34 | %^ | 2.41 | %† | 2.60 | % | 2.78 | % | 3.51 | % | 2.60 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
82 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.10 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | $ 11.40 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .10 | .21 | † | .23 | .26 | .33 | .24 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | (.06 | ) | .28 | (.12 | ) | .23 | (.36 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.14 | ) | .15 | .51 | .14 | .56 | (.12 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.21 | ) | (.34 | ) | (.32 | ) | (.32 | ) | (.28 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.11 | ) | (.28 | ) | (.34 | ) | (.32 | ) | (.32 | ) | (.28 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.85 | $ 11.10 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.28 | )% | 1.34 | %† | 4.67 | % | 1.23 | % | 5.13 | %* | (1.01 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,496 | $2,699 | $3,023 | $2,936 | $2,368 | $2,241 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.02 | %^ | 1.04 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.09 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.37 | %^ | 1.39 | % | 1.38 | % | 1.38 | % | 1.36 | % | 1.31 | % | ||||||||||||
Net investment income(b) | 1.85 | %^ | 1.91 | %† | 2.10 | % | 2.29 | % | 2.94 | % | 2.13 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 83 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.24 | $ 11.07 | $ 11.24 | $ 11.01 | $ 11.41 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | .24 | † | .26 | .28 | .35 | .27 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | (.07 | ) | .27 | (.10 | ) | .22 | (.36 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.13 | ) | .17 | .53 | .18 | .57 | (.09 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.12 | ) | (.23 | ) | (.36 | ) | (.35 | ) | (.34 | ) | (.31 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.12 | ) | (.30 | ) | (.36 | ) | (.35 | ) | (.34 | ) | (.31 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.86 | $ 11.11 | $ 11.24 | $ 11.07 | $ 11.24 | $ 11.01 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.16 | )% | 1.59 | %† | 4.93 | % | 1.57 | % | 5.30 | %* | (.76 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $6,110 | $5,876 | $5,706 | $3,922 | $4,515 | $3,459 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .77 | %^ | .79 | % | .85 | % | .85 | % | .85 | % | .84 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.07 | %^ | 1.09 | % | 1.09 | % | 1.08 | % | 1.03 | % | .93 | % | ||||||||||||
Net investment income(b) | 2.11 | %^ | 2.15 | %† | 2.34 | % | 2.53 | % | 3.17 | % | 2.38 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
84 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 11.12 | $ 11.24 | $ 11.07 | $ 11.25 | $ 11.01 | $ 11.42 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .13 | .27 | † | .28 | .31 | .36 | .18 | |||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | (.06 | ) | .28 | (.12 | ) | .25 | (.25 | ) | ||||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.11 | ) | .21 | .56 | .19 | .61 | (.07 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.14 | ) | (.25 | ) | (.39 | ) | (.37 | ) | (.37 | ) | (.34 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Tax return of capital | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.14 | ) | (.33 | ) | (.39 | ) | (.37 | ) | (.37 | )�� | (.34 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.87 | $ 11.12 | $ 11.24 | $ 11.07 | $ 11.25 | $ 11.01 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (1.03 | )% | 1.93 | %† | 5.20 | % | 1.73 | % | 5.65 | %* | (.62 | )%†† | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,854 | $2,729 | $2,613 | $511 | $107 | $14 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .52 | %^ | .54 | % | .60 | % | .60 | % | .60 | % | .56 | % | ||||||||||||
Expenses, before waivers/reimbursements | .71 | %^ | .75 | % | .76 | % | .75 | % | .75 | % | .67 | % | ||||||||||||
Net investment income(b) | 2.36 | %^ | 2.41 | %† | 2.56 | % | 2.74 | % | 3.22 | % | 2.46 | % | ||||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % | 189 | % |
See footnote summary on page 87.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 85 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | April 28, 2014(e) to October 31, 2014 | ||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.13 | $ 11.26 | $ 11.08 | $ 11.26 | $ 11.15 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .13 | .27 | † | .28 | .32 | .19 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.25 | ) | (.07 | ) | .29 | (.13 | ) | .10 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.12 | ) | .20 | .57 | .19 | .29 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.14 | ) | (.25 | ) | (.39 | ) | (.37 | ) | (.18 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
Tax return of capital | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.14 | ) | (.33 | ) | (.39 | ) | (.37 | ) | (.18 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.87 | $ 11.13 | $ 11.26 | $ 11.08 | $ 11.26 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.12 | )% | 1.84 | %† | 5.28 | % | 1.72 | % | 2.61 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $39,836 | $24,653 | $18,134 | $4,851 | $10 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .52 | %^ | .54 | % | .60 | % | .60 | % | .60 | %^ | ||||||||||
Expenses, before waivers/reimbursements | .64 | %^ | .66 | % | .66 | % | .71 | % | .66 | %^ | ||||||||||
Net investment income(b) | 2.36 | %^ | 2.42 | %† | 2.52 | % | 2.91 | % | 3.29 | %^ | ||||||||||
Portfolio turnover rate** | 109 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 87.
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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 year ended October 31, 2017, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment Income Per Share | Net Investment Income Ratio | Total Return | ||
$ .002 | .02% | .02% |
* | Includes the impact of proceeds received and credited to the Fund resulting from class action settlements, which enhanced the Fund’s performance for the year October 31, 2014 by .01%. |
†† | Includes the impact of proceeds received and credited to the Fund resulting from regulatory settlements, which enhanced the Fund’s performance for the year ended October 31, 2013 by .14%. |
** | The Fund accounts for dollar roll transactions as purchases and sales. |
^ | Annualized. |
See notes to financial statements.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(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
Shawn E. Keegan(2), Vice President Douglas J. Peebles(2), Vice President Greg J. Wilensky(2), Vice President Michael Canter(2), Vice President | Janaki Rao(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. Messrs. Keegan, Peebles, Wilensky, Canter and Rao 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 to add an additional breakpoint to the advisory fee schedule (as so amended, the “Advisory Agreement”), in respect of AB Intermediate Bond Portfolio (the “Fund”) at a meeting held on October 31-November 2, 2017 (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), who acted as their independent fee consultant, 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 review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the proposed advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the proposed advisory fee, were fair and reasonable in light of the services performed, expenses incurred and
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 89 |
such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The 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 2015 and 2016 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
90 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
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 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 performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing 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, 2017 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 the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors 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 other 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 Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser 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 advisory 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 and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; (iv) must service, and be marketed to, retail investors and financial intermediaries; and (v) requires a larger sales support infrastructure. 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 the 15(c) service provider. 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 Fund’s expense ratio effective since February 1, 2017, when the advisory fee was reduced and the Adviser had set the Fund’s expense cap at a correspondingly lower level. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s 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
92 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
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.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 93 |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
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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 INTERMEDIATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
IB-0152-0418
APR 04.30.18
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 “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 1 |
SEMI-ANNUAL REPORT
June 11, 2018
This report provides management’s discussion of fund performance for AB Municipal Bond Inflation Strategy for the semi-annual period ended April 30, 2018.
The Fund’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, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB MUNICIPAL BOND INFLATION STRATEGY | ||||||||
Class 1 Shares1 | -0.08% | 0.84% | ||||||
Class 2 Shares1 | 0.07% | 1.04% | ||||||
Class A Shares | -0.09% | 0.74% | ||||||
Class C Shares | -0.38% | 0.06% | ||||||
Advisor Class Shares2 | 0.04% | 0.99% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | -0.17% | -0.15% |
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 this share class is 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 1-10 Year Treasury Inflation-Protected Securities (“TIPS”) Index, for the six- and 12-month periods ended April 30, 2018.
All share classes except Class C shares outperformed the benchmark for the six-month period; for the 12-month period, all share classes outperformed the benchmark, before sales changes.
The Fund invests in municipal bonds, uses derivatives for inflation protection and takes a more diversified approach than a typical municipal fund. Outperformance over both periods was driven by the Fund’s lower interest rate risk as interest rates rose. The Fund’s investment credit also contributed, relative to the benchmark, as credit spreads narrowed. Consumer price index (“CPI”) swaps added to performance on an absolute basis, but underperformed relative to the movement in TIPS inflation breakevens.
2 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
For the six-month period, yield-curve positioning, particularly in six- to seven-year, seven- to 10-year and over-10-year duration municipals, contributed. Sector selection in the special tax and state general obligation sectors detracted, as did exposure to municipal bonds.
For the 12-month period, an allocation to municipal bonds contributed. Sector selection in transportation and revenue-backed bonds also contributed. Yield-curve positioning in five- to six-year and seven- to 10-year duration municipals detracted, as did an overweight to the pre-refunded sector.
The Fund utilized credit default swaps for investment purposes, which had no material impact on absolute performance for either period. CPI swaps were utilized for hedging purposes and added for both periods.
MARKET REVIEW AND INVESTMENT STRATEGY
Against the backdrop of three interest rate hikes by the US Federal Reserve and concerns about tax reform, municipals remained resilient throughout 2017 and outperformed US Treasuries. Yields rose at the beginning of 2018; by the end of February, 10-year AAA municipal yields were 50 basis points higher than at the end of 2017. Longer-term municipal yields did not change significantly for the remainder of the period ended April 30, 2018, though short-term yields declined another 25-40 basis points. For the entire 12-month period, short-maturity yields increased significantly more than intermediate- and long-maturity yields; for example, AAA-rated two-year yields increased almost 90 basis points, while AAA-rated 30-year yields only rose about 15 basis points.
The Fund’s Senior Investment Management Team (the “Team”) maintains the Fund’s underweight to the longest-maturity municipal bonds and a modest overweight to municipal credit, finding this position attractive given the current strength of the US economy. The Team continues to focus on real after-tax return by investing in municipal bonds that generate income exempt from federal income taxes. In seeking to manage volatility and interest rate risk, the Team focuses on intermediate-term bonds and seeks to provide inflation protection by entering inflation swap agreements or investing in other inflation-protected instruments.
The Fund may purchase municipal securities that are insured under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most bond insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research. If an insurance
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 3 |
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, 2018, 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 5.11% and 0.07%, respectively.
INVESTMENT POLICIES
The Fund seeks real after-tax return for investors subject to federal income taxes. Real return is the rate of return after adjusting for inflation. The Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund may invest in fixed-income securities with any maturity and duration.
To provide inflation protection, the Fund will typically enter into inflation swaps. The Fund may use other inflation-indexed instruments. Payments to the Fund pursuant to swaps will result in taxable income, either ordinary income or capital gains, rather than income exempt from federal income taxation. It is expected that the Fund’s primary use of derivatives will be for the purpose of inflation protection.
The Fund 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 Fund may utilize leverage for investment purposes through the use of tender option bond transactions (“TOBs”). The Adviser will
4 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
(continued on next page)
consider the impact of TOBs, swaps and other derivatives in making its assessments of the Fund’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
abfunds.com | AB MUNICIPAL 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 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 and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, 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 is vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities. Recent federal legislation included reductions in tax rates for individuals, with relatively larger reductions in tax rates for corporations. These tax rate reductions may reduce the demand for municipal bonds which could reduce the value of municipal bonds held by the Fund.
6 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
DISCLOSURES AND RISKS (continued)
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. 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.
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.
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 may be subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk: When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
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
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 7 |
DISCLOSURES AND RISKS (continued)
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.
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 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 Fund have been deducted. Net asset value (“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 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.
8 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF APRIL 30, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS 1 SHARES2 | 1.96% | |||||||||||
1 Year | 0.84% | 0.84% | ||||||||||
5 Years | 0.60% | 0.60% | ||||||||||
Since Inception3 | 1.93% | 1.93% | ||||||||||
CLASS 2 SHARES2 | 2.06% | |||||||||||
1 Year | 1.04% | 1.04% | ||||||||||
5 Years | 0.71% | 0.71% | ||||||||||
Since Inception3 | 2.04% | 2.04% | ||||||||||
CLASS A SHARES | 1.72% | |||||||||||
1 Year | 0.74% | -2.30% | ||||||||||
5 Years | 0.45% | -0.16% | ||||||||||
Since Inception3 | 1.76% | 1.38% | ||||||||||
CLASS C SHARES | 1.03% | |||||||||||
1 Year | 0.06% | -0.93% | ||||||||||
5 Years | -0.28% | -0.28% | ||||||||||
Since Inception3 | 1.04% | 1.04% | ||||||||||
ADVISOR CLASS SHARES4 | 2.02% | |||||||||||
1 Year | 0.99% | 0.99% | ||||||||||
5 Years | 0.72% | 0.72% | ||||||||||
Since Inception3 | 2.05% | 2.05% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 0.67%, 0.57%, 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 Fund’s annual operating expense ratios exclusive of extraordinary expenses, interest expense, and 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 0.60%, 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, 2019 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, 2018. |
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 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that this share class is 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 MUNICIPAL BOND INFLATION STRATEGY | 9 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
MARCH 31, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 1.18% | |||
5 Years | 0.66% | |||
Since Inception2 | 1.96% | |||
CLASS 2 SHARES1 | ||||
1 Year | 1.27% | |||
5 Years | 0.74% | |||
Since Inception2 | 2.05% | |||
CLASS A SHARES | ||||
1 Year | -1.98% | |||
5 Years | -0.12% | |||
Since Inception2 | 1.41% | |||
CLASS C SHARES | ||||
1 Year | -0.68% | |||
5 Years | -0.24% | |||
Since Inception2 | 1.06% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 1.22% | |||
5 Years | 0.76% | |||
Since Inception2 | 2.06% |
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 this share class is 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 MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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, 2017 | Ending Account Value April 30, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 999.10 | $ | 3.72 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.08 | $ | 3.76 | 0.75 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 996.20 | $ | 7.42 | 1.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.36 | $ | 7.50 | 1.50 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,000.40 | $ | 2.48 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.32 | $ | 2.51 | 0.50 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 999.20 | $ | 2.97 | 0.60 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.82 | $ | 3.01 | 0.60 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,000.70 | $ | 2.48 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.32 | $ | 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. |
12 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO SUMMARY
April 30, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $960.8
1 | All data are as of April 30, 2018. The Fund’s quality rating breakdown is expressed as a percentage of the Fund’s total investments in municipal securities and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). The quality ratings are determined by using S&P Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the Pre-refunded category includes bonds which are secured by U.S. Government securities and therefore are deemed high-quality investment-grade by the Adviser. If applicable, Not Applicable (N/A) includes non-creditworthy investments, such as equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a nationally recognized statistical rating organization. The Adviser evaluates the creditworthiness of non-rated securities based on a number of factors including, but not limited to, cash flows, enterprise value and economic environment. |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 13 |
PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 101.4% | ||||||||
Long-Term Municipal Bonds – 99.4% | ||||||||
Alabama – 2.2% | ||||||||
Alabama Special Care Facilities Financing Authority-Birmingham AL | $ | 3,905 | $ | 4,410,424 | ||||
County of Jefferson AL Sewer Revenue | 1,825 | 1,843,542 | ||||||
Infirmary Health System Special Care Facilities Financing Authority of Mobile | 2,110 | 2,379,679 | ||||||
Special Care Facilities Financing Authority of the City of Pell City Alabama | 11,235 | 12,083,130 | ||||||
|
| |||||||
20,716,775 | ||||||||
|
| |||||||
Arizona – 2.0% | ||||||||
Arizona State University COP | 8,345 | 9,105,964 | ||||||
City of Phoenix Civic Improvement Corp. | 3,330 | 3,614,415 | ||||||
County of Pima AZ Sewer System Revenue | 630 | 670,087 | ||||||
5.00%, 7/01/21 | 1,135 | 1,207,969 | ||||||
Salt River Project Agricultural Improvement & Power District | 3,140 | 3,444,486 | ||||||
Tempe Industrial Development Authority | 1,200 | 1,200,240 | ||||||
|
| |||||||
19,243,161 | ||||||||
|
| |||||||
California – 2.2% | ||||||||
San Francisco City & County Airport | 450 | 464,576 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
NATL Series 2006-32F | $ | 290 | $ | 290,000 | ||||
State of California | 5,000 | 5,368,850 | ||||||
Series 2012 | 9,305 | 9,970,307 | ||||||
Series 2014 | 4,250 | 4,845,295 | ||||||
|
| |||||||
20,939,028 | ||||||||
|
| |||||||
Colorado – 3.1% | ||||||||
Centerra Metropolitan District No 1 | 1,510 | 1,618,297 | ||||||
City & County of Denver CO Airport System Revenue | 375 | 401,239 | ||||||
Series 2012A | 10,395 | 11,479,302 | ||||||
5.00%, 11/15/25 | 3,000 | 3,311,580 | ||||||
Denver City & County School District No 1 | 4,730 | 5,395,180 | ||||||
Denver Urban Renewal Authority | 5,655 | 6,030,880 | ||||||
Plaza Metropolitan District No 1 | 1,310 | 1,382,915 | ||||||
Regional Transportation District | 440 | 466,246 | ||||||
|
| |||||||
30,085,639 | ||||||||
|
| |||||||
Connecticut – 2.7% | ||||||||
State of Connecticut | 5,035 | 5,503,557 | ||||||
Series 2014A | 2,230 | 2,420,866 | ||||||
Series 2014F | 1,275 | 1,400,702 | ||||||
Series 2015B | 4,330 | 4,822,581 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2016A | $ | 5,000 | $ | 5,486,550 | ||||
Series 2018B | 1,440 | 1,635,739 | ||||||
State of Connecticut | 4,360 | 4,912,150 | ||||||
|
| |||||||
26,182,145 | ||||||||
|
| |||||||
Florida – 7.4% | ||||||||
Citizens Property Insurance Corp. | 7,315 | 8,076,930 | ||||||
City of Jacksonville FL | 1,720 | 1,840,142 | ||||||
City of Jacksonville FL | 10,190 | 11,317,943 | ||||||
City of Tampa FL Water & Wastewater System Revenue | 1,565 | 1,708,870 | ||||||
County of Miami-Dade FL | 18,500 | 20,883,098 | ||||||
County of Miami-Dade FL Spl Tax | 1,500 | 1,665,705 | ||||||
Florida Department of Environmental Protection | 3,775 | 4,013,580 | ||||||
Series 2013A | 2,000 | 2,072,640 | ||||||
Florida Municipal Power Agency | 2,890 | 3,139,783 | ||||||
Series 2015B | 1,500 | 1,693,605 | ||||||
Florida State Board of Education | 1,725 | 1,874,523 |
16 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Greater Orlando Aviation Authority | $ | 4,000 | $ | 4,532,440 | ||||
Martin County Industrial Development Authority | 1,900 | 1,931,939 | ||||||
Mid-Bay Bridge Authority | 1,000 | 1,127,790 | ||||||
South Miami Health Facilities Authority | 4,500 | 5,148,225 | ||||||
|
| |||||||
71,027,213 | ||||||||
|
| |||||||
Georgia – 1.9% | ||||||||
Cherokee County Board of Education | 1,000 | 1,067,400 | ||||||
Main Street Natural Gas, Inc. | 9,370 | 9,913,366 | ||||||
Series 2018C | 6,850 | 7,269,289 | ||||||
|
| |||||||
18,250,055 | ||||||||
|
| |||||||
Illinois – 5.9% | ||||||||
Chicago O’Hare International Airport | 5,000 | 5,612,600 | ||||||
Series 2016C | 5,000 | 5,599,950 | ||||||
Series 2017B | 1,475 | 1,655,466 | ||||||
Chicago O’Hare International Airport | 2,500 | 2,768,275 | ||||||
5.50%, 1/01/25 | 2,250 | 2,519,010 | ||||||
Illinois Finance Authority | 6,355 | 6,734,516 | ||||||
Sangamon County Water Reclamation District | 2,170 | 2,289,936 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
State of Illinois | $ | 1,040 | $ | 1,062,266 | ||||
Series 2013 | 1,670 | 1,737,635 | ||||||
Series 2013A | 4,080 | 4,198,320 | ||||||
Series 2014 | 4,180 | 4,251,436 | ||||||
Series 2017B | 5,050 | 5,244,677 | ||||||
Series 2017D | 12,420 | 12,906,419 | ||||||
|
| |||||||
56,580,506 | ||||||||
|
| |||||||
Indiana – 0.6% | ||||||||
Indiana Municipal Power Agency | 2,860 | 3,000,140 | ||||||
5.00%, 1/01/23 (Pre-refunded/ETM) | 2,105 | 2,288,830 | ||||||
|
| |||||||
5,288,970 | ||||||||
|
| |||||||
Iowa – 0.2% | ||||||||
Iowa Finance Authority | 2,250 | 2,363,198 | ||||||
|
| |||||||
Kentucky – 3.1% | ||||||||
Kentucky Economic Development Finance Authority | 3,845 | 4,270,033 | ||||||
Kentucky Municipal Power Agency | 4,875 | 5,377,736 | ||||||
Kentucky Public Energy Authority | 17,025 | 18,035,774 | ||||||
Kentucky Turnpike Authority | 2,275 | 2,528,026 | ||||||
|
| |||||||
30,211,569 | ||||||||
|
| |||||||
Louisiana – 4.9% | ||||||||
Jefferson Sales Tax District | 1,800 | 2,043,216 |
18 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
State of Louisiana | $ | 30,210 | $ | 34,965,476 | ||||
State of Louisiana Gasoline & Fuels Tax Revenue | 2,860 | 3,172,913 | ||||||
5.00%, 5/01/27 | 6,225 | 6,840,901 | ||||||
|
| |||||||
47,022,506 | ||||||||
|
| |||||||
Maryland – 4.8% | ||||||||
State of Maryland | 10,165 | 10,845,445 | ||||||
5.00%, 8/01/21(c) | 26,600 | 29,043,476 | ||||||
Series 2017B | 5,790 | 6,665,564 | ||||||
|
| |||||||
46,554,485 | ||||||||
|
| |||||||
Massachusetts – 5.4% | ||||||||
Commonwealth of Massachusetts | 9,575 | 9,635,418 | ||||||
NATL Series 2000D | 500 | 498,550 | ||||||
NATL Series 2000E | 4,525 | 4,511,878 | ||||||
NATL Series 2000F | 1,000 | 997,100 | ||||||
Commonwealth of Massachusetts | 3,450 | 3,525,555 | ||||||
Commonwealth of Massachusetts Transportation Fund Revenue | 10,960 | 13,025,875 | ||||||
Massachusetts Bay Transportation Authority | 3,330 | 3,655,807 | ||||||
Series 2004C | 2,650 | 2,661,024 | ||||||
Massachusetts Clean Water Trust (The) | 3,240 | 3,255,325 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Massachusetts Development Finance Agency | $ | 1,655 | $ | 1,977,113 | ||||
Massachusetts School Building Authority | 2,475 | 2,752,596 | ||||||
Metropolitan Boston Transit Parking Corp. | 5,025 | 5,446,847 | ||||||
|
| |||||||
51,943,088 | ||||||||
|
| |||||||
Michigan – 2.7% | ||||||||
City of Detroit MI Sewage Disposal System Revenue | 3,750 | 4,026,263 | ||||||
Michigan Finance Authority | 2,735 | 3,068,015 | ||||||
Michigan Finance Authority | 10,545 | 11,919,752 | ||||||
Michigan Finance Authority | 1,785 | 2,021,887 | ||||||
University of Michigan | 4,000 | 4,593,920 | ||||||
|
| |||||||
25,629,837 | ||||||||
|
| |||||||
Minnesota – 0.1% | ||||||||
Minnesota Higher Education Facilities Authority | 1,295 | 1,349,791 | ||||||
|
| |||||||
Mississippi – 0.4% | ||||||||
Mississippi Development Bank | 1,500 | 1,531,395 |
20 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2013A | $ | 1,000 | $ | 1,020,930 | ||||
Mississippi Hospital Equipment & Facilities Authority | 1,500 | 1,610,805 | ||||||
|
| |||||||
4,163,130 | ||||||||
|
| |||||||
Missouri – 0.2% | ||||||||
Lees Summit Industrial Development Authority | 1,675 | 1,728,768 | ||||||
|
| |||||||
Montana – 0.4% | ||||||||
Montana Facility Finance Authority | 3,275 | 3,674,941 | ||||||
|
| |||||||
Nevada – 1.1% | ||||||||
City of Reno NV | 1,000 | 1,032,980 | ||||||
Series 2013B | 2,210 | 2,282,886 | ||||||
County of Clark Department of Aviation | 775 | 811,274 | ||||||
Las Vegas Valley Water District | 1,500 | 1,593,765 | ||||||
Series 2015B | 4,250 | 4,571,257 | ||||||
|
| |||||||
10,292,162 | ||||||||
|
| |||||||
New Jersey – 5.5% | ||||||||
New Jersey Economic Development Authority | 1,150 | 1,222,094 | ||||||
Series 2014U | 4,250 | 4,593,400 | ||||||
Series 2017B | 1,000 | 1,053,200 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey Economic Development Authority | $ | 3,810 | $ | 4,230,247 | ||||
New Jersey Transportation Trust Fund Authority | 4,390 | 4,812,713 | ||||||
New Jersey Transportation Trust Fund Authority | 10,000 | 10,612,500 | ||||||
Series 2014C | 2,960 | 3,183,865 | ||||||
New Jersey Turnpike Authority | 1,600 | 1,792,976 | ||||||
5.00%, 1/01/23 | 200 | 223,276 | ||||||
Series 2014A | 4,785 | 5,385,661 | ||||||
Series 2014C | 1,590 | 1,775,044 | ||||||
Series 2017A | 7,300 | 8,352,441 | ||||||
Tobacco Settlement Financing Corp./NJ | 4,750 | 5,376,572 | ||||||
|
| |||||||
52,613,989 | ||||||||
|
| |||||||
New York – 13.9% | ||||||||
City of New York NY | 4,250 | 4,613,885 | ||||||
Series 2014J | 6,100 | 6,650,281 | ||||||
Metropolitan Transportation Authority | 4,065 | 4,572,475 | ||||||
5.00%, 11/15/25 (Pre-refunded/ETM) | 5,000 | 5,624,200 | ||||||
Series 2012F | 3,635 | 4,030,633 | ||||||
Series 2013A | 2,300 | 2,606,567 | ||||||
Series 2013E | 8,510 | 9,731,185 |
22 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New York City Municipal Water Finance Authority | $ | 3,875 | $ | 4,203,949 | ||||
New York City Transitional Finance Authority Future Tax Secured Revenue | 6,830 | 7,598,170 | ||||||
New York State Dormitory Authority | 3,000 | 3,236,610 | ||||||
Series 2012A | 14,610 | 16,363,054 | ||||||
Series 2012B | 7,900 | 8,346,034 | ||||||
Series 2014A | 6,565 | 7,424,949 | ||||||
New York State Energy Research & Development Authority | 3,500 | 3,360,595 | ||||||
New York State Environmental Facilities Corp. | 3,000 | 3,269,850 | ||||||
New York State Thruway Authority | 17,025 | 18,463,442 | ||||||
New York Transportation Development Corp. | 4,000 | 4,118,800 | ||||||
New York Transportation Development Corp. | 9,255 | 10,408,091 | ||||||
Triborough Bridge & Tunnel Authority | 4,360 | 4,571,765 | ||||||
Series 2013B | 4,100 | 4,407,951 | ||||||
|
| |||||||
133,602,486 | ||||||||
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
North Carolina – 1.6% | ||||||||
North Carolina Eastern Municipal Power Agency | $ | 6,700 | $ | 7,215,096 | ||||
State of North Carolina | 6,710 | 7,716,232 | ||||||
|
| |||||||
14,931,328 | ||||||||
|
| |||||||
Ohio – 3.1% | ||||||||
American Municipal Power, Inc. | 5,000 | 5,557,450 | ||||||
City of Chillicothe OH | 3,385 | 3,719,946 | ||||||
City of Cleveland OH Airport System Revenue | 2,585 | 2,879,576 | ||||||
City of Cleveland OH Income Tax Revenue | 7,585 | 8,829,311 | ||||||
Series 2017B-2 | 1,485 | 1,725,585 | ||||||
County of Cuyahoga OH | 5,600 | 5,930,176 | ||||||
Ohio Air Quality Development Authority | 235 | 225,600 | ||||||
Ohio Water Development Authority Water Pollution Control Loan Fund | 825 | 792,000 | ||||||
Ohio Water Development Authority Water Pollution Control Loan Fund | 420 | 403,200 | ||||||
|
| |||||||
30,062,844 | ||||||||
|
|
24 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Oregon – 1.4% | ||||||||
Deschutes County Administrative School District No 1 Bend-La Pine | $ | 5,180 | $ | 5,509,707 | ||||
Deschutes County Hospital Facilities Authority | 1,000 | 1,026,540 | ||||||
Tri-County Metropolitan Transportation District of Oregon | 4,605 | 5,015,628 | ||||||
Series 2018A | 1,910 | 2,230,097 | ||||||
|
| |||||||
13,781,972 | ||||||||
|
| |||||||
Pennsylvania – 6.9% | ||||||||
Allegheny County Sanitary Authority | 2,250 | 2,324,205 | ||||||
City of Philadelphia PA | 12,990 | 14,949,282 | ||||||
City of Philadelphia PA Water & Wastewater Revenue | 2,135 | 2,457,957 | ||||||
AGM Series 2010A | 550 | 552,189 | ||||||
Commonwealth of Pennsylvania | 10,025 | 11,330,856 | ||||||
Montgomery County Higher Education & Health Authority | 1,500 | 1,690,755 | ||||||
Montgomery County Industrial Development Authority/PA | 475 | 492,870 | ||||||
Moon Industrial Development Authority | 2,060 | 2,144,378 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Pennsylvania Economic Development Financing Authority | $ | 3,085 | $ | 3,149,785 | ||||
Series 2012B | 5,995 | 6,061,844 | ||||||
Pennsylvania Turnpike Commission | 7,580 | 8,368,496 | ||||||
School District of Philadelphia (The) | 1,800 | 1,910,070 | ||||||
Series 2016F | 5,000 | 5,533,850 | ||||||
State Public School Building Authority | 5,150 | 5,531,696 | ||||||
|
| |||||||
66,498,233 | ||||||||
|
| |||||||
South Carolina – 1.3% | ||||||||
Renewable Water Resources | 2,570 | 2,820,010 | ||||||
South Carolina Public Service Authority | 2,535 | 2,776,225 | ||||||
Series 2016B | 5,040 | 5,533,315 | ||||||
Series 2016C | 930 | 1,023,911 | ||||||
|
| |||||||
12,153,461 | ||||||||
|
| |||||||
Tennessee – 0.3% | ||||||||
Metropolitan Government of Nashville & Davidson County TN | 455 | 505,605 | ||||||
5.00%, 7/01/23 | 1,930 | 2,142,223 | ||||||
|
| |||||||
2,647,828 | ||||||||
|
| |||||||
Texas – 6.0% | ||||||||
Austin Community College District Public Facility Corp. | 1,000 | 1,039,390 |
26 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Birdville Independent School District | $ | 3,825 | $ | 4,214,844 | ||||
Central Texas Regional Mobility Authority | 2,085 | 2,203,553 | ||||||
City of Corpus Christi TX Utility System Revenue | 5,675 | 6,169,122 | ||||||
City of Garland TX | 500 | 525,815 | ||||||
City of Houston TX Airport System Revenue | 2,105 | 2,176,991 | ||||||
City of Houston TX Airport System Revenue | 2,150 | 2,325,827 | ||||||
City of Houston TX Combined Utility System Revenue | 2,735 | 3,000,979 | ||||||
City of Lubbock TX | 1,740 | 1,783,500 | ||||||
Conroe Independent School District | 255 | 268,579 | ||||||
5.00%, 2/15/24-2/15/26 | 4,955 | 5,215,995 | ||||||
5.00%, 2/15/26 (Pre-refunded/ETM) | 1,030 | 1,084,848 | ||||||
Harris County-Houston Sports Authority | 4,220 | 4,582,329 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 1,000 | 1,035,820 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 800 | 794,152 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Hope Cultural Education Facilities Finance Corp. | $ | 1,000 | $ | 1,096,330 | ||||
North Texas Tollway Authority | 3,625 | 3,995,257 | ||||||
Series 2017A | 3,000 | 3,246,990 | ||||||
San Antonio Independent School District/TX | 1,710 | 1,840,576 | ||||||
Spring Branch Independent School District | 3,485 | 3,757,178 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 900 | 908,343 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 1,550 | 1,552,093 | ||||||
Texas Transportation Commission State Highway Fund | 2,865 | 3,349,013 | ||||||
University of Texas System (The) | 1,070 | 1,127,951 | ||||||
|
| |||||||
57,295,475 | ||||||||
|
| |||||||
Virginia – 0.7% | ||||||||
Fairfax County Economic Development Authority | 2,000 | 2,114,800 | ||||||
5.00%, 4/01/26 (Pre-refunded/ETM) | 4,000 | 4,229,600 | ||||||
|
| |||||||
6,344,400 | ||||||||
|
| |||||||
Washington – 6.0% | ||||||||
Central Puget Sound Regional Transit Authority | 7,815 | 8,583,181 | ||||||
Chelan County Public Utility District No 1 | 3,305 | 3,607,870 |
28 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
City of Seattle WA Water System Revenue | $ | 4,020 | $ | 4,559,886 | ||||
City of Tacoma WA Electric System Revenue | 2,720 | 2,813,930 | ||||||
5.00%, 1/01/20 (Pre-refunded/ETM)(a) | 1,280 | 1,342,502 | ||||||
Energy Northwest | 680 | 683,570 | ||||||
Series 2012A | 4,200 | 4,352,544 | ||||||
Port of Seattle WA | 4,820 | 5,345,958 | ||||||
State of Washington | 710 | 744,549 | ||||||
Series 2015R | 13,325 | 15,313,623 | ||||||
Series 2017D | 9,985 | 10,776,012 | ||||||
|
| |||||||
58,123,625 | ||||||||
|
| |||||||
Wisconsin – 1.4% | ||||||||
Wisconsin Department of Transportation | 9,520 | 10,759,818 | ||||||
5.00%, 7/01/23-7/01/24 | 2,480 | 2,795,183 | ||||||
|
| |||||||
13,555,001 | ||||||||
|
| |||||||
Total Long-Term Municipal Bonds | 954,857,609 | |||||||
|
| |||||||
Short-Term Municipal Notes – 2.0% | ||||||||
Missouri – 0.2% | ||||||||
Health & Educational Facilities Authority of the State of Missouri | 2,150 | 2,150,000 | ||||||
|
| |||||||
Texas – 1.0% | ||||||||
Gulf Coast Industrial Development Authority | 9,000 | 9,000,000 | ||||||
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Wyoming – 0.8% | ||||||||
County of Uinta WY | $ | 8,000 | $ | 8,000,000 | ||||
|
| |||||||
Total Short-Term Municipal Notes | 19,150,000 | |||||||
|
| |||||||
Total Municipal Obligations | 974,007,609 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS – 2.1% | ||||||||
U.S. Treasury Bills – 1.9% | ||||||||
U.S. Treasury Bill | 18,000 | 17,906,348 | ||||||
|
| |||||||
Shares | ||||||||
Investment Companies – 0.2% | ||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 1.51%(h)(i)(j) | 2,216,243 | 2,216,243 | ||||||
|
| |||||||
Total Short-Term Investments | 20,122,591 | |||||||
|
| |||||||
Total Investments – 103.5% | 994,130,200 | |||||||
Other assets less liabilities – (3.5)% | (33,297,573 | ) | ||||||
|
| |||||||
Net Assets – 100.0% | $ | 960,832,627 | ||||||
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | % | Monthly | 2.68 | % | USD | 1,628 | $ | (42,617 | ) | $ | (97,721 | ) | $ | 55,104 | |||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 755 | (19,764 | ) | (30,866 | ) | 11,102 |
30 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | % | Monthly | 2.68 | % | USD | 651 | $ | (17,042 | ) | $ | (37,693 | ) | $ | 20,651 | |||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 651 | (17,042 | ) | (35,265 | ) | 18,223 | ||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 911 | (23,899 | ) | (36,247 | ) | 12,348 | ||||||||||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 254 | (6,649 | ) | (10,435 | ) | 3,786 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (127,013 | ) | $ | (248,227 | ) | $ | 121,214 | |||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
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 | Payment Frequency Paid/ Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Bank of America, NA | USD | 25,000 | 9/02/20 | 1.548% | CPI# | Maturity/ Maturity | $ | 565,429 | ||||||||||||||
Bank of America, NA | USD | 25,000 | 2/02/32 | 2.403% | CPI# | Maturity/ Maturity | 15,790 | |||||||||||||||
Barclays Bank PLC | USD | 5,500 | 6/02/19 | 2.580% | CPI# | Maturity/ Maturity | (456,439 | ) | ||||||||||||||
Barclays Bank PLC | USD | 4,000 | 6/15/20 | 2.480% | CPI# | Maturity/ Maturity | (299,590 | ) | ||||||||||||||
Barclays Bank PLC | USD | 35,000 | 7/02/20 | 2.256% | CPI# | Maturity/ Maturity | (1,468,114 | ) | ||||||||||||||
Barclays Bank PLC | USD | 1,500 | 8/04/20 | 2.308% | CPI# | Maturity/ Maturity | (74,431 | ) | ||||||||||||||
Barclays Bank PLC | USD | 2,000 | 11/10/20 | 2.500% | CPI# | Maturity/ Maturity | (134,156 | ) | ||||||||||||||
Barclays Bank PLC | USD | 1,000 | 5/04/21 | 2.845% | CPI# | Maturity/ Maturity | (115,823 | ) | ||||||||||||||
Barclays Bank PLC | USD | 3,000 | 5/12/21 | 2.815% | CPI# | Maturity/ Maturity | (340,438 | ) | ||||||||||||||
Barclays Bank PLC | USD | 14,000 | 4/03/22 | 2.663% | CPI# | Maturity/ Maturity | (1,349,782 | ) | ||||||||||||||
Barclays Bank PLC | USD | 16,700 | 10/05/22 | 2.765% | CPI# | Maturity/ Maturity | (1,623,571 | ) | ||||||||||||||
Barclays Bank PLC | USD | 25,000 | 8/07/24 | 2.573% | CPI# | Maturity/ Maturity | (1,613,231 | ) |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Barclays Bank PLC | USD | 19,000 | 5/05/25 | 2.125% | CPI# | Maturity/ Maturity | $ | 171,588 | ||||||||||||||
Barclays Bank PLC | USD | 5,400 | 3/06/27 | 2.695% | CPI# | Maturity/ Maturity | (609,705 | ) | ||||||||||||||
Barclays Bank PLC | USD | 20,000 | 6/06/32 | 2.145% | CPI# | Maturity/ Maturity | 778,784 | |||||||||||||||
Barclays Bank PLC | USD | 14,000 | 9/01/32 | 2.128% | CPI# | Maturity/ Maturity | 653,774 | |||||||||||||||
Citibank, NA | USD | 22,000 | 7/02/18 | 2.084% | CPI# | Maturity/ Maturity | (704,922 | ) | ||||||||||||||
Citibank, NA | USD | 15,600 | 12/14/20 | 1.548% | CPI# | Maturity/ Maturity | 458,402 | |||||||||||||||
Citibank, NA | USD | 9,000 | 6/29/22 | 2.398% | CPI# | Maturity/ Maturity | (615,514 | ) | ||||||||||||||
Citibank, NA | USD | 5,400 | 7/19/22 | 2.400% | CPI# | Maturity/ Maturity | (353,045 | ) | ||||||||||||||
Citibank, NA | USD | 4,000 | 8/10/22 | 2.550% | CPI# | Maturity/ Maturity | (313,134 | ) | ||||||||||||||
Citibank, NA | USD | 47,000 | 5/24/23 | 2.533% | CPI# | Maturity/ Maturity | (3,404,300 | ) | ||||||||||||||
Citibank, NA | USD | 15,500 | 12/07/22 | 2.748% | CPI# | Maturity/ Maturity | (1,564,914 | ) | ||||||||||||||
Citibank, NA | USD | 30,000 | 10/29/23 | 2.524% | CPI# | Maturity/ Maturity | (1,887,260 | ) | ||||||||||||||
Citibank, NA | USD | 30,000 | 9/19/24 | 2.070% | CPI# | Maturity/ Maturity | 729,934 | |||||||||||||||
Citibank, NA | USD | 15,800 | 2/08/28 | 2.940% | CPI# | Maturity/ Maturity | (2,305,147 | ) | ||||||||||||||
Deutsche Bank AG | USD | 11,000 | 6/20/21 | 2.655% | CPI# | Maturity/ Maturity | (1,099,595 | ) | ||||||||||||||
Deutsche Bank AG | USD | 9,800 | 9/07/21 | 2.400% | CPI# | Maturity/ Maturity | (662,602 | ) | ||||||||||||||
Deutsche Bank AG | USD | 25,000 | 9/02/25 | 1.880% | CPI# | Maturity/ Maturity | 797,601 | |||||||||||||||
JPMorgan Chase Bank, NA | USD | 19,000 | 8/17/22 | 2.523% | CPI# | Maturity/ Maturity | (1,406,037 | ) | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,400 | 6/30/26 | 2.890% | CPI# | Maturity/ Maturity | (217,582 | ) | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 3,300 | 7/21/26 | 2.935% | CPI# | Maturity/ Maturity | (541,122 | ) | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 5,400 | 11/14/26 | 2.488% | CPI# | Maturity/ Maturity | (438,547 | ) | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 4,850 | 12/23/26 | 2.484% | CPI# | Maturity/ Maturity | (380,616 | ) | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 13,000 | 3/01/27 | 2.279% | CPI# | Maturity/ Maturity | 81,770 | |||||||||||||||
JPMorgan Chase Bank, NA | USD | 21,350 | 2/20/28 | 2.899% | CPI# | Maturity/ Maturity | (2,945,601 | ) |
32 | 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 | Payment Frequency Paid/ Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 12,000 | 3/26/28 | 2.880% | CPI# | Maturity/ Maturity | $ | (1,605,865 | ) | |||||||||||||||
JPMorgan Chase Bank, NA | USD | 18,000 | 4/17/30 | 2.378% | CPI# | Maturity/ Maturity | 13,625 | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 24,000 | 11/17/32 | 2.183% | CPI# | Maturity/ Maturity | 881,802 | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,000 | 7/29/20 | 2.305% | CPI# | Maturity/ Maturity | (50,149 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 2,400 | 10/03/26 | 2.485% | CPI# | Maturity/ Maturity | (192,156 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 2,000 | 10/14/20 | 2.370% | CPI# | Maturity/ Maturity | (104,871 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 13,000 | 5/23/21 | 2.680% | CPI# | Maturity/ Maturity | (1,286,922 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 10,000 | 4/16/23 | 2.690% | CPI# | Maturity/ Maturity | (902,064 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 5,000 | 8/15/26 | 2.885% | CPI# | Maturity/ Maturity | (762,410 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | (26,681,156 | ) | ||||||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
(a) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(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, 2018, the aggregate market value of these securities amounted to $6,133,391 or 0.6% of net assets. |
(c) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(d) | When-Issued or delayed delivery security. |
(e) | Variable rate coupon, rate shown as of April 30, 2018. |
(f) | 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, 2018 and the aggregate market value of these securities amounted to $9,368,123 or 0.98% of net assets. |
(g) | 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. |
(h) | Affiliated investments. |
(i) | The rate shown represents the 7-day yield as of period end. |
(j) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 33 |
PORTFOLIO OF INVESTMENTS (continued)
As of April 30, 2018, 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 5.1% and 0.1%, respectively.
Currency Abbreviations:
USD – United States Dollar
Glossary:
AGM – Assured Guaranty Municipal
AMBAC – Ambac Assurance Corporation
COP – Certificate of Participation
CPIYOYX – Consumer Price Index Year Over Year Change
DOT – Department of Transportation
ETM – Escrowed to Maturity
NATL – National Interstate Corporation
SRF – State Revolving Fund
See notes to financial statements.
34 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $986,413,306) | $ | 991,913,957 | ||
Affiliated issuers (cost $2,216,243) | 2,216,243 | |||
Cash | 9,368 | |||
Interest receivable | 11,829,275 | |||
Unrealized appreciation on inflation swaps | 5,148,499 | |||
Receivable for capital stock sold | 2,108,111 | |||
Unrealized appreciation on credit default swaps | 121,214 | |||
Affiliated dividends receivable | 2,659 | |||
|
| |||
Total assets | 1,013,349,326 | |||
|
| |||
Liabilities | ||||
Unrealized depreciation on inflation swaps | 31,829,655 | |||
Payable for investment securities purchased | 19,415,556 | |||
Payable for capital stock redeemed | 555,983 | |||
Advisory fee payable | 320,896 | |||
Upfront premiums received on credit default swaps | 248,227 | |||
Distribution fee payable | 58,933 | |||
Administrative fee payable | 21,550 | |||
Transfer Agent fee payable | 17,150 | |||
Directors’ fees payable | 3,031 | |||
Accrued expenses | 45,718 | |||
|
| |||
Total liabilities | 52,516,699 | |||
|
| |||
Net Assets | $ | 960,832,627 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 94,765 | ||
Additional paid-in capital | 994,216,928 | |||
Distributions in excess of net investment income | (152,843 | ) | ||
Accumulated net realized loss on investment transactions | (12,266,932 | ) | ||
Net unrealized depreciation on investments | (21,059,291 | ) | ||
|
| |||
$ | 960,832,627 | |||
|
|
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 69,429,657 | 6,830,863 | $ | 10.16 | * | ||||||
| ||||||||||||
C | $ | 11,830,329 | 1,165,953 | $ | 10.15 | |||||||
| ||||||||||||
Advisor | $ | 211,614,423 | 20,807,953 | $ | 10.17 | |||||||
| ||||||||||||
1 | $ | 453,373,681 | 44,779,044 | $ | 10.12 | |||||||
| ||||||||||||
2 | $ | 214,584,537 | 21,181,137 | $ | 10.13 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.47 which reflects a sales charge of 3.00%. |
See notes to financial statements.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 35 |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2018 (unaudited)
Investment Income | ||||||||
Interest | $ | 13,048,170 | ||||||
Dividends—Affiliated issuers | 51,441 | $ | 13,099,611 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 2,301,250 | |||||||
Distribution fee—Class A | 79,025 | |||||||
Distribution fee—Class C | 59,467 | |||||||
Distribution fee—Class 1 | 216,620 | |||||||
Transfer agency—Class A | 14,341 | |||||||
Transfer agency—Class C | 2,755 | |||||||
Transfer agency—Advisor Class | 45,776 | |||||||
Transfer agency—Class 1 | 11,473 | |||||||
Transfer agency—Class 2 | 5,571 | |||||||
Custodian | 92,488 | |||||||
Audit and tax | 41,016 | |||||||
Registration fees | 40,081 | |||||||
Administrative | 31,772 | |||||||
Legal | 22,830 | |||||||
Printing | 22,820 | |||||||
Directors’ fees | 13,906 | |||||||
Miscellaneous | 18,187 | |||||||
|
| |||||||
Total expenses | 3,019,378 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (369,255 | ) | ||||||
|
| |||||||
Net expenses | 2,650,123 | |||||||
|
| |||||||
Net investment income | 10,449,488 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized loss on: | ||||||||
Investment transactions | (1,257,736 | ) | ||||||
Swaps | (2,521,827 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (22,927,678 | ) | ||||||
Swaps | 16,304,425 | |||||||
|
| |||||||
Net loss on investment transactions | (10,402,816 | ) | ||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 46,672 | ||||||
|
|
See notes to financial statements.
36 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 10,449,488 | 17,074,726 | |||||
Net realized loss on investment transactions | (3,779,563 | ) | (2,767,495 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | (6,623,253 | ) | 2,734,873 | |||||
|
|
|
| |||||
Net increase in net assets from operations | 46,672 | 17,042,104 | ||||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (686,164 | ) | (1,019,585 | ) | ||||
Class C | (83,022 | ) | (135,480 | ) | ||||
Advisor Class | (2,469,997 | ) | (3,944,867 | ) | ||||
Class 1 | (5,209,881 | ) | (7,492,362 | ) | ||||
Class 2 | (2,647,092 | ) | (4,032,613 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 63,112,727 | 204,460,858 | ||||||
|
|
|
| |||||
Total increase | 52,063,243 | 204,878,055 | ||||||
Net Assets | ||||||||
Beginning of period | 908,769,384 | 703,891,329 | ||||||
|
|
|
| |||||
End of period (including distributions in excess of net investment income of ($152,843) and undistributed net investment income of $493,825, respectively) | $ | 960,832,627 | $ | 908,769,384 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 37 |
NOTES TO FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 (the “Fund”), a diversified portfolio. The Fund 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, Class I and Class T shares have been authorized but currently are not offered. 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 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 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.
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”).
38 | 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 | 39 |
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 Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security
40 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 Fund’s investments by the above fair value hierarchy levels as of April 30, 2018:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 932,068,228 | $ | 22,789,381 | $ | 954,857,609 | |||||||
Short-Term Investments: | ||||||||||||||||
Short-Term Municipal Notes | – 0 | – | 19,150,000 | – 0 | – | 19,150,000 | ||||||||||
U.S. Treasury Bills | – 0 | – | 17,906,348 | – 0 | – | 17,906,348 | ||||||||||
Investment Companies | 2,216,243 | – 0 | – | – 0 | – | 2,216,243 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 2,216,243 | 969,124,576 | 22,789,381 | 994,130,200 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Inflation (CPI) Swaps | – 0 | – | 5,148,499 | – 0 | – | 5,148,499 | ||||||||||
Liabilities: | ||||||||||||||||
Credit Default Swaps | (127,013 | ) | (127,013 | ) | ||||||||||||
Inflation (CPI) Swaps | – 0 | – | (31,829,655 | ) | – 0 | – | (31,829,655 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(b) | $ | 2,216,243 | $ | 942,316,407 | $ | 22,789,381 | $ | 967,322,031 | ||||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | 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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 41 |
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 10/31/17 | $ | 19,128,058 | $ | 19,128,058 | ||||
Accrued discounts/(premiums) | (145,860 | ) | (145,860 | ) | ||||
Realized gain (loss) | 36,813 | 36,813 | ||||||
Change in unrealized appreciation/depreciation | (549,528 | ) | (549,528 | ) | ||||
Purchases | 1,201,500 | 1,201,500 | ||||||
Sales | (1,032,590 | ) | (1,032,590 | ) | ||||
Transfers in to Level 3 | 4,150,988 | 4,150,988 | (a) | |||||
Transfers out of Level 3 | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Balance as of 4/30/18 | $ | 22,789,381 | $ | 22,789,381 | ||||
|
|
|
| |||||
Net change in unrealized appreciation/depreciation from Investments held as of 4/30/18(b) | $ | (537,349 | ) | $ | (537,349 | ) | ||
|
|
|
|
(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. |
As of April 30, 2018, 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 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. 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,
42 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.
4. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes original issue discounts and market discounts as adjustments to interest income.
5. 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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 Fund 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 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 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, 2019 and then may be extended by the Adviser for additional one-year terms. For the six months ended April 30, 2018, such reimbursements/waivers amounted to $360,447.
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, 2018, the reimbursement for such services amounted to $31,772.
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. Such compensation retained by ABIS amounted to $29,560 for the six months ended April 30, 2018.
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 charges of $17 from the sale of Class A shares and received $6,369 and $909 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, 2018.
44 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of ..20% of the portfolio’s average daily net assets and bears its own expenses. In connection with the investment by the Fund in the Government Money Market Portfolio, the Adviser has contractually 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, 2018, such waiver amounted to $8,808.
A summary of the Fund’s transactions in AB mutual funds for the six months ended April 30, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 11,054 | $ | 120,118 | $ | 128,956 | $ | 2,216 | $ | 51 |
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 .30% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to Class C shares and .10% of the Fund’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 Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amount of $393,399 and $1,638,351 for Class C and Class 1 shares, respectively. 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 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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 45 |
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, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 150,448,048 | $ | 37,643,152 | ||||
U.S. government securities | – 0 | – | 43,223,340 |
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 | $ | 18,200,457 | ||
Gross unrealized depreciation | (39,259,748 | ) | ||
|
| |||
Net unrealized depreciation | $ | (21,059,291 | ) | |
|
|
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 type of derivative utilized by the Fund, as well as the methods in which they may be used are:
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates or credit risk. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk.
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NOTES TO FINANCIAL STATEMENTS (continued)
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 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 swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the six months ended April 30, 2018, the Fund held inflation (CPI) 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
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty. As of April 30, 2018, the Fund 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 Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended April 30, 2018, the Fund held credit default swaps for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC
48 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||||
Derivative Type | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||||
Interest rate contracts | Unrealized | $ | 5,148,499 |
| | Unrealized | | $ | 31,829,655 |
| ||||
Credit contracts | Unrealized appreciation on credit default swaps | 121,214 | ||||||||||||
|
|
|
| |||||||||||
Total | $ | 5,269,713 | $ | 31,829,655 | ||||||||||
|
|
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 49 |
NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | (2,560,602 | ) | $ | 16,183,211 | ||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 38,775 | 121,214 | |||||||
|
|
|
| |||||||
Total | $ | (2,521,827 | ) | $ | 16,304,425 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2018:
Inflation Swaps: | ||||
Average notional amount | $ | 635,900,000 | ||
Credit Default Swaps: |
| |||
Average notional amount of sale contracts | $ | 4,210,000 |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund as of April 30, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Assets Subject to a MA | Derivative Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 581,219 | $ | – 0 | – | $ | – 0 | – | $ | (536,567 | ) | $ | 44,652 | |||||||
Barclays Bank PLC | 1,604,146 | (1,604,146 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 1,188,336 | (1,188,336 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 797,601 | (797,601 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 977,197 | (977,197 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 5,148,499 | $ | (4,567,280 | ) | $ | – 0 | – | $ | (536,567 | ) | $ | 44,652 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
50 | AB MUNICIPAL 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 | |||||||||||||||
Barclays Bank PLC | $ | 8,085,280 | $ | (1,604,146 | ) | $ | – 0 | – | $ | (6,481,134 | ) | $ | – 0 | – | ||||||
Citibank, NA | 11,148,236 | (1,188,336 | ) | – 0 | – | (9,959,900 | ) | – 0 | – | |||||||||||
Credit Suisse International | 62,381 | – 0 | – | – 0 | – | – 0 | – | 62,381 | ||||||||||||
Deutsche Bank AG | 1,762,197 | (797,601 | ) | – 0 | – | (964,596 | ) | – 0 | – | |||||||||||
Goldman Sachs International | 57,983 | – 0 | – | – 0 | – | – 0 | – | 57,983 | ||||||||||||
JPMorgan Chase Bank, NA | 7,777,675 | (977,197 | ) | – 0 | – | (6,773,573 | ) | 26,905 | ||||||||||||
Morgan Stanley Capital Services LLC | 3,062,916 | – 0 | – | – 0 | – | (3,062,916 | ) | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 31,956,668 | $ | (4,567,280 | ) | $ | – 0 | – | $ | (27,242,119 | ) | $ | 147,269 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
NOTE 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, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 1,759,544 | 3,860,338 | $ | 17,973,910 | $ | 39,389,359 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 48,252 | 68,587 | 493,979 | 702,584 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 796 | 18,459 | 8,147 | 189,571 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (643,727 | ) | (1,910,262 | ) | (6,579,567 | ) | (19,554,001 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,164,865 | 2,037,122 | $ | 11,896,469 | $ | 20,727,513 | ||||||||||||||||||
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 51 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 115,605 | 482,829 | $ | 1,176,198 | $ | 4,914,367 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,901 | 9,794 | 60,317 | 100,174 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (797 | ) | (18,496 | ) | (8,147 | ) | (189,571 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (191,508 | ) | (289,370 | ) | (1,952,729 | ) | (2,958,533 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (70,799 | ) | 184,757 | $ | (724,361 | ) | $ | 1,866,437 | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 4,609,783 | 12,317,124 | $ | 47,119,796 | $ | 125,893,746 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 168,839 | 272,759 | 1,729,037 | 2,795,556 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,371,576 | ) | (7,978,907 | ) | (34,523,728 | ) | (81,741,861 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,407,046 | 4,610,976 | $ | 14,325,105 | $ | 46,947,441 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 6,443,899 | 13,846,820 | $ | 65,581,489 | $ | 141,531,447 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 409,960 | 581,371 | 4,181,952 | 5,936,458 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,480,407 | ) | (5,516,471 | ) | (35,418,448 | ) | (56,316,601 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 3,373,452 | 8,911,720 | $ | 34,344,993 | $ | 91,151,304 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||
Shares sold | 1,299,169 | 5,861,015 | $ | 13,226,419 | $ | 59,930,076 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 191,780 | 301,058 | 1,956,834 | 3,075,422 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,168,739 | ) | (1,881,524 | ) | (11,912,732 | ) | (19,237,335 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 322,210 | 4,280,549 | $ | 3,270,521 | $ | 43,768,163 | ||||||||||||||||||
|
NOTE F
Risks Involved in Investing in the Fund
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.
52 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to have a higher probability that an issuer will default or fail to meet its payment obligations.
Municipal Market Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, 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. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.
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.
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.
Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 53 |
NOTES TO FINANCIAL STATEMENTS (continued)
to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
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 go down.
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.
NOTE G
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
54 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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, 2018. Effective July 5, 2018, the Facility will be increased to $325 million.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 were as follows:
2017 | 2016 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 719,132 | $ | 423,254 | ||||
Long-term capital gains | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Total taxable distributions | $ | 719,132 | $ | 423,254 | ||||
Tax-exempt income | 15,905,775 | 14,742,426 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 16,624,907 | $ | 15,165,680 | ||||
|
|
|
|
As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 493,825 | ||
Accumulated capital and other losses | (8,487,369 | )(a) | ||
Unrealized appreciation/(depreciation) | (14,436,038 | ) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (22,429,582 | ) | |
|
|
(a) | As of October 31, 2017, the Fund had a net capital loss carryforward of $8,487,369. |
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, 2017, the Fund had a net short-term capital loss carryforward of $213,464 and a net long-term capital loss carryforward of $8,273,905, which may be carried forward for an indefinite period.
NOTE I
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
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 J
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.
56 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.28 | $ 10.29 | $ 10.14 | $ 10.48 | $ 10.35 | $ 10.80 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | .19 | .18 | .15 | .13 | .12 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.12 | ) | (.01 | ) | .16 | (.34 | ) | .12 | (.44 | ) | ||||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.01 | ) | .18 | .34 | (.19 | ) | .25 | (.32 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.19 | ) | (.19 | ) | (.15 | ) | (.12 | ) | (.11 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.11 | ) | (.19 | ) | (.19 | ) | (.15 | ) | (.12 | ) | (.13 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 10.16 | $ 10.28 | $ 10.29 | $ 10.14 | $ 10.48 | $ 10.35 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.09 | )% | 1.75 | % | 3.38 | % | (1.83 | )% | 2.44 | % | (2.98 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $69,430 | $58,270 | $37,345 | $41,122 | $60,016 | $95,466 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .75 | %^ | .75 | % | .75 | % | .76 | % | .80 | % | .80 | % | ||||||||||||
Expenses, before waivers/reimbursements | .86 | %^ | .86 | % | .86 | % | .87 | % | .90 | % | .91 | % | ||||||||||||
Net investment income(a) | 2.10 | %^ | 1.90 | % | 1.78 | % | 1.49 | % | 1.24 | % | 1.10 | % | ||||||||||||
Portfolio turnover rate | 9 | % | 9 | % | 9 | % | 17 | % | 18 | % | 15 | % |
See footnote summary on page 53.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 57 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.26 | $ 10.27 | $ 10.12 | $ 10.46 | $ 10.33 | $ 10.78 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .07 | .12 | .10 | .08 | .06 | .04 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.11 | ) | (.02 | ) | .16 | (.35 | ) | .12 | (.43 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.04 | ) | .10 | .26 | (.27 | ) | .18 | (.39 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.07 | ) | (.11 | ) | (.11 | ) | (.07 | ) | (.05 | ) | (.04 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Total dividends and distributions | (.07 | ) | (.11 | ) | (.11 | ) | (.07 | ) | (.05 | ) | (.06 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Net asset value, end of period | $ 10.15 | $ 10.26 | $ 10.27 | $ 10.12 | $ 10.46 | $ 10.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.38 | )% | .99 | % | 2.61 | % | (2.56 | )% | 1.72 | % | (3.67 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $11,830 | $12,693 | $10,805 | $13,154 | $20,873 | $29,748 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.50 | %^ | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | ||||||||||||
Expenses, before waivers/reimbursements | 1.61 | %^ | 1.61 | % | 1.61 | % | 1.61 | % | 1.60 | % | 1.61 | % | ||||||||||||
Net investment income(a) | 1.34 | %^ | 1.15 | % | 1.03 | % | .75 | % | .54 | % | .41 | % | ||||||||||||
Portfolio turnover rate | 9 | % | 9 | % | 9 | % | 17 | % | 18 | % | 15 | % |
See footnote summary on page 53.
58 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.29 | $ 10.30 | $ 10.14 | $ 10.48 | $ 10.35 | $ 10.81 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .12 | .22 | .21 | .18 | .16 | .15 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.12 | ) | (.02 | ) | .17 | (.34 | ) | .12 | (.45 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net asset value from operations | – 0 | – | .20 | .38 | (.16 | ) | .28 | (.30 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.12 | ) | (.21 | ) | (.22 | ) | (.18 | ) | (.15 | ) | (.14 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Total dividends and distributions | (.12 | ) | (.21 | ) | (.22 | ) | (.18 | ) | (.15 | ) | (.16 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Net asset value, end of period | $ 10.17 | $ 10.29 | $ 10.30 | $ 10.14 | $ 10.48 | $ 10.35 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .04 | % | 2.00 | % | 3.74 | % | (1.56 | )% | 2.75 | % | (2.78 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $211,614 | $199,635 | $152,275 | $171,789 | $185,106 | $179,620 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .50 | %^ | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||||
Expenses, before waivers/reimbursements | .61 | %^ | .61 | % | .61 | % | .61 | % | .60 | % | .61 | % | ||||||||||||
Net investment income(a) | 2.35 | %^ | 2.15 | % | 2.03 | % | 1.76 | % | 1.55 | % | 1.39 | % | ||||||||||||
Portfolio turnover rate | 9 | % | 9 | % | 9 | % | 17 | % | 18 | % | 15 | % |
See footnote summary on page 53.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 59 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.25 | $ 10.26 | $ 10.11 | $ 10.45 | $ 10.33 | $ 10.78 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .11 | .21 | .20 | .17 | .15 | .14 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.12 | ) | (.01 | ) | .16 | (.34 | ) | .12 | (.43 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.01 | ) | .20 | .36 | (.17 | ) | .27 | (.29 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.12 | ) | (.21 | ) | (.21 | ) | (.17 | ) | (.15 | ) | (.14 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Total dividends and distributions | (.12 | ) | (.21 | ) | (.21 | ) | (.17 | ) | (.15 | ) | (.16 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Net asset value, end of period | $ 10.12 | $ 10.25 | $ 10.26 | $ 10.11 | $ 10.45 | $ 10.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | (.08 | )% | 1.94 | % | 3.58 | % | (1.62 | )% | 2.60 | % | (2.76 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $453,374 | $424,291 | $333,311 | $386,448 | $408,307 | $419,573 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements | .60 | %^ | .60 | % | .60 | % | .60 | % | .60 | % | .60 | % | ||||||||||||
Expenses, before waivers/reimbursements | .67 | %^ | .67 | % | .68 | % | .67 | % | .66 | % | .67 | % | ||||||||||||
Net investment income(a) | 2.25 | %^ | 2.05 | % | 1.93 | % | 1.66 | % | 1.44 | % | 1.30 | % | ||||||||||||
Portfolio turnover rate | 9 | % | 9 | % | 9 | % | 17 | % | 18 | % | 15 | % |
See footnote summary on page 53.
60 | 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, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 10.25 | $ 10.26 | $ 10.12 | $ 10.46 | $ 10.33 | $ 10.79 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(a)(b) | .12 | .22 | .21 | .18 | .16 | .15 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.11 | ) | (.01 | ) | .15 | (.34 | ) | .13 | (.44 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .01 | .21 | .36 | (.16 | ) | .29 | (.29 | ) | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.13 | ) | (.22 | ) | (.22 | ) | (.18 | ) | (.16 | ) | (.15 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | (.02 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Total dividends and distributions | (.13 | ) | (.22 | ) | (.22 | ) | (.18 | ) | (.16 | ) | (.17 | ) | ||||||||||||
|
|
|
| |||||||||||||||||||||
Net asset value, end of period | $ 10.13 | $ 10.25 | $ 10.26 | $ 10.12 | $ 10.46 | $ 10.33 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on net asset value(d) | .07 | % | 2.04 | % | 3.58 | % | (1.52 | )% | 2.79 | % | (2.75 | )% | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $214,585 | $213,880 | $170,155 | $176,066 | $185,904 | $183,237 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers | .50 | %^ | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||||
Expenses, before waivers | .57 | %^ | .57 | % | .58 | % | .57 | % | .56 | % | .57 | % | ||||||||||||
Net investment income(a) | 2.35 | %^ | 2.14 | % | 2.03 | % | 1.76 | % | 1.54 | % | 1.39 | % | ||||||||||||
Portfolio turnover rate. | 9 | % | 9 | % | 9 | % | 17 | % | 18 | % | 15 | % |
See footnote summary on page 53.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 61 |
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. |
^ | Annualized. |
See notes to financial statements.
62 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(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
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 Fund’s portfolio are made by the Adviser’s Municipal Bond Investment Team. Messrs. Davidson III, Hults, Norton and Potter are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 63 |
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 October 31-November 2, 2017 (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), who acted as their independent fee consultant, 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 review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
64 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The 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 2015 and 2016 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
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 65 |
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 performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing 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, 2017 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 the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors 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 Adviser informed the directors that there were no institutional products managed by it that have a substantially similar investment style.
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 the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment
66 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, 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 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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 67 |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
68 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
AB MUNICIPAL BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
MBIS-0152-0418
APR 04.30.18
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, 2018
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, 2018.
The investment objective of the Fund is to seek to maximize after-tax return and income.
NAV RETURNS AS OF APRIL 30, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB TAX-AWARE FIXED INCOME PORTFOLIO | ||||||||
Class A Shares | -0.88% | 1.28% | ||||||
Class C Shares | -1.25% | 0.52% | ||||||
Advisor Class Shares1 | -0.76% | 1.53% | ||||||
Bloomberg Barclays Municipal Bond Index | -0.97% | 1.56% |
1 | Please note that this share class is 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, 2018.
All share classes except Class C shares outperformed the benchmark for the six-month period; for the 12-month period, all share classes underperformed the benchmark, before sales charges.
For both periods, security selection within the miscellaneous revenue sector contributed relative to the benchmark, while selections in the public higher education and state general obligation sectors detracted.
For the six-month period, security selection within the tax-supported state lease and tobacco securitization sectors and an overweight to the taxable municipal sector contributed to performance. Yield-curve positioning, specifically an overweight to seven- to 10-year duration municipals, detracted.
For the 12-month period, an overweight to US Treasuries and an underweight to the tax-supported state lease sector detracted, while sector overweights to senior living and taxable municipals contributed. Yield-curve positioning also contributed.
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The Fund utilized derivatives during both periods, which had no material impact on absolute performance. Interest rate swaps were used for hedging purposes; credit default swaps were used for investment purposes.
MARKET REVIEW AND INVESTMENT STRATEGY
Against the backdrop of three interest rate hikes by the US Federal Reserve and concerns about tax reform, municipals remained resilient throughout 2017 and outperformed US Treasuries. Yields rose at the beginning of 2018; by the end of February, 10-year AAA municipal yields were 50 basis points higher than at the end of 2017. Longer-term municipal yields did not change significantly for the remainder of the period ended April 30, 2018 though short-term yields declined another 25-40 basis points. For the entire 12-month period, short-maturity yields increased significantly more than intermediate- and long-maturity yields; for example, AAA-rated two-year yields increased almost 90 basis points, while AAA-rated 30-year yields only rose about 15 basis points.
The Fund’s Senior Investment Management Team (the “Team”) maintains the Fund’s underweight to the longest maturity municipal bonds and a modest overweight to municipal credit, finding this position attractive given the current strength of the US economy. The Team continues to seek investments in attractive after-tax returns such as municipal and taxable fixed-income and selective below investment-grade bonds. The Team seeks to manage interest rate exposure by focusing on lower-rated municipal and corporate bonds.
The Fund may purchase municipal securities that are insured under policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most bond insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research. If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of April 30, 2018, 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 1.90% 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
(continued on next page)
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 3 |
Fund invests, under normal circumstances, at least 80% of its net 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 tender option bonds and 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
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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. Several Puerto Rico issuers are in default on principal and interest payments. These defaults cast doubts on the ability of Puerto Rico and its government agencies to make future payments. If the general economic situation in Puerto Rico continues to persist or worsens, the volatility and credit quality of Puerto Rican municipal securities could continue to be adversely affected, and the market for such securities may experience continued volatility. In addition, Puerto Rico’s difficulties have resulted in increased volatility in portions of the broader municipal securities market from time to time, and this may recur in the future.
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 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.
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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 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: 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 may be 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.
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.
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
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DISCLOSURES AND RISKS (continued)
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 and 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, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS A SHARES | ||||||||
1 Year | 1.28% | -1.77% | ||||||
Since Inception1 | 3.16% | 2.44% | ||||||
CLASS C SHARES | ||||||||
1 Year | 0.52% | -0.47% | ||||||
Since Inception1 | 2.41% | 2.41% | ||||||
ADVISOR CLASS SHARES2 | ||||||||
1 Year | 1.53% | 1.53% | ||||||
Since Inception1 | 3.43% | 3.43% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.40%, 2.18% and 1.15% 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, 2019 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 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that this share class is 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, 2018 (unaudited)
SEC Returns (reflects applicable | ||||
CLASS A SHARES | ||||
1 Year | -0.79% | |||
Since Inception1 | 2.53% | |||
CLASS C SHARES | ||||
1 Year | 0.63% | |||
Since Inception1 | 2.53% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 2.65% | |||
Since Inception1 | 3.56% |
1 | Inception date: 12/11/2013. |
2 | Please note that this share class is 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 TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
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, 2017 | Ending Account Value April 30, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.20 | $ | 3.70 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.08 | $ | 3.76 | 0.75 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 987.50 | $ | 7.39 | 1.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.36 | $ | 7.50 | 1.50 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 992.40 | $ | 2.47 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.32 | $ | 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. |
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PORTFOLIO SUMMARY
April 30, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $68.6
1 | All data are as of April 30, 2018. 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 “S&P Global Ratings” (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the Pre-refunded category includes bonds which are secured by U.S. Government securities and therefore are deemed high-quality investment-grade by the Adviser. If applicable, Not Applicable (N/A) includes non-creditworthy investments, such as equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a nationally recognized statistical rating organization. The Adviser evaluates the creditworthiness of non-rated securities based on a number of factors including, but not limited to, cash flows, enterprise value and economic environment. |
2 | “Other” represents less than 2.1% in 19 different states and Puerto Rico. |
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PORTFOLIO OF INVESTMENTS
April 30, 2018 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 93.3% |
| |||||||
Long-Term Municipal Bonds – 93.3% |
| |||||||
Alabama – 1.3% |
| |||||||
County of Jefferson AL Sewer Revenue | $ | 110 | $ | 126,460 | ||||
Water Works Board of the City of Birmingham (The) | 680 | 776,927 | ||||||
|
| |||||||
903,387 | ||||||||
|
| |||||||
Arizona – 0.3% |
| |||||||
Industrial Development Authority of the City of Phoenix (The) | 100 | 105,522 | ||||||
Salt Verde Financial Corp. | 100 | 116,769 | ||||||
|
| |||||||
222,291 | ||||||||
|
| |||||||
California – 2.1% |
| |||||||
Alameda Corridor Transportation Authority | 175 | 193,447 | ||||||
California Health Facilities Financing Authority | 850 | 963,670 | ||||||
California Pollution Control Financing Authority | 250 | 264,998 | ||||||
|
| |||||||
1,422,115 | ||||||||
|
| |||||||
Colorado – 0.6% |
| |||||||
Colorado Health Facilities Authority | 170 | 181,035 | ||||||
Colorado Health Facilities Authority | 200 | 223,072 | ||||||
|
| |||||||
404,107 | ||||||||
|
|
14 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Connecticut – 2.4% |
| |||||||
State of Connecticut | $ | 1,000 | $ | 1,114,010 | ||||
Series 2016G | 500 | 531,330 | ||||||
|
| |||||||
1,645,340 | ||||||||
|
| |||||||
District of Columbia – 0.2% |
| |||||||
District of Columbia | 100 | 107,774 | ||||||
|
| |||||||
Florida – 13.0% |
| |||||||
Bexley Community Development District | 100 | 101,289 | ||||||
Brevard County School District COP | 290 | 334,805 | ||||||
Citizens Property Insurance Corp. | 560 | 600,474 | ||||||
City of Gainesville FL Utilities System Revenue | 2,250 | 2,679,660 | ||||||
County of Miami-Dade FL | 780 | 879,895 | ||||||
County of Miami-Dade FL Aviation Revenue | 265 | 296,069 | ||||||
Florida Development Finance Corp. | 100 | 74,443 | ||||||
Florida’s Turnpike Enterprise | 1,605 | 1,708,892 | ||||||
Series 2017A | 1,000 | 1,064,730 | ||||||
North Broward Hospital District | 270 | 285,475 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Orange County Convention Center/Orlando | $ | 435 | $ | 475,137 | ||||
School District of Broward County/FL | 365 | 422,166 | ||||||
|
| |||||||
8,923,035 | ||||||||
|
| |||||||
Georgia – 1.7% |
| |||||||
City of Atlanta Department of Aviation | 310 | 338,213 | ||||||
Main Street Natural Gas, Inc. | 760 | 804,073 | ||||||
|
| |||||||
1,142,286 | ||||||||
|
| |||||||
Illinois – 6.8% |
| |||||||
Chicago Board of Education | 240 | 237,312 | ||||||
Chicago O’Hare International Airport | 335 | 364,621 | ||||||
Series 2017B | �� | 725 | 813,704 | |||||
City of Chicago IL | 100 | 101,407 | ||||||
Illinois Finance Authority | 85 | 83,651 | ||||||
Series 2016C | 15 | 823 | ||||||
Illinois Finance Authority | 100 | 102,959 | ||||||
Illinois Finance Authority | 250 | 266,627 | ||||||
Illinois Municipal Electric Agency | 465 | 507,887 |
16 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Metropolitan Pier & Exposition Authority | $ | 600 | $ | 620,316 | ||||
State of Illinois | 100 | 101,384 | ||||||
Series 2013 | 270 | 286,640 | ||||||
Series 2014 | 130 | 131,139 | ||||||
Series 2016 | 375 | 389,572 | ||||||
Series 2017D | 625 | 647,956 | ||||||
|
| |||||||
4,655,998 | ||||||||
|
| |||||||
Indiana – 0.7% |
| |||||||
Indiana Finance Authority | 160 | 166,498 | ||||||
Indiana Finance Authority | 190 | 204,778 | ||||||
Indiana Finance Authority | 100 | 106,733 | ||||||
|
| |||||||
478,009 | ||||||||
|
| |||||||
Kentucky – 1.4% |
| |||||||
Kentucky Economic Development Finance Authority | 175 | 190,008 | ||||||
Kentucky Economic Development Finance Authority | 65 | 67,741 | ||||||
Kentucky Economic Development Finance Authority | 425 | 456,412 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Louisville/Jefferson County Metropolitan Government | $ | 225 | $ | 251,145 | ||||
|
| |||||||
965,306 | ||||||||
|
| |||||||
Louisiana – 1.6% |
| |||||||
City of New Orleans LA Water Revenue | 100 | 110,041 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Auth | 675 | 748,163 | ||||||
Louisiana Public Facilities Authority | 250 | 3 | ||||||
New Orleans Aviation Board | 215 | 235,545 | ||||||
|
| |||||||
1,093,752 | ||||||||
|
| |||||||
Maine – 0.4% |
| |||||||
Finance Authority of Maine | 100 | 108,094 | ||||||
Maine Health & Higher Educational Facilities Authority | 165 | 184,069 | ||||||
|
| |||||||
292,163 | ||||||||
|
| |||||||
Maryland – 3.1% |
| |||||||
City of Baltimore MD | 120 | 133,612 | ||||||
City of Baltimore MD | 150 | 159,534 |
18 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
University System of Maryland | $ | 1,635 | $ | 1,844,656 | ||||
|
| |||||||
2,137,802 | ||||||||
|
| |||||||
Massachusetts – 5.3% |
| |||||||
Commonwealth of Massachusetts | 125 | 124,637 | ||||||
NATL Series 2000G | 300 | 299,130 | ||||||
Commonwealth of Massachusetts Transportation Fund Revenue | 2,365 | 2,790,795 | ||||||
Massachusetts Development Finance Agency | 325 | 268,203 | ||||||
Series 2017A | 140 | 136,756 | ||||||
|
| |||||||
3,619,521 | ||||||||
|
| |||||||
Michigan – 3.3% |
| |||||||
City of Detroit MI Sewage Disposal System Revenue | 115 | 125,299 | ||||||
Great Lakes Water Authority Sewage Disposal System Revenue | 1,000 | 1,126,850 | ||||||
Michigan Finance Authority | 735 | 738,932 | ||||||
Michigan Finance Authority | 235 | 258,324 | ||||||
|
| |||||||
2,249,405 | ||||||||
|
| |||||||
Minnesota – 0.3% |
| |||||||
City of Minneapolis MN | 200 | 226,078 | ||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Missouri – 0.1% |
| |||||||
Kansas City Industrial Development Authority | $ | 100 | $ | 96,250 | ||||
|
| |||||||
Nebraska – 0.2% |
| |||||||
Central Plains Energy Project | 100 | 108,867 | ||||||
|
| |||||||
Nevada – 2.1% |
| |||||||
Clark County School District | 1,300 | 1,416,025 | ||||||
|
| |||||||
New Hampshire – 0.2% |
| |||||||
New Hampshire Health and Education Facilities Authority Act | 115 | 122,058 | ||||||
|
| |||||||
New Jersey – 4.0% |
| |||||||
New Jersey Economic Development Authority | 30 | 31,631 | ||||||
New Jersey Economic Development Authority | 260 | 270,460 | ||||||
Series 2014P | 200 | 212,538 | ||||||
New Jersey Economic Development Authority | 85 | 92,222 | ||||||
New Jersey Health Care Facilities Financing Authority | 280 | 312,903 | ||||||
New Jersey Transportation Trust Fund Authority | 550 | 602,959 |
20 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey Transportation Trust Fund Authority | $ | 240 | $ | 251,138 | ||||
New Jersey Turnpike Authority | 315 | 350,699 | ||||||
Series 2017B | 540 | 627,048 | ||||||
|
| |||||||
2,751,598 | ||||||||
|
| |||||||
New York – 6.2% |
| |||||||
City of New York NY | 340 | 370,671 | ||||||
Metropolitan Transportation Authority | 315 | 356,986 | ||||||
New York State Dormitory Authority | 200 | 215,570 | ||||||
New York State Dormitory Authority | 425 | 480,671 | ||||||
Series 2017B | 1,040 | 1,230,580 | ||||||
New York State Energy Research & Development Authority | 200 | 192,020 | ||||||
New York State Thruway Authority | 365 | 403,117 | ||||||
New York State Urban Development Corp. | 750 | 879,075 | ||||||
Ulster County Capital Resource Corp. | 120 | 115,666 | ||||||
|
| |||||||
4,244,356 | ||||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
North Carolina – 0.8% |
| |||||||
North Carolina Turnpike Authority | $ | 500 | $ | 564,785 | ||||
|
| |||||||
Ohio – 3.4% |
| |||||||
Buckeye Tobacco Settlement Financing Authority | 235 | 234,998 | ||||||
City of Akron OH | 445 | 485,544 | ||||||
City of Chillicothe OH | 175 | 192,316 | ||||||
City of Columbus OH | 110 | 118,989 | ||||||
County of Cuyahoga OH | 365 | 401,880 | ||||||
County of Cuyahoga OH | 205 | 215,395 | ||||||
Dayton-Montgomery County Port Authority | 100 | 104,154 | ||||||
Ohio Air Quality Development Authority | 145 | 139,200 | ||||||
Ohio Air Quality Development Authority | 100 | 96,000 | ||||||
Ohio Air Quality Development Authority | 185 | 183,526 |
22 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Ohio Water Development Authority Water Pollution Control Loan Fund | $ | 140 | $ | 134,400 | ||||
|
| |||||||
2,306,402 | ||||||||
|
| |||||||
Pennsylvania – 9.1% |
| |||||||
City of Philadelphia PA | 1,000 | 1,140,470 | ||||||
Commonwealth of Pennsylvania | 2,000 | 2,286,700 | ||||||
Delaware River Joint Toll Bridge Commission | 1,500 | 1,721,910 | ||||||
Montour School District | 450 | 505,283 | ||||||
Moon Industrial Development Authority | 100 | 106,192 | ||||||
Pennsylvania Economic Development Financing Authority | 100 | 107,693 | ||||||
Pennsylvania Turnpike Commission | 200 | 220,054 | ||||||
Philadelphia Authority for Industrial Development | 150 | 159,042 | ||||||
|
| |||||||
6,247,344 | ||||||||
|
| |||||||
Puerto Rico – 0.1% |
| |||||||
Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth | 100 | 90,000 | ||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
South Carolina – 0.8% |
| |||||||
South Carolina Public Service Authority | $ | 265 | $ | 289,833 | ||||
Spartanburg County School District No 1/SC | 250 | 275,475 | ||||||
|
| |||||||
565,308 | ||||||||
|
| |||||||
Tennessee – 0.3% |
| |||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facs Bd | 215 | 237,880 | ||||||
|
| |||||||
Texas – 11.9% |
| |||||||
Austin Convention Enterprises, Inc. | 500 | 559,985 | ||||||
Central Texas Regional Mobility Authority | 100 | 106,842 | ||||||
City of Houston TX | 260 | 286,772 | ||||||
Series 2015 | 160 | 176,475 | ||||||
City of San Antonio TX Electric & Gas Systems Revenue | 1,155 | 1,216,827 | ||||||
Dallas Area Rapid Transit | 580 | 667,470 | ||||||
Dallas County Flood Control District No 1 | 100 | 104,146 | ||||||
Love Field Airport Modernization Corp. | 500 | 555,345 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 100 | 105,873 |
24 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
North Texas Tollway Authority | $ | 250 | $ | 278,390 | ||||
Tarrant County Cultural Education Facilities Finance Corp. | 100 | 87,758 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 100 | 105,258 | ||||||
Texas Transportation Commission State Highway Fund | 1,300 | 1,374,360 | ||||||
Travis County Cultural Education Facilities Finance Corp. | 160 | 164,141 | ||||||
Travis County Health Facilities Development Corp. | 55 | 62,015 | ||||||
Trinity River Authority Central Regional Wastewater System Revenue | 795 | 858,135 | ||||||
Trinity River Authority LLC | 335 | 360,513 | ||||||
University of Houston System | 1,000 | 1,078,900 | ||||||
|
| |||||||
8,149,205 | ||||||||
|
| |||||||
Virginia – 4.4% |
| |||||||
Tobacco Settlement Financing Corp./VA | 165 | 162,609 | ||||||
Virginia College Building Authority | 2,400 | 2,890,752 | ||||||
|
| |||||||
3,053,361 | ||||||||
|
| |||||||
Washington – 2.5% |
| |||||||
Port of Seattle WA | 510 | 557,267 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
State of Washington | $ | 830 | $ | 924,786 | ||||
Washington State Housing Finance Commission | 100 | 108,578 | ||||||
Washington State Housing Finance Commission | 100 | 115,576 | ||||||
|
| |||||||
1,706,207 | ||||||||
|
| |||||||
West Virginia – 0.3% |
| |||||||
West Virginia Economic Development Authority | 150 | 146,460 | ||||||
West Virginia Hospital Finance Authority | 100 | 93,673 | ||||||
|
| |||||||
240,133 | ||||||||
|
| |||||||
Wisconsin – 2.4% |
| |||||||
State of Wisconsin | 1,090 | 1,135,039 | ||||||
Wisconsin Public Finance Authority | 100 | 115,485 | ||||||
Wisconsin Public Finance Authority | 100 | 101,899 | ||||||
Wisconsin Public Finance Authority | 130 | 141,093 | ||||||
Wisconsin Public Finance Authority | 165 | 161,376 | ||||||
|
| |||||||
1,654,892 | ||||||||
|
| |||||||
Total Long-Term Municipal Bonds | 64,043,040 | |||||||
|
|
26 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
CORPORATES – INVESTMENT GRADE – 4.0% |
| |||||||
Industrial – 2.3% |
| |||||||
Basic – 0.2% |
| |||||||
Glencore Funding LLC | $ | 100 | $ | 95,740 | ||||
|
| |||||||
Capital Goods – 0.4% |
| |||||||
John Deere Capital Corp. | 300 | 293,850 | ||||||
|
| |||||||
Communications - Telecommunications – 0.2% |
| |||||||
AT&T, Inc. | 150 | 148,098 | ||||||
|
| |||||||
Consumer Cyclical - Automotive – 0.5% |
| |||||||
Ford Motor Credit Co. LLC | 200 | 196,252 | ||||||
General Motors Financial Co., Inc. | 150 | 150,295 | ||||||
�� |
| |||||||
346,547 | ||||||||
|
| |||||||
Consumer Non-Cyclical – 0.8% |
| |||||||
Allergan Funding SCS | 150 | 148,855 | ||||||
Amgen, Inc. | 150 | 147,491 | ||||||
CVS Health Corp. | 250 | 250,350 | ||||||
|
| |||||||
546,696 | ||||||||
|
| |||||||
Technology – 0.2% |
| |||||||
Hewlett Packard Enterprise Co. | 105 | 103,521 | ||||||
|
| |||||||
1,534,452 | ||||||||
|
| |||||||
Financial Institutions – 1.5% |
| |||||||
Banking – 1.1% |
| |||||||
Bank of America Corp. | 305 | 299,153 | ||||||
Capital One Financial Corp. | 165 | 161,329 | ||||||
Morgan Stanley | 300 | 297,873 | ||||||
|
| |||||||
758,355 | ||||||||
|
| |||||||
Finance – 0.2% |
| |||||||
AIG Global Funding | 150 | 146,792 | ||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Insurance – 0.2% |
| |||||||
Metropolitan Life Global Funding I | $ | 150 | $ | 146,848 | ||||
|
| |||||||
Utility – 0.2% |
| |||||||
Electric – 0.2% |
| |||||||
Duke Energy Florida LLC | 158 | 156,360 | ||||||
|
| |||||||
Total Corporates – Investment Grade | 2,742,807 | |||||||
|
| |||||||
ASSET-BACKED SECURITIES – 0.8% | ||||||||
Autos - Fixed Rate – 0.7% | ||||||||
Ally Auto Receivables Trust | 100 | 98,852 | ||||||
CarMax Auto Owner Trust | 96 | 95,267 | ||||||
GM Financial Automobile Leasing Trust | 67 | 66,481 | ||||||
Hertz Vehicle Financing II LP | 100 | 99,450 | ||||||
Mercedes-Benz Auto Lease Trust | 100 | 99,279 | ||||||
|
| |||||||
459,329 | ||||||||
|
| |||||||
Credit Cards - Fixed Rate – 0.1% | ||||||||
Synchrony Credit Card Master Note Trust | 100 | 99,480 | ||||||
|
| |||||||
Total Asset-Backed Securities | 558,809 | |||||||
|
| |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.7% | ||||||||
Non-Agency Fixed Rate CMBS – 0.1% | ||||||||
Citigroup Commercial Mortgage Trust | 99 | 98,433 | ||||||
|
|
28 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Non-Agency Floating Rate CMBS – 0.6% | ||||||||
BAMLL Commercial Mortgage Securities Trust | $ | 250 | $ | 250,986 | ||||
BX Trust | 150 | 150,187 | ||||||
|
| |||||||
401,173 | ||||||||
|
| |||||||
Total Commercial Mortgage-Backed Securities | 499,606 | |||||||
|
| |||||||
COLLATERALIZED LOAN OBLIGATIONS – 0.4% | ||||||||
CLO - Floating Rate – 0.4% | ||||||||
THL Credit Wind River CLO Ltd. | 250 | 250,878 | ||||||
|
| |||||||
CORPORATES – NON-INVESTMENT GRADE – 0.2% | ||||||||
Industrial – 0.2% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 130 | 125,139 | ||||||
|
| |||||||
Total Investments – 99.4% | 68,220,279 | |||||||
Other assets less liabilities – 0.6% | 415,048 | |||||||
|
| |||||||
Net Assets – 100.0% | $ | 68,635,327 | ||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at April 30, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | % | Monthly | 2.68 | % | USD | 76 | $ | (1,990 | ) | $ | (3,107 | ) | $ | 1,117 | |||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 163 | (4,267 | ) | (9,784 | ) | 5,517 | ||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 175 | (4,581 | ) | (11,266 | ) | 6,685 | ||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 174 | (4,555 | ) | (10,491 | ) | 5,936 | ||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 350 | (9,162 | ) | (19,505 | ) | 10,343 | ||||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 92 | (2,413 | ) | (3,660 | ) | 1,247 | ||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 65 | (1,702 | ) | (3,521 | ) | 1,819 | ||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 65 | (1,702 | ) | (3,764 | ) | 2,062 | ||||||||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.68 | USD | 25 | (654 | ) | (1,027 | ) | 373 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (31,026 | ) | $ | (66,125 | ) | $ | 35,099 | |||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At April 30, 2018, the aggregate market value of these securities amounted to $3,389,192 or 4.9% of net assets. |
(b) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
30 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(c) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.11% of net assets as of April 30, 2018, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Florida Development Finance Corp. | 1/21/15 | $ | 100,000 | $ | 74,443 | 0.11 | % |
(d) | Non-income producing security. |
(e) | Defaulted. |
(f) | Illiquid security. |
(g) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Louisiana Public Facilities Authority | 7/31/14 | $ | 173,773 | $ | 3 | 0.00 | % |
(h) | 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, 2018 and the aggregate market value of these securities amounted to $709,460 or 1.03% of net assets. |
(i) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at April 30, 2018. |
As of April 30, 2018, 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 1.9% 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.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 31 |
STATEMENT OF ASSETS & LIABILITIES
April 30, 2018 (unaudited)
Assets | ||||
Investments in securities, at value (cost $68,188,002) | $ | 68,220,279 | ||
Cash collateral due from broker | 140 | |||
Interest receivable | 877,602 | |||
Receivable for capital stock sold | 38,172 | |||
Unrealized appreciation on credit default swaps | 35,099 | |||
Affiliated dividends receivable | 119 | |||
|
| |||
Total assets | 69,171,411 | |||
|
| |||
Liabilities | ||||
Due to custodian | 272,272 | |||
Payable for capital stock redeemed | 113,566 | |||
Upfront premiums received on credit default swaps | 66,125 | |||
Dividends payable | 21,086 | |||
Directors’ fee payable | 3,358 | |||
Transfer Agent fee payable | 3,028 | |||
Distribution fee payable | 1,901 | |||
Advisory fee payable | 1,209 | |||
Accrued expenses | 53,539 | |||
|
| |||
Total liabilities | 536,084 | |||
|
| |||
Net Assets | $ | 68,635,327 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 6,499 | ||
Additional paid-in capital | 68,304,239 | |||
Undistributed net investment income | 4,769 | |||
Accumulated net realized gain on investment transactions | 252,444 | |||
Net unrealized appreciation on investments | 67,376 | |||
|
| |||
$ | 68,635,327 | |||
|
|
Net Asset Value Per Share—21 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 5,669,292 | 536,871 | $ | 10.56 | * | ||||||
| ||||||||||||
C | $ | 947,505 | 89,724 | $ | 10.56 | |||||||
| ||||||||||||
Advisor | $ | 62,018,530 | 5,872,681 | $ | 10.56 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.89 which reflects a sales charge of 3.00%. |
See notes to financial statements.
32 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended April 30, 2018 (unaudited)
Investment Income | ||||||||
Interest | $ | 1,038,965 | ||||||
Dividends—Affiliated issuers | 4,961 | $ | 1,043,926 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 161,514 | |||||||
Distribution fee—Class A | 9,022 | |||||||
Distribution fee—Class C | 4,853 | |||||||
Transfer agency—Class A | 1,737 | |||||||
Transfer agency—Class C | 244 | |||||||
Transfer agency—Advisor Class | 15,447 | |||||||
Custodian | 46,558 | |||||||
Administrative | 32,698 | |||||||
Audit and tax | 27,443 | |||||||
Registration fees | 25,802 | |||||||
Legal | 21,840 | |||||||
Directors’ fees | 14,181 | |||||||
Printing | 6,860 | |||||||
Miscellaneous | 4,173 | |||||||
|
| |||||||
Total expenses | 372,372 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (178,840 | ) | ||||||
|
| |||||||
Net expenses | 193,532 | |||||||
|
| |||||||
Net investment income | 850,394 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (89,462 | ) | ||||||
Swaps | 441,907 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (1,417,048 | ) | ||||||
Swaps | (394,785 | ) | ||||||
|
| |||||||
Net loss on investment transactions | (1,459,388 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (608,994 | ) | |||||
|
|
See notes to financial statements.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 33 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 850,394 | $ | 1,245,617 | ||||
Net realized gain on investment transactions | 352,445 | 80,734 | ||||||
Net change in unrealized appreciation/depreciation of investments | (1,811,833 | ) | 5,094 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (608,994 | ) | 1,331,445 | |||||
Dividends to Shareholders from | ||||||||
Net investment income | ||||||||
Class A | (78,299 | ) | (167,984 | ) | ||||
Class C | (6,932 | ) | (17,586 | ) | ||||
Advisor Class | (772,116 | ) | (1,058,874 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 1,198,686 | 26,741,682 | ||||||
|
|
|
| |||||
Total increase (decrease) | (267,655 | ) | 26,828,683 | |||||
Net Assets | ||||||||
Beginning of period | 68,902,982 | 42,074,299 | ||||||
|
|
|
| |||||
End of period (including undistributed net investment income of $4,769 and $11,722, respectively) | $ | 68,635,327 | $ | 68,902,982 | ||||
|
|
|
|
See notes to financial statements.
34 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
April 30, 2018 (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 nine 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 “Fund”), a diversified portfolio. The Fund has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class T, Class 1 and Class 2 shares. Class B, Class T, 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 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 that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the 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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
36 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 37 |
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.
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, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 61,652,371 | $ | 2,390,669 | $ | 64,043,040 | |||||||
Corporates – Investment Grade | – 0 | – | 2,742,807 | – 0 | – | 2,742,807 | ||||||||||
Asset-Backed Securities | – 0 | – | 558,809 | – 0 | – | 558,809 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 248,620 | 250,986 | 499,606 | |||||||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 250,878 | 250,878 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 125,139 | – 0 | – | 125,139 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | – 0 | – | 65,327,746 | 2,892,533 | 68,220,279 | |||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||
Liabilities: | ||||||||||||||||
Credit Default Swaps | – 0 | – | (31,026 | ) | – 0 | – | (31,026 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(b) | $ | – 0 | – | $ | 65,296,720 | $ | 2,892,533 | $ | 68,189,253 | |||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/depreciation on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | There were no transfers between any levels during the reporting period. |
38 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
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 | Commercial Mortgage- Backed Securities | Collateralized Loan Obligations | ||||||||||
Balance as of 10/31/17 | $ | 2,546,184 | $ | – 0 | – | $ | – 0 | – | ||||
Accrued discounts/(premiums) | 1,425 | – 0 | – | – 0 | – | |||||||
Realized gain (loss) | 4,655 | – 0 | – | – 0 | – | |||||||
Change in unrealized appreciation/depreciation | (48,343 | ) | 986 | 878 | ||||||||
Purchases | 726,718 | 250,000 | 250,000 | |||||||||
Sales | (839,970 | ) | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 4/30/18 | $ | 2,390,669 | $ | 250,986 | $ | 250,878 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(a) | $ | (40,880 | ) | $ | 986 | $ | 878 | |||||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Balance as of 10/31/17 | $ | 2,546,184 | ||||||||||
Accrued discounts/(premiums) | 1,425 | |||||||||||
Realized gain (loss) | 4,655 | |||||||||||
Change in unrealized appreciation/depreciation | (46,479 | ) | ||||||||||
Purchases | 1,226,718 | |||||||||||
Sales | (839,970 | ) | ||||||||||
Transfers in to Level 3 | – 0 | – | ||||||||||
Transfers out of Level 3 | – 0 | – | ||||||||||
|
| |||||||||||
Balance as of 4/30/18 | $ | 2,892,533 | ||||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 4/30/18(a) | $ | (39,016 | ) | |||||||||
|
|
(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, 2018, all Level 3 securities were priced i) by third party vendors or (ii) by brokers.
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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, 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
40 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 41 |
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 Fund pays the Adviser a management fee at an annual rate of .45% of the first $2.5 billion, .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. Prior to January 1, 2017, the Fund paid the Adviser a management fee at an annual rate of .50% of the Fund’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 (the “Expense Caps”) to .75%, 1.50% and .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 .80% to .75%, 1.55% to 1.50% and .55% to .50% of the daily average net assets for the Class A, Class C and the Advisor Class shares, respectively. For the six months ended April 30, 2018, such reimbursements/waivers amounted to $145,167. The Expense Caps may not be terminated before January 31, 2019.
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, 2018, the Adviser voluntarily agreed to waive such fees in the amount of $32,698.
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. Such compensation retained by ABIS amounted to $8,921 for the six months ended April 30, 2018.
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 charges of $0 from the sale of Class A shares and received $203 in contingent deferred sales charges imposed upon redemptions by shareholders of Class C shares, for the six months ended April 30, 2018.
42 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of ..20% of the portfolio’s average daily net assets and bears its own expenses. In connection with the investment by the Fund in the Government Money Market Portfolio, the Adviser has contractually 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, 2018, such waiver amounted to $975.
A summary of the Fund’s transactions in AB mutual funds for the six months ended April 30, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 4/30/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 837 | $ | 27,965 | $ | 28,802 | $ | – 0 | – | $ | 5 |
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 0.30% 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. 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 Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amount of $10,580 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 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.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 43 |
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, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 19,247,180 | $ | 6,096,340 | ||||
U.S. government securities | 2,181,154 | 11,655,192 |
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 | $ | 996,440 | ||
Gross unrealized depreciation | (929,064 | ) | ||
|
| |||
Net unrealized appreciation | $ | 67,376 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates or credit risk. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the
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NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended April 30, 2018, 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,
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NOTES TO FINANCIAL STATEMENTS (continued)
upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligations with the same counterparty. As of April 30, 2018, the Fund 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 Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended April 30, 2018, the Fund held credit default swaps for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty,
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NOTES TO FINANCIAL STATEMENTS (continued)
the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended April 30, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Credit contracts | Unrealized appreciation on credit default swaps | $ | 35,099 | |||||||||
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Total | $ | 35,099 | ||||||||||
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Derivative Type | Location of Gain or (Loss) on Derivatives Within Statement of Operations | 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 | $ | 432,070 | $ | (430,923 | ) | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 9,837 | 36,138 | |||||||||
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Total | $ | 441,907 | $ | (394,785 | ) | |||||||
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The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended April 30, 2018:
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 17,310,000 | (a) | |
Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 1,010,571 |
(a) | Positions were open for five months during the period. |
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NOTES TO FINANCIAL STATEMENTS (continued)
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Fund as of April 30, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivative Liabilities Subject to a MA | Derivative Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Credit Suisse International | $ | 6,257 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 6,257 | |||||||
Deutsche Bank AG | 18,298 | – 0 | – | – 0 | – | – 0 | – | 18,298 | ||||||||||||
Goldman Sachs International | 5,817 | – 0 | – | – 0 | – | – 0 | – | 5,817 | ||||||||||||
Morgan Stanley Capital Services LLC | 654 | – 0 | – | – 0 | – | – 0 | – | 654 | ||||||||||||
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Total | $ | 31,026 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 31,026 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
NOTE 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, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
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Class A | ||||||||||||||||||||||||
Shares sold | 29,235 | 573,430 | $ | 315,398 | $ | 6,009,085 | ||||||||||||||||||
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Shares issued in reinvestment of dividends | 2,063 | 4,866 | 21,975 | 51,860 | ||||||||||||||||||||
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Shares redeemed | (243,439 | ) | (416,871 | ) | (2,585,366 | ) | (4,428,970 | ) | ||||||||||||||||
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Net increase (decrease) | (212,141 | ) | 161,425 | $ | (2,247,993 | ) | $ | 1,631,975 | ||||||||||||||||
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NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Six Months Ended April 30, 2018 (unaudited) | Year Ended October 31, 2017 | Six Months Ended April 30, 2018 (unaudited) | Year Ended 2017 | |||||||||||||||||||||
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Class C | ||||||||||||||||||||||||
Shares sold | 8,056 | 4,987 | $ | 85,881 | $ | 53,215 | ||||||||||||||||||
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Shares issued in reinvestment of dividends | 481 | 1,249 | 5,122 | 13,263 | ||||||||||||||||||||
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Shares redeemed | (16,889 | ) | (94,163 | ) | (181,218 | ) | (998,573 | ) | ||||||||||||||||
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Net decrease | (8,352 | ) | (87,927 | ) | $ | (90,215 | ) | $ | (932,095 | ) | ||||||||||||||
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Advisor Class | ||||||||||||||||||||||||
Shares sold | 1,644,413 | 4,007,921 | $ | 17,651,507 | $ | 42,642,565 | ||||||||||||||||||
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Shares issued in reinvestment of dividends | 36,224 | 42,423 | 385,809 | 452,915 | ||||||||||||||||||||
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Shares redeemed | (1,359,417 | ) | (1,596,583 | ) | (14,500,422 | ) | (17,053,678 | ) | ||||||||||||||||
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Net increase | 321,220 | 2,453,761 | $ | 3,536,894 | $ | 26,041,802 | ||||||||||||||||||
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NOTE F
Risks Involved in Investing in the Fund
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 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 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 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 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. Several 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. These defaults cast 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 continues to persist or worsens, the volatility and credit quality of Puerto Rican municipal securities could continue to be adversely affected, and the market for such securities may experience continued volatility. In addition, Puerto Rico’s difficulties have resulted in increased volatility in portions of the broader municipal securities market from time to time, and this may recur in the future.
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 Fund by increasing taxes on that income. In such event, the Fund’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 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Fund may be subject to a 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.
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 exists when particular investments are difficult to purchase or sell, possibly preventing the Fund 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 Fund is subject to liquidity risk because 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—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
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NOTES TO FINANCIAL STATEMENTS (continued)
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.
NOTE G
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, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions to be paid for the year ending October 31, 2018 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 were as follows:
2017 | 2016 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 153,454 | $ | 67,221 | ||||
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Total taxable distributions | 153,454 | 67,221 | ||||||
Tax exempt distributions | 1,090,990 | 772,547 | ||||||
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Total distributions paid | $ | 1,244,444 | $ | 839,768 | ||||
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As of October 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 30,269 | ||
Accumulated capital and other losses | (99,865 | )(a) | ||
Unrealized appreciation/(depreciation) | 1,880,248 | (b) | ||
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Total accumulated earnings/(deficit) | $ | 1,810,652 | (c) | |
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(a) | As of October 31, 2017, the Fund had a net capital loss carryforward of $99,865. During the fiscal year, the Fund utilized $85,281 of capital loss carry forwards to offset current year net realized gains. |
(b) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax treatment of swaps. |
(c) | Other differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred for an indefinite period, and such losses will retain their
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 53 |
NOTES TO FINANCIAL STATEMENTS (continued)
character as either short-term or long-term capital losses. As of October 31, 2017, the Fund had a net short-term capital loss carryforward of $99,865, which may be carried forward for an indefinite period.
NOTE I
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 J
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 Fund’s financial statements through this date.
54 | AB TAX-AWARE FIXED INCOME PORTFOLIO | 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, | December 11, 2013(a) to October 31, 2014 | ||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
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Net asset value, beginning of period | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.51 | $ 10.00 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income(b)(c) | .11 | .21 | .22 | .18 | .14 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.20 | ) | (.10 | )†† | .28 | .09 | .50 | |||||||||||||
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Net increase (decrease) in net asset value from operations | (.09 | ) | .11 | .50 | .27 | .64 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.12 | ) | (.21 | ) | (.22 | ) | (.18 | ) | (.13 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||||
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Total dividends and distributions | (.12 | ) | (.21 | ) | (.22 | ) | (.19 | ) | (.13 | ) | ||||||||||
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Net asset value, end of period | $ 10.56 | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.51 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.88 | )% | 1.09 | % | 4.69 | % | 2.64 | % | 6.44 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $5,669 | $8,065 | $6,385 | $4,783 | $1,954 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .75 | %^ | .75 | % | .80 | % | .81 | % | .85 | %^ | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.25 | %^ | 1.40 | % | 1.72 | % | 2.19 | % | 3.59 | %^ | ||||||||||
Net investment income(c) | 2.15 | %^ | 2.01 | % | 1.98 | % | 1.75 | % | 1.57 | %^ | ||||||||||
Portfolio turnover rate | 25 | % | 34 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 58.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 55 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Six Months (unaudited) | Year Ended October 31, | December 11, 2013(a) to October 31, 2014 | ||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
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Net asset value, beginning of period | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.52 | $ 10.00 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income(b)(c) | .07 | .13 | .13 | .10 | .07 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.20 | ) | (.10 | )†† | .28 | .09 | .52 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.13 | ) | .03 | .41 | .19 | .59 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.08 | ) | (.13 | ) | (.13 | ) | (.11 | ) | (.07 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (.08 | ) | (.13 | ) | (.13 | ) | (.12 | ) | (.07 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value, end of period | $ 10.56 | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.52 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.25 | )% | .33 | % | 3.91 | % | 1.78 | % | 5.92 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $948 | $1,056 | $2,022 | $1,518 | $369 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.50 | %^ | 1.50 | % | 1.55 | % | 1.55 | % | 1.55 | %^ | ||||||||||
Expenses, before waivers/reimbursements(e) | 2.00 | %^ | 2.18 | % | 2.47 | % | 2.85 | % | 4.33 | %^ | ||||||||||
Net investment income(c) | 1.41 | %^ | 1.25 | % | 1.23 | % | .99 | % | .82 | %^ | ||||||||||
Portfolio turnover rate | 25 | % | 34 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 58.
56 | AB TAX-AWARE FIXED INCOME PORTFOLIO | 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, | December 11, 2013(a) to October 31, 2014 | ||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.52 | $ 10.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(b)(c) | .13 | .24 | .24 | .21 | .16 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.21 | ) | (.10 | )†† | .28 | .08 | .52 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .14 | .52 | .29 | .68 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.13 | ) | (.24 | ) | (.24 | ) | (.21 | ) | (.16 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (.13 | ) | (.24 | ) | (.24 | ) | (.22 | ) | (.16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value, end of period | $ 10.56 | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.52 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.76 | )% | 1.34 | % | 4.96 | % | 2.81 | % | 6.84 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $62,018 | $59,782 | $33,667 | $26,333 | $14,584 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | .50 | %^ | .50 | % | .55 | % | .55 | % | .55 | %^ | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.00 | %^ | 1.15 | % | 1.47 | % | 1.92 | % | 3.82 | %^ | ||||||||||
Net investment income(c) | 2.41 | %^ | 2.26 | % | 2.24 | % | 1.99 | % | 1.76 | %^ | ||||||||||
Portfolio turnover rate | 25 | % | 34 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 58.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 57 |
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 Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bear proportionate shares of the 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 Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the year ended October 31, 2017, such waiver amounted to 0.01% for the Fund. |
†† | 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 Fund’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
^ | Annualized. |
See notes to financial statements.
58 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr.(1) , Chairman Michael J. Downey(1) William H. Foulk, Jr.(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
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 Andrew 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 Fund are made by its senior investment management team. Messrs. Davidson, Hults, Keegan, Norton and Potter are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 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 Tax-Aware Fixed Income Portfolio (the “Fund”) at a meeting held on October 31-November 2, 2017 (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), who acted as their independent fee consultant, 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 review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment.
60 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The 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. The Adviser did not request any reimbursements from the Fund in the Fund’s latest fiscal year. 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 2015 and 2016 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 noted that the Fund was not profitable to the Adviser in the periods reviewed.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 61 |
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 performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1- and 3-year periods ended July 31, 2017 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 the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective since 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 fees pursuant to their advisory contracts. The directors concluded, based
62 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
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.
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 the 15(c) service provider. 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 Fund’s expense ratio effective since January 1, 2017, when the advisory fee was reduced and the Adviser had set the Fund’s expense cap at a correspondingly lower level. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s 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.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 63 |
This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
US CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
US GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
US VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
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 Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL EQUITY (continued)
INTERNATIONAL/ GLOBAL VALUE
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
FlexFee™ High Yield Portfolio1
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Bond Portfolio
Limited Duration High Income Portfolio
Short Duration Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
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 Money Market Portfolio1, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Money Market Portfolio 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 10, 2017, Government Money Market Portfolio was named Government Exchange Reserves; prior to January 8, 2018, Sustainable International Thematic Fund was named International Growth Fund; prior to February 23, 2018, FlexFee High Yield Portfolio was named High Yield Portfolio. |
64 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 65 |
NOTES
66 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 67 |
NOTES
68 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
AB TAX-AWARE FIXED INCOME PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
TAFI-0152-0418
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, 2018 |
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, 2018 | |
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer | ||
Date: | June 26, 2018 |