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: October 31, 2018
ITEM 1. REPORTS TO STOCKHOLDERS.
OCT 10.31.18
ANNUAL REPORT
AB ALL MARKET REAL RETURN PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
ANNUAL REPORT
December 14, 2018
This report provides management’s discussion of fund performance for AB All Market Real Return Portfolio for the annual reporting period ended October 31, 2018.
The Fund’s investment objective is to maximize real return over inflation.
NAV RETURNS AS OF OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB ALL MARKET REAL RETURN PORTFOLIO |
| |||||||
Class 1 Shares1 | -6.05% | -0.92% | ||||||
Class 2 Shares1 | -6.02% | -0.77% | ||||||
Class A Shares | -6.26% | -1.11% | ||||||
Class C Shares | -6.50% | -1.82% | ||||||
Advisor Class Shares2 | -6.07% | -0.96% | ||||||
Class R Shares2 | -6.35% | -1.47% | ||||||
Class K Shares2 | -6.24% | -1.20% | ||||||
Class I Shares2 | -6.00% | -0.69% | ||||||
Class Z Shares2 | -6.00% | -0.68% | ||||||
MSCI AC World Commodity Producers Index (net) | -6.32% | 3.52% |
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 October 31, 2018.
All share classes of the Fund underperformed the benchmark for the 12-month period, before sales charges. Strategic exposures to global real estate, commodity futures and diversified inflation equities detracted, relative to the benchmark. Security selection within commodity producers and inflation-sensitive stocks also detracted. Overlay positions such as inflation swaps contributed, as did security selection within global real estate and commodity futures.
2 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
All share classes of the Fund, except Class C and Class R, outperformed the benchmark for the six-month period, before sales charges. Exposure to global real estate and diversified inflation equities contributed, as did security selection within commodity futures. Strategic exposures to commodity futures detracted, as did overlay positions such as inflation swaps. In addition, an overweight to commodity producers, along with security selection within inflation-sensitive stocks, lowered returns.
Derivatives were used for hedging and investment purposes. Futures, forwards and written options contributed to absolute returns for both periods. Total return swaps and purchased options detracted for both periods. Inflation swaps detracted for the six-month period, and contributed for the 12-month period.
MARKET REVIEW AND INVESTMENT STRATEGY
US and non-US stocks rose during the 12-month period ended October 31, 2018, while emerging-market equities declined. US equity indices set a series of record highs amid favorable corporate tax reform, strong earnings and continued economic growth. However, volatility returned to markets at the end of the period as investors became concerned about slowing growth ahead. In the US, growth stocks outperformed their value counterparts, in terms of style, and large-cap stocks outperformed their small-cap peers. Fixed-income markets had mixed performance; developed-market treasuries rallied, outperforming the positive returns of emerging-market local-currency government bonds, while global high-yield and investment-grade securities ended the period in negative territory. Emerging-market debt sectors generally sold off, while developed-market yield curves moved in different directions (bond yields move inversely to price). The US Federal Reserve raised interest rates four times and began to formally reduce its balance sheet, as widely expected, but in June signaled more rate increases than previously expected for the rest of 2018.
Inflation assets posted negative returns for the 12-month period. Commodity futures and commodity producers, specifically within the metals and agricultural sectors, underperformed strongly as the trade war between the US and China escalated. The energy sector rose strongly as inventories were drawing counter-seasonally. Real estate investment trusts (“REITS”), which have a short-term sensitivity to interest rates, notably underperformed as a combination of rising inflation expectations and fiscal stimulus in the form of US tax cuts led to higher rate expectations.
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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 3 |
INVESTMENT POLICIES
The Fund seeks to maximize real return. Real return is the rate of return after adjusting for inflation. The Fund pursues an aggressive investment strategy involving a variety of asset classes. The Fund invests primarily in instruments that the Adviser expects to outperform broad equity indices during periods of rising inflation. Under normal circumstances, the Fund expects to invest its assets principally in the following instruments that, in the judgment of the Adviser, are affected directly or indirectly by the level and change in rate of inflation: inflation-indexed fixed-income securities, such as Treasury inflation-protected securities (“TIPS”) and similar bonds issued by governments outside of the United States; commodities; commodity-related equity securities; real estate equity securities; inflation-sensitive equity securities, which the Fund defines as equity securities of companies that the Adviser believes have the ability to pass along increasing costs to consumers and maintain or grow margins in rising inflation environments, including equity securities of utilities and infrastructure-related companies (“inflation-sensitive equities”); securities and derivatives linked to the price of other assets (such as commodities, stock indices and real estate); and currencies. The Fund expects its investments in fixed-income securities to have a broad range of maturities and quality levels.
The Fund will seek inflation protection from investments around the globe, both in developed- and emerging-market countries. In selecting securities for purchase and sale, the Adviser will utilize its qualitative and quantitative resources to determine overall inflation sensitivity, asset allocation and security selection. The Adviser assesses the securities’ risks and inflation sensitivity as well as the securities’ impact on the overall risks and inflation sensitivity of the Fund. When its analysis indicates that changes are necessary, the Adviser intends to implement them through a combination of changes to underlying positions and the use of inflation swaps and other types of derivatives, such as interest rate swaps.
The Fund anticipates that its targeted investment mix, other than its investments in inflation-indexed fixed-income securities, will focus on commodity-related equity securities, commodities and commodity derivatives, real estate equity securities and inflation-sensitive equities to provide a balance between expected return and inflation protection. The Fund may vary its investment allocations among these asset classes, at times significantly. Its commodities investments will include significant exposure to energy commodities, but will also include agricultural products, and industrial and precious metals, such as gold. The Fund’s investments in real estate equity securities will include REITs and other real estate-related securities.
(continued on next page)
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The Fund will invest in both US and non-US dollar-denominated equity or fixed-income securities. The Fund may invest in currencies for hedging or investment purposes, both in the spot market and through long or short positions in currency-related derivatives. The Fund does not ordinarily expect to hedge its foreign currency exposure because it will be balanced by investments in US dollar-denominated securities, although it may hedge the exposure under certain circumstances.
The Fund may invest significantly to the extent permitted by applicable law in derivatives, such as options, futures contracts, forwards, swaps or structured notes. The Fund intends to use leverage for investment purposes through the use of cash made available by derivatives transactions to make other investments in accordance with its investment policies. In determining when and to what extent to employ leverage or enter into derivatives transactions, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of derivatives in making its assessments of the Fund’s risks. The resulting exposures to markets, sectors, issuers or specific securities will be continuously monitored by the Adviser.
The Fund may seek to gain exposure to physical commodities traded in the commodities markets through investments in a variety of derivative instruments, including investments in commodity index-linked notes. The Adviser expects that the Fund will seek to gain exposure to commodities and commodity-related instruments and derivatives primarily through investments in AllianceBernstein Cayman Inflation Strategy, Ltd., a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the “Subsidiary”). The Subsidiary is advised by the Adviser and has the same investment objective and substantially similar investment policies and restrictions as the Fund except that the Subsidiary, unlike the Fund, may invest, without limitation, in commodities and commodity-related instruments. The Fund will be subject to the risks associated with the commodities, derivatives and other instruments in which the Subsidiary invests, to the extent of its investment in the Subsidiary. The Fund limits its investment in the Subsidiary to no more than 25% of its net assets. Investment in the Subsidiary is expected to provide the Fund with commodity exposure within the limitations of federal tax requirements that apply to the Fund.
The Fund is “non-diversified”, which means that it may concentrate its assets in a smaller number of issuers than a diversified fund.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The MSCI AC World Commodity Producers Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI AC World Commodity Producers Index is a free float-adjusted, market capitalization index designed to track the performance of global listed commodity producers, including emerging markets. Commodities sectors include: energy, grains, industrial metals, petroleum, precious metals and softs. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns include the reinvestment of dividends after deduction of non-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the stock, commodity and bond markets fluctuate. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security 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.
6 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
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,
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 7 |
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
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
3/8/20101 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB All Market Real Return Portfolio Class A shares (from 3/8/20101 to 10/31/2018) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
1 | Inception date: 3/8/2010. |
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HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS 1 SHARES1 | ||||||||
1 Year | -0.92% | -0.92% | ||||||
5 Years | -2.95% | -2.95% | ||||||
Since Inception2 | 0.14% | 0.14% | ||||||
CLASS 2 SHARES1 | ||||||||
1 Year | -0.77% | -0.77% | ||||||
5 Years | -2.72% | -2.72% | ||||||
Since Inception2 | 0.38% | 0.38% | ||||||
CLASS A SHARES | ||||||||
1 Year | -1.11% | -5.36% | ||||||
5 Years | -3.10% | -3.94% | ||||||
Since Inception2 | 0.04% | -0.45% | ||||||
CLASS C SHARES | ||||||||
1 Year | -1.82% | -2.78% | ||||||
5 Years | -3.80% | -3.80% | ||||||
Since Inception2 | -0.68% | -0.68% | ||||||
ADVISOR CLASS SHARES3 | ||||||||
1 Year | -0.96% | -0.96% | ||||||
5 Years | -2.85% | -2.85% | ||||||
Since Inception2 | 0.31% | 0.31% | ||||||
CLASS R SHARES3 | ||||||||
1 Year | -1.47% | -1.47% | ||||||
5 Years | -3.33% | -3.33% | ||||||
Since Inception2 | -0.19% | -0.19% | ||||||
CLASS K SHARES3 | ||||||||
1 Year | -1.20% | -1.20% | ||||||
5 Years | -3.10% | -3.10% | ||||||
Since Inception2 | 0.06% | 0.06% | ||||||
CLASS I SHARES3 | ||||||||
1 Year | -0.69% | -0.69% | ||||||
5 Years | -2.73% | -2.73% | ||||||
Since Inception2 | 0.38% | 0.38% | ||||||
CLASS Z SHARES3 | ||||||||
1 Year | -0.68% | -0.68% | ||||||
Since Inception2 | -2.19% | -2.19% |
(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 section 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
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 6.20% | |||
5 Years | -1.50% | |||
Since Inception2 | 0.82% | |||
CLASS 2 SHARES1 | ||||
1 Year | 6.43% | |||
5 Years | -1.24% | |||
Since Inception2 | 1.08% | |||
CLASS A SHARES | ||||
1 Year | 1.50% | |||
5 Years | -2.49% | |||
Since Inception2 | 0.22% | |||
CLASS C SHARES | ||||
1 Year | 4.15% | |||
5 Years | -2.36% | |||
Since Inception2 | -0.01% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 6.29% | |||
5 Years | -1.37% | |||
Since Inception2 | 1.00% | |||
CLASS R SHARES3 | ||||
1 Year | 5.72% | |||
5 Years | -1.87% | |||
Since Inception2 | 0.50% | |||
CLASS K SHARES3 | ||||
1 Year | 5.99% | |||
5 Years | -1.63% | |||
Since Inception2 | 0.75% | |||
CLASS I SHARES3 | ||||
1 Year | 6.39% | |||
5 Years | -1.28% | |||
Since Inception2 | 1.06% | |||
CLASS Z SHARES3 | ||||
1 Year | 6.40% | |||
Since Inception2 | -1.02% |
(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 May 1, 2018 | Ending Account Value October 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 937.40 | $ | 6.25 | 1.28 | % | $ | 6.30 | 1.29 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.75 | $ | 6.51 | 1.28 | % | $ | 6.56 | 1.29 | % | ||||||||||||
Class C | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 935.00 | $ | 9.90 | 2.03 | % | $ | 9.95 | 2.04 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,014.97 | $ | 10.31 | 2.03 | % | $ | 10.36 | 2.04 | % | ||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 939.30 | $ | 5.03 | 1.03 | % | $ | 5.08 | 1.04 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.01 | $ | 5.24 | 1.03 | % | $ | 5.30 | 1.04 | % | ||||||||||||
Class R | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 936.50 | $ | 7.52 | 1.54 | % | $ | 7.57 | 1.55 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.44 | $ | 7.83 | 1.54 | % | $ | 7.88 | 1.55 | % | ||||||||||||
Class K | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 937.60 | $ | 6.10 | 1.25 | % | $ | 6.15 | 1.26 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.90 | $ | 6.36 | 1.25 | % | $ | 6.41 | 1.26 | % | ||||||||||||
Class I | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 940.00 | $ | 4.01 | 0.82 | % | $ | 4.06 | 0.83 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.07 | $ | 4.18 | 0.82 | % | $ | 4.23 | 0.83 | % | ||||||||||||
Class 1 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 939.50 | $ | 5.18 | 1.06 | % | $ | 5.23 | 1.07 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.86 | $ | 5.40 | 1.06 | % | $ | 5.45 | 1.07 | % | ||||||||||||
Class 2 | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 939.80 | $ | 3.86 | 0.79 | % | $ | 3.91 | 0.80 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.22 | $ | 4.02 | 0.79 | % | $ | 4.08 | 0.80 | % | ||||||||||||
Class Z | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 940.00 | $ | 4.01 | 0.82 | % | $ | 4.06 | 0.83 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.07 | $ | 4.18 | 0.82 | % | $ | 4.23 | 0.83 | % |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | 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 184/365 (to reflect the one-half year period). |
16 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,709.5
1 | All data are as of October 31, 2018. The portfolio breakdown is expressed as an approximate percentage of the Fund’s net assets inclusive of derivative exposure, based on the Advisor’s internal classification guidelines. |
2 | The Fund’s security type breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 17 |
PORTFOLIO SUMMARY (continued)
October 31, 2018 (unaudited)
1 | All data are as of October 31, 2018. The Fund’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) 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 0.8% or less in the following countries: Argentina, Austria, Belgium, Chile, Denmark, Finland, Greece, Ireland, Israel, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Portugal, Singapore, South Africa, South Korea, Switzerland, Turkey and United Arab Emirates. |
TEN LARGEST HOLDINGS1
Company | U.S. $ Value | Percent of Net Assets | ||||||
U.S. Treasury Inflation Index | $ | 225,785,830 | 13.2 | % | ||||
Japanese Government CPI Linked Bond | 132,007,909 | 7.7 | ||||||
Royal Dutch Shell PLC – Class B | 55,803,982 | 3.3 | ||||||
Vanguard Real Estate ETF | 26,327,973 | 1.5 | ||||||
Exxon Mobil Corp. | 25,459,752 | 1.5 | ||||||
BP PLC | 23,766,380 | 1.4 | ||||||
TOTAL SA | 22,890,985 | 1.3 | ||||||
Chevron Corp. | 22,784,415 | 1.3 | ||||||
SPDR S&P Bank ETF | 21,450,830 | 1.3 | ||||||
iShares MSCI ACWI ETF | 20,564,258 | 1.2 | ||||||
$ | 576,842,314 | 33.7 | % |
1 | Long-term investments. |
18 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS
October 31, 2018
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
COMMON STOCKS – 65.3% | ||||||||||||
Real Estate – 25.7% | ||||||||||||
Diversified Real Estate Activities – 1.4% | ||||||||||||
Ayala Land, Inc. | 1,875,800 | $ | 1,391,851 | |||||||||
Daito Trust Construction Co., Ltd. | 7,000 | 922,868 | ||||||||||
Mitsubishi Estate Co., Ltd. | 114,300 | 1,826,720 | ||||||||||
Mitsui Fudosan Co., Ltd. | 487,600 | 10,981,839 | ||||||||||
Sumitomo Realty & Development Co., Ltd. | 188,200 | 6,466,561 | ||||||||||
UOL Group Ltd. | 375,900 | 1,637,285 | ||||||||||
|
| |||||||||||
23,227,124 | ||||||||||||
|
| |||||||||||
Diversified REITs – 2.6% | ||||||||||||
Armada Hoffler Properties, Inc. | 305,283 | 4,573,139 | ||||||||||
Covivio | 38,120 | 3,825,002 | ||||||||||
Empire State Realty Trust, Inc. – Class A | 237,100 | 3,760,406 | ||||||||||
Fibra Uno Administracion SA de CV | 2,776,500 | 2,972,881 | ||||||||||
GPT Group (The) | 1,160,931 | 4,245,783 | ||||||||||
Growthpoint Properties Ltd. | 1,664,932 | 2,556,225 | ||||||||||
H&R Real Estate Investment Trust | 221,678 | 3,352,660 | ||||||||||
Hulic Reit, Inc.(a) | 2,469 | 3,592,691 | ||||||||||
ICADE | 26,030 | 2,208,268 | ||||||||||
Kenedix Office Investment Corp. – Class A(a) | 415 | 2,571,729 | ||||||||||
Land Securities Group PLC | 140,050 | 1,523,478 | ||||||||||
Merlin Properties Socimi SA | 398,829 | 4,997,357 | ||||||||||
Mirvac Group | 2,003,780 | 3,082,286 | ||||||||||
SA Corporate Real Estate Ltd. | 4,790,030 | 1,284,276 | ||||||||||
|
| |||||||||||
44,546,181 | ||||||||||||
|
| |||||||||||
Health Care REITs – 1.1% | ||||||||||||
HCP, Inc. | 240,150 | 6,616,132 | ||||||||||
LTC Properties, Inc. | 84,330 | 3,606,794 | ||||||||||
Medical Properties Trust, Inc. | 376,160 | 5,589,738 | ||||||||||
Sabra Health Care REIT, Inc. | 165,080 | 3,573,982 | ||||||||||
|
| |||||||||||
19,386,646 | ||||||||||||
|
| |||||||||||
Hotel & Resort REITs – 0.6% | ||||||||||||
Park Hotels & Resorts, Inc. | 216,180 | 6,284,353 | ||||||||||
RLJ Lodging Trust | 172,780 | 3,358,843 | ||||||||||
|
| |||||||||||
9,643,196 | ||||||||||||
|
| |||||||||||
Industrial REITs – 2.5% | ||||||||||||
Duke Realty Corp. | 257,240 | 7,092,107 | ||||||||||
Goodman Group | 449,702 | 3,305,060 | ||||||||||
Nippon Prologis REIT, Inc. | 1,523 | 3,065,657 | ||||||||||
PLA Administradora Industrial S de RL de CV(b) | 449,953 | 550,888 | ||||||||||
Prologis, Inc. | 217,070 | 13,994,503 | ||||||||||
Rexford Industrial Realty, Inc. | 133,820 | 4,238,079 | ||||||||||
Segro PLC | 248,422 | 1,947,596 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 19 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
STAG Industrial, Inc. | 202,060 | $ | 5,346,508 | |||||||||
Tritax Big Box REIT PLC | 1,379,360 | 2,518,241 | ||||||||||
|
| |||||||||||
42,058,639 | ||||||||||||
|
| |||||||||||
Office REITs – 2.7% | ||||||||||||
Alexandria Real Estate Equities, Inc. | 68,472 | 8,369,333 | ||||||||||
alstria office REIT-AG | 204,150 | 2,938,885 | ||||||||||
Brandywine Realty Trust | 115,760 | 1,627,586 | ||||||||||
CapitaLand Commercial Trust | 2,260,800 | 2,824,982 | ||||||||||
Champion REIT | 3,300,000 | 2,220,517 | ||||||||||
City Office REIT, Inc. | 122,260 | 1,347,305 | ||||||||||
Columbia Property Trust, Inc. | 180,784 | 4,058,601 | ||||||||||
Hibernia REIT PLC | 820,500 | 1,291,782 | ||||||||||
Highwoods Properties, Inc. | 77,930 | 3,322,935 | ||||||||||
Ichigo Office REIT Investment(a) | 2,745 | 2,253,209 | ||||||||||
Japan Real Estate Investment Corp. | 397 | 2,048,854 | ||||||||||
JBG SMITH Properties | 65,580 | 2,457,938 | ||||||||||
Kilroy Realty Corp. | 60,680 | 4,179,638 | ||||||||||
Nippon Building Fund, Inc. | 747 | 4,268,834 | ||||||||||
Workspace Group PLC | 289,420 | 3,547,253 | ||||||||||
|
| |||||||||||
46,757,652 | ||||||||||||
|
| |||||||||||
Real Estate Development – 2.0% | ||||||||||||
China Overseas Land & Investment Ltd. | 1,382,000 | 4,344,784 | ||||||||||
China Resources Land Ltd. | 1,390,000 | 4,727,666 | ||||||||||
CIFI Holdings Group Co., Ltd. | 11,056,000 | 4,638,617 | ||||||||||
CK Asset Holdings Ltd. | 1,346,500 | 8,762,678 | ||||||||||
Emaar Properties PJSC | 2,503,030 | 3,472,948 | ||||||||||
Instone Real Estate Group AG(b)(c) | 52,160 | 1,223,527 | ||||||||||
Metrovacesa SA(b)(c) | 110,450 | 1,358,566 | ||||||||||
Times China Holdings Ltd. | 5,951,000 | 5,214,603 | ||||||||||
|
| |||||||||||
33,743,389 | ||||||||||||
|
| |||||||||||
Real Estate Operating Companies – 3.6% | ||||||||||||
Aroundtown SA | 740,680 | 6,142,777 | ||||||||||
Azrieli Group Ltd. | 49,100 | 2,384,196 | ||||||||||
CA Immobilien Anlagen AG | 114,399 | 3,723,959 | ||||||||||
Deutsche Wohnen SE | 217,870 | 9,965,409 | ||||||||||
Entra ASA(c) | 158,608 | 2,146,179 | ||||||||||
Essential Properties Realty Trust, Inc. | 338,520 | 4,603,872 | ||||||||||
Fabege AB | 234,080 | 2,989,057 | ||||||||||
Hemfosa Fastigheter AB | 348,300 | 4,303,009 | ||||||||||
Kungsleden AB | 254,220 | 1,777,033 | ||||||||||
Parque Arauco SA | 521,410 | 1,183,652 | ||||||||||
Swire Properties Ltd. | 1,264,400 | 4,320,867 | ||||||||||
Vonovia SE | 263,753 | 12,052,584 | ||||||||||
Wharf Real Estate Investment Co., Ltd. | 892,000 | 5,543,004 | ||||||||||
|
| |||||||||||
61,135,598 | ||||||||||||
|
|
20 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Real Estate Services – 0.1% | ||||||||||||
Unibail-Rodamco-Westfield | 14,660 | $ | 2,652,859 | |||||||||
|
| |||||||||||
Residential REITs – 3.5% | ||||||||||||
American Campus Communities, Inc. | 156,300 | 6,175,413 | ||||||||||
American Homes 4 Rent – Class A | 318,690 | 6,714,798 | ||||||||||
Camden Property Trust | 82,530 | 7,449,983 | ||||||||||
Essex Property Trust, Inc. | 28,250 | 7,084,535 | ||||||||||
Independence Realty Trust, Inc. | 471,750 | 4,675,043 | ||||||||||
Japan Rental Housing Investments, Inc. | 2,797 | 2,195,253 | ||||||||||
Killam Apartment Real Estate Investment Trust | 388,050 | 4,766,431 | ||||||||||
Mid-America Apartment Communities, Inc. | 77,440 | 7,566,662 | ||||||||||
Northview Apartment Real Estate Investment Trust | 117,120 | 2,251,743 | ||||||||||
Sun Communities, Inc. | 75,287 | 7,564,085 | ||||||||||
UNITE Group PLC (The) | 350,965 | 3,821,370 | ||||||||||
|
| |||||||||||
60,265,316 | ||||||||||||
|
| |||||||||||
Retail REITs – 3.6% | ||||||||||||
Agree Realty Corp. | 50,740 | 2,905,880 | ||||||||||
Brixmor Property Group, Inc. | 344,030 | 5,573,286 | ||||||||||
BWP Trust | 1,036,601 | 2,543,790 | ||||||||||
Charter Hall Retail REIT | 761,650 | 2,295,578 | ||||||||||
Eurocommercial Properties NV | 83,000 | 3,068,670 | ||||||||||
Fukuoka REIT Corp. | 1,759 | 2,655,273 | ||||||||||
Japan Retail Fund Investment Corp. | 1,414 | 2,611,648 | ||||||||||
Link REIT | 594,401 | 5,282,494 | ||||||||||
National Retail Properties, Inc. | 97,790 | 4,571,682 | ||||||||||
Regency Centers Corp. | 115,740 | 7,333,286 | ||||||||||
Retail Opportunity Investments Corp. | 220,260 | 3,874,373 | ||||||||||
Simon Property Group, Inc. | 99,282 | 18,220,233 | ||||||||||
|
| |||||||||||
60,936,193 | ||||||||||||
|
| |||||||||||
Specialized REITs – 2.0% | ||||||||||||
American Tower Corp. | 15,990 | 2,491,402 | ||||||||||
CubeSmart | 215,810 | 6,254,174 | ||||||||||
Digital Realty Trust, Inc. | 77,870 | 8,040,856 | ||||||||||
EPR Properties | 52,770 | 3,627,410 | ||||||||||
Equinix, Inc. | 9,840 | 3,726,801 | ||||||||||
MGM Growth Properties LLC – Class A | 122,690 | 3,470,900 | ||||||||||
National Storage Affiliates Trust | 196,970 | 5,245,311 | ||||||||||
Safestore Holdings PLC | 161,310 | 1,101,449 | ||||||||||
|
| |||||||||||
33,958,303 | ||||||||||||
|
| |||||||||||
438,311,096 | ||||||||||||
|
| |||||||||||
Energy – 16.2% | ||||||||||||
Integrated Oil & Gas – 11.4% | ||||||||||||
BP PLC | 3,290,048 | 23,766,380 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 21 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Chevron Corp. | 204,070 | $ | 22,784,415 | |||||||||
Equinor ASA | 63,277 | 1,636,741 | ||||||||||
Exxon Mobil Corp. | 319,525 | 25,459,752 | ||||||||||
Husky Energy, Inc. | 113,388 | 1,602,910 | ||||||||||
LUKOIL PJSC (Sponsored ADR) | 96,650 | 7,213,956 | ||||||||||
Origin Energy Ltd.(b) | 691,890 | 3,585,549 | ||||||||||
PetroChina Co., Ltd. – Class H | 18,242,000 | 13,116,424 | ||||||||||
Petroleo Brasileiro SA (Preference Shares) | 448,200 | 3,326,423 | ||||||||||
Repsol SA | 637,912 | 11,398,748 | ||||||||||
Royal Dutch Shell PLC – Class A | 23,191 | 738,821 | ||||||||||
Royal Dutch Shell PLC – Class B | 1,688,446 | 55,065,161 | ||||||||||
Suncor Energy, Inc. | 31,317 | 1,050,521 | ||||||||||
TOTAL SA | 390,129 | 22,890,985 | ||||||||||
YPF SA (Sponsored ADR)(b) | 105,685 | 1,585,275 | ||||||||||
|
| |||||||||||
195,222,061 | ||||||||||||
|
| |||||||||||
Oil & Gas Equipment & Services – 0.7% | ||||||||||||
C&J Energy Services, Inc.(b) | 302,920 | 5,688,838 | ||||||||||
Halliburton Co. | 106,480 | 3,692,726 | ||||||||||
Petrofac Ltd. | 148,581 | 1,092,593 | ||||||||||
TMK PJSC (GDR)(c) | 243,013 | 923,449 | ||||||||||
|
| |||||||||||
11,397,606 | ||||||||||||
|
| |||||||||||
Oil & Gas Exploration & Production – 2.8% | ||||||||||||
Aker BP ASA | 105,771 | 3,468,734 | ||||||||||
Anadarko Petroleum Corp. | 148,628 | 7,907,009 | ||||||||||
Concho Resources, Inc.(b) | 26,730 | 3,717,876 | ||||||||||
Continental Resources, Inc./OK(b) | 99,773 | 5,256,042 | ||||||||||
EOG Resources, Inc. | 164,908 | 17,371,409 | ||||||||||
Gran Tierra Energy, Inc.(b) | 573,560 | 1,755,818 | ||||||||||
Inpex Corp. | 250,200 | 2,848,929 | ||||||||||
SM Energy Co. | 166,862 | 4,061,421 | ||||||||||
Whiting Petroleum Corp.(b) | 68,980 | 2,572,954 | ||||||||||
|
| |||||||||||
48,960,192 | ||||||||||||
|
| |||||||||||
Oil & Gas Refining & Marketing – 1.3% | ||||||||||||
Cosan SA | 220,000 | 1,906,489 | ||||||||||
JXTG Holdings, Inc. | 844,200 | 5,704,245 | ||||||||||
Motor Oil Hellas Corinth Refineries SA | 191,510 | 4,533,500 | ||||||||||
Neste Oyj | 12,276 | 1,008,045 | ||||||||||
S-Oil Corp. | 35,192 | 3,840,231 | ||||||||||
Tupras Turkiye Petrol Rafinerileri AS | 169,280 | 3,993,935 | ||||||||||
Valero Energy Corp. | 10,698 | 974,481 | ||||||||||
|
| |||||||||||
21,960,926 | ||||||||||||
|
| |||||||||||
277,540,785 | ||||||||||||
|
|
22 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Materials – 7.8% | ||||||||||||
Aluminum – 0.9% | ||||||||||||
Alcoa Corp.(b) | 281,810 | $ | 9,860,532 | |||||||||
Aluminum Corp. of China Ltd. – Class H(b) | 6,726,000 | 2,448,568 | ||||||||||
Norsk Hydro ASA | 741,090 | 3,843,131 | ||||||||||
|
| |||||||||||
16,152,231 | ||||||||||||
|
| |||||||||||
Commodity Chemicals – 0.3% | ||||||||||||
LyondellBasell Industries NV – Class A | 31,995 | 2,856,193 | ||||||||||
Methanex Corp. | 27,258 | 1,765,160 | ||||||||||
|
| |||||||||||
4,621,353 | ||||||||||||
|
| |||||||||||
Construction Materials – 0.3% | ||||||||||||
Fletcher Building Ltd.(b) | 563,714 | 2,232,830 | ||||||||||
Grupo Cementos de Chihuahua SAB de CV | 485,147 | 2,627,160 | ||||||||||
|
| |||||||||||
4,859,990 | ||||||||||||
|
| |||||||||||
Copper – 0.9% | ||||||||||||
Antofagasta PLC | 488,710 | 4,891,996 | ||||||||||
First Quantum Minerals Ltd. | 539,200 | 5,381,965 | ||||||||||
Lundin Mining Corp. | 691,660 | 2,842,403 | ||||||||||
OZ Minerals Ltd. | 326,340 | 2,093,454 | ||||||||||
|
| |||||||||||
15,209,818 | ||||||||||||
|
| |||||||||||
Diversified Chemicals – 0.3% | ||||||||||||
Arkema SA | 4,459 | 467,810 | ||||||||||
BASF SE | 31,996 | 2,455,325 | ||||||||||
Incitec Pivot Ltd. | 543,700 | 1,506,517 | ||||||||||
|
| |||||||||||
4,429,652 | ||||||||||||
|
| |||||||||||
Diversified Metals & Mining – 2.1% | ||||||||||||
Anglo American PLC | 58,164 | 1,241,416 | ||||||||||
Boliden AB | 298,690 | 6,821,100 | ||||||||||
Glencore PLC(b) | 3,414,886 | 13,897,423 | ||||||||||
MMC Norilsk Nickel PJSC (ADR) (London)(a) | 228,690 | 3,784,846 | ||||||||||
Orocobre Ltd.(a)(b) | 269,233 | 640,027 | ||||||||||
Rio Tinto Ltd. | 15,016 | 817,055 | ||||||||||
Rio Tinto PLC | 99,920 | 4,851,193 | ||||||||||
Sumitomo Metal Mining Co., Ltd. | 89,800 | 2,827,446 | ||||||||||
Syrah Resources Ltd.(a)(b) | 1,004,719 | 1,142,778 | ||||||||||
Teck Resources Ltd. – Class B | 4,438 | 91,730 | ||||||||||
|
| |||||||||||
36,115,014 | ||||||||||||
|
| |||||||||||
Fertilizers & Agricultural Chemicals – 0.4% | ||||||||||||
Mosaic Co. (The) | 244,500 | 7,564,830 | ||||||||||
|
| |||||||||||
Gold – 0.9% | ||||||||||||
Agnico Eagle Mines Ltd. | 242,748 | 8,574,410 | ||||||||||
Detour Gold Corp.(b) | 238,550 | 1,759,520 | ||||||||||
Kinross Gold Corp.(b) | 169,898 | 441,377 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 23 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Newcrest Mining Ltd. | 211,680 | $ | 3,098,615 | |||||||||
Polyus PJSC (GDR)(c) | 62,240 | 1,965,471 | ||||||||||
Real Gold Mining Ltd.(b)(d)(e)(f) | 811,000 | – 0 | – | |||||||||
|
| |||||||||||
15,839,393 | ||||||||||||
|
| |||||||||||
Metal & Glass Containers – 0.1% | ||||||||||||
CCL Industries, Inc. – Class B | 48,626 | 2,045,583 | ||||||||||
|
| |||||||||||
Precious Metals & Minerals – 0.1% | ||||||||||||
Industrias Penoles SAB de CV | 112,350 | 1,581,830 | ||||||||||
|
| |||||||||||
Specialty Chemicals – 0.6% | ||||||||||||
Covestro AG(c) | 29,607 | 1,909,320 | ||||||||||
Johnson Matthey PLC | 125,125 | 4,743,954 | ||||||||||
Sherwin-Williams Co. (The) | 7,694 | 3,027,358 | ||||||||||
|
| |||||||||||
9,680,632 | ||||||||||||
|
| |||||||||||
Steel – 0.9% | ||||||||||||
APERAM SA | 47,670 | 1,627,827 | ||||||||||
Vale SA (Sponsored ADR) – Class B | 649,060 | 9,800,806 | ||||||||||
Yamato Kogyo Co., Ltd. | 140,800 | 3,710,617 | ||||||||||
|
| |||||||||||
15,139,250 | ||||||||||||
|
| |||||||||||
133,239,576 | ||||||||||||
|
| |||||||||||
Pharmaceuticals & Biotechnology – 2.1% | ||||||||||||
Biotechnology – 0.8% | ||||||||||||
AbbVie, Inc. | 30,705 | 2,390,384 | ||||||||||
Amgen, Inc. | 13,583 | 2,618,667 | ||||||||||
Biogen, Inc.(b) | 5,833 | 1,774,807 | ||||||||||
Celgene Corp.(b) | 26,221 | 1,877,424 | ||||||||||
Gilead Sciences, Inc. | 32,957 | 2,247,008 | ||||||||||
Vertex Pharmaceuticals, Inc.(b) | 11,372 | 1,927,099 | ||||||||||
|
| |||||||||||
12,835,389 | ||||||||||||
|
| |||||||||||
Pharmaceuticals – 1.3% | ||||||||||||
Astellas Pharma, Inc. | 101,900 | 1,574,375 | ||||||||||
GlaxoSmithKline PLC | 25,494 | 493,761 | ||||||||||
Merck & Co., Inc. | 60,974 | 4,488,296 | ||||||||||
Novo Nordisk A/S – Class B | 60,873 | 2,628,895 | ||||||||||
Orion Oyj – Class B | 32,398 | 1,114,469 | ||||||||||
Pfizer, Inc. | 95,441 | 4,109,689 | ||||||||||
Roche Holding AG | 13,617 | 3,313,866 | ||||||||||
Shionogi & Co., Ltd. | 24,300 | 1,553,831 | ||||||||||
Zoetis, Inc. | 36,024 | 3,247,564 | ||||||||||
|
| |||||||||||
22,524,746 | ||||||||||||
|
| |||||||||||
35,360,135 | ||||||||||||
|
| |||||||||||
Software & Services – 1.4% | ||||||||||||
Application Software – 0.3% | ||||||||||||
Dassault Systemes SE | 16,219 | 2,030,368 |
24 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Intuit, Inc. | 15,373 | $ | 3,243,703 | |||||||||
|
| |||||||||||
5,274,071 | ||||||||||||
|
| |||||||||||
Data Processing & Outsourced Services – 0.6% | ||||||||||||
Amadeus IT Group SA – Class A | 27,733 | 2,233,188 | ||||||||||
Mastercard, Inc. – Class A | 20,803 | 4,112,129 | ||||||||||
Visa, Inc. – Class A | 27,165 | 3,744,695 | ||||||||||
|
| |||||||||||
10,090,012 | ||||||||||||
|
| |||||||||||
IT Consulting & Other Services – 0.1% | ||||||||||||
Accenture PLC – Class A | 5,967 | 940,518 | ||||||||||
Fujitsu Ltd. | 3,900 | 237,270 | ||||||||||
|
| |||||||||||
1,177,788 | ||||||||||||
|
| |||||||||||
Systems Software – 0.4% | ||||||||||||
Fortinet, Inc.(b) | 22,420 | 1,842,476 | ||||||||||
Microsoft Corp. | 42,213 | 4,508,771 | ||||||||||
Trend Micro, Inc./Japan | 24,200 | 1,393,091 | ||||||||||
|
| |||||||||||
7,744,338 | ||||||||||||
|
| |||||||||||
24,286,209 | ||||||||||||
|
| |||||||||||
Banks – 1.2% | ||||||||||||
Diversified Banks – 1.0% | ||||||||||||
Banco Comercial Portugues SA(b) | 8,606,050 | 2,314,910 | ||||||||||
Bank Leumi Le-Israel BM | 462,630 | 2,884,823 | ||||||||||
Barclays PLC | 494,805 | 1,090,207 | ||||||||||
Citigroup, Inc. | 59,851 | 3,917,846 | ||||||||||
Lloyds Banking Group PLC | 2,978,394 | 2,173,449 | ||||||||||
Wells Fargo & Co. | 90,097 | 4,795,863 | ||||||||||
|
| |||||||||||
17,177,098 | ||||||||||||
|
| |||||||||||
Regional Banks – 0.2% | ||||||||||||
CIT Group, Inc. | 59,896 | 2,837,872 | ||||||||||
|
| |||||||||||
20,014,970 | ||||||||||||
|
| |||||||||||
Retailing – 1.1% | ||||||||||||
Apparel Retail – 0.1% | ||||||||||||
Hennes & Mauritz AB – Class B(a) | 59,575 | 1,052,259 | ||||||||||
|
| |||||||||||
Computer & Electronics Retail – 0.2% | ||||||||||||
Best Buy Co., Inc. | 41,658 | 2,922,725 | ||||||||||
Hikari Tsushin, Inc. | 5,400 | 943,134 | ||||||||||
|
| |||||||||||
3,865,859 | ||||||||||||
|
| |||||||||||
Department Stores – 0.1% | ||||||||||||
Next PLC | 29,483 | 1,958,638 | ||||||||||
|
| |||||||||||
General Merchandise Stores – 0.2% | ||||||||||||
Target Corp. | 37,785 | 3,159,960 | ||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 25 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Internet & Direct Marketing Retail – 0.5% | ||||||||||||
Amazon.com, Inc.(b) | 2,343 | $ | 3,744,137 | |||||||||
Expedia Group, Inc. | 25,216 | 3,162,843 | ||||||||||
Rakuten, Inc. | 170,600 | 1,153,935 | ||||||||||
|
| |||||||||||
8,060,915 | ||||||||||||
|
| |||||||||||
18,097,631 | ||||||||||||
|
| |||||||||||
Diversified Financials – 1.0% | ||||||||||||
Consumer Finance – 0.2% | ||||||||||||
Ally Financial, Inc. | 30,763 | 781,688 | ||||||||||
Discover Financial Services | 41,208 | 2,870,961 | ||||||||||
|
| |||||||||||
3,652,649 | ||||||||||||
|
| |||||||||||
Financial Exchanges & Data – 0.1% | ||||||||||||
Hong Kong Exchanges & Clearing Ltd. | 64,800 | 1,725,415 | ||||||||||
|
| |||||||||||
Investment Banking & Brokerage – 0.5% | ||||||||||||
Daiwa Securities Group, Inc. | 253,600 | 1,454,322 | ||||||||||
Goldman Sachs Group, Inc. (The) | 16,132 | 3,635,669 | ||||||||||
Morgan Stanley | 76,128 | 3,476,005 | ||||||||||
|
| |||||||||||
8,565,996 | ||||||||||||
|
| |||||||||||
Multi-Sector Holdings – 0.2% | ||||||||||||
Industrivarden AB – Class C | 11,458 | 237,995 | ||||||||||
Jefferies Financial Group, Inc. | 141,731 | 3,042,964 | ||||||||||
|
| |||||||||||
3,280,959 | ||||||||||||
|
| |||||||||||
17,225,019 | ||||||||||||
|
| |||||||||||
Media & Entertainment – 0.9% | ||||||||||||
Advertising – 0.0% | ||||||||||||
CyberAgent, Inc. | 7,600 | 323,404 | ||||||||||
|
| |||||||||||
Cable & Satellite – 0.2% | ||||||||||||
Sirius XM Holdings, Inc.(a) | 489,747 | 2,948,277 | ||||||||||
|
| |||||||||||
Interactive Home Entertainment – 0.2% | ||||||||||||
Nexon Co., Ltd.(b) | 119,500 | 1,363,166 | ||||||||||
Ubisoft Entertainment SA(b) | 19,452 | 1,744,894 | ||||||||||
|
| |||||||||||
3,108,060 | ||||||||||||
|
| |||||||||||
Interactive Media & Services – 0.3% | ||||||||||||
Alphabet, Inc. – Class A(b) | 893 | 973,888 | ||||||||||
Alphabet, Inc. – Class C(b) | 1,234 | 1,328,734 | ||||||||||
Facebook, Inc. – Class A(b) | 10,124 | 1,536,722 | ||||||||||
Kakaku.com, Inc. | 77,700 | 1,407,310 | ||||||||||
|
| |||||||||||
5,246,654 | ||||||||||||
|
| |||||||||||
Movies & Entertainment – 0.2% | ||||||||||||
Walt Disney Co. (The) | 36,610 | 4,203,926 | ||||||||||
|
| |||||||||||
15,830,321 | ||||||||||||
|
|
26 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Transportation – 0.8% | ||||||||||||
Air Freight & Logistics – 0.3% | ||||||||||||
CH Robinson Worldwide, Inc. | 32,473 | $ | 2,891,071 | |||||||||
Expeditors International of Washington, Inc. | 44,363 | 2,980,307 | ||||||||||
|
| |||||||||||
5,871,378 | ||||||||||||
|
| |||||||||||
Airlines – 0.1% | ||||||||||||
Japan Airlines Co., Ltd. | 37,200 | 1,320,271 | ||||||||||
|
| |||||||||||
Highways & Railtracks – 0.3% | ||||||||||||
Transurban Group | 622,372 | 5,005,956 | ||||||||||
|
| |||||||||||
Railroads – 0.1% | ||||||||||||
Central Japan Railway Co. | 8,300 | 1,592,841 | ||||||||||
Union Pacific Corp. | 2,228 | 325,778 | ||||||||||
|
| |||||||||||
1,918,619 | ||||||||||||
|
| |||||||||||
14,116,224 | ||||||||||||
|
| |||||||||||
Food & Staples Retailing – 0.8% | ||||||||||||
Food Retail – 0.5% | ||||||||||||
Casino Guichard Perrachon SA(a) | 13,000 | 573,335 | ||||||||||
Colruyt SA | 36,585 | 2,127,205 | ||||||||||
J Sainsbury PLC | 516,239 | 2,051,053 | ||||||||||
Koninklijke Ahold Delhaize NV | 100,226 | 2,294,224 | ||||||||||
Kroger Co. (The) | 81,047 | 2,411,959 | ||||||||||
|
| |||||||||||
9,457,776 | ||||||||||||
|
| |||||||||||
Hypermarkets & Super Centers – 0.3% | ||||||||||||
Carrefour SA | 63,956 | 1,240,348 | ||||||||||
Walmart, Inc. | 31,506 | 3,159,422 | ||||||||||
|
| |||||||||||
4,399,770 | ||||||||||||
|
| |||||||||||
13,857,546 | ||||||||||||
|
| |||||||||||
Technology Hardware & Equipment – 0.7% | ||||||||||||
Communications Equipment – 0.2% | ||||||||||||
F5 Networks, Inc.(b) | 17,629 | 3,090,011 | ||||||||||
|
| |||||||||||
Technology Distributors – 0.1% | ||||||||||||
Avnet, Inc. | 72,083 | 2,888,366 | ||||||||||
|
| |||||||||||
Technology Hardware, Storage & Peripherals – 0.4% | ||||||||||||
Apple, Inc. | 30,196 | 6,608,697 | ||||||||||
|
| |||||||||||
12,587,074 | ||||||||||||
|
| |||||||||||
Health Care Equipment & Services – 0.7% | ||||||||||||
Health Care Distributors – 0.0% | ||||||||||||
AmerisourceBergen Corp. – Class A | 2,208 | 194,304 | ||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 27 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Health Care Equipment – 0.1% | ||||||||||||
Cochlear Ltd. | 11,238 | $ | 1,416,135 | |||||||||
|
| |||||||||||
Health Care Facilities – 0.2% | ||||||||||||
Chartwell Retirement Residences | 285,830 | 3,067,931 | ||||||||||
|
| |||||||||||
Health Care Services – 0.1% | ||||||||||||
CVS Health Corp. | 33,210 | 2,404,072 | ||||||||||
|
| |||||||||||
Health Care Supplies – 0.1% | ||||||||||||
Hoya Corp. | 28,800 | 1,629,382 | ||||||||||
|
| |||||||||||
Managed Health Care – 0.2% | ||||||||||||
Humana, Inc. | 10,061 | 3,223,645 | ||||||||||
|
| |||||||||||
11,935,469 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.7% | ||||||||||||
Construction & Engineering – 0.1% | ||||||||||||
Kajima Corp. | 105,700 | 1,361,049 | ||||||||||
|
| |||||||||||
Electrical Components & Equipment – 0.2% | ||||||||||||
Emerson Electric Co. | 44,673 | 3,032,403 | ||||||||||
|
| |||||||||||
Industrial Conglomerates – 0.1% | ||||||||||||
Hopewell Holdings Ltd. | 467,000 | 1,442,938 | ||||||||||
|
| |||||||||||
Industrial Machinery – 0.3% | ||||||||||||
Dover Corp. | 36,203 | 2,999,057 | ||||||||||
Pentair PLC | 75,140 | 3,016,871 | ||||||||||
|
| |||||||||||
6,015,928 | ||||||||||||
|
| |||||||||||
11,852,318 | ||||||||||||
|
| |||||||||||
Utilities – 0.7% | ||||||||||||
Electric Utilities – 0.3% | ||||||||||||
Exelon Corp. | 43,936 | 1,924,836 | ||||||||||
Power Assets Holdings Ltd. | 84,500 | 564,284 | ||||||||||
Tokyo Electric Power Co. Holdings, Inc.(b) | 295,700 | 1,513,444 | ||||||||||
|
| |||||||||||
4,002,564 | ||||||||||||
|
| |||||||||||
Multi-Utilities – 0.4% | ||||||||||||
Consolidated Edison, Inc. | 8,026 | 609,976 | ||||||||||
Engie SA | 162,581 | 2,160,246 | ||||||||||
RWE AG | 103,177 | 2,007,227 | ||||||||||
Veolia Environnement SA | 108,886 | 2,170,043 | ||||||||||
|
| |||||||||||
6,947,492 | ||||||||||||
|
| |||||||||||
10,950,056 | ||||||||||||
|
|
28 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Consumer Durables & Apparel – 0.6% | ||||||||||||
Apparel, Accessories & Luxury Goods – 0.2% | ||||||||||||
Burberry Group PLC | 72,638 | $ | 1,680,797 | |||||||||
Cie Financiere Richemont SA | 31,369 | 2,292,779 | ||||||||||
|
| |||||||||||
3,973,576 | ||||||||||||
|
| |||||||||||
Consumer Electronics – 0.0% | ||||||||||||
Nikon Corp. | 24,000 | 418,383 | ||||||||||
|
| |||||||||||
Homebuilding – 0.4% | ||||||||||||
Berkeley Group Holdings PLC | 46,413 | 2,074,349 | ||||||||||
Construtora Tenda SA(b) | 241,900 | 1,854,469 | ||||||||||
Corp. GEO SAB de CV Series B(b)(d)(e)(f) | 1,321 | – 0 | – | |||||||||
Desarrolladora Homex SAB de CV(b) | 1,590 | 18 | ||||||||||
MRV Engenharia e Participacoes SA | 550,400 | 1,869,423 | ||||||||||
Urbi Desarrollos Urbanos SAB de CV(b) | 172 | 30 | ||||||||||
|
| |||||||||||
5,798,289 | ||||||||||||
|
| |||||||||||
Household Appliances – 0.0% | ||||||||||||
Electrolux AB – Class B | 20,363 | 423,139 | ||||||||||
|
| |||||||||||
10,613,387 | ||||||||||||
|
| |||||||||||
Food Beverage & Tobacco – 0.6% | ||||||||||||
Agricultural Products – 0.0% | ||||||||||||
Archer-Daniels-Midland Co. | 6,714 | 317,236 | ||||||||||
|
| |||||||||||
Packaged Foods & Meats – 0.2% | ||||||||||||
Hershey Co. (The) | 28,921 | 3,098,885 | ||||||||||
|
| |||||||||||
Soft Drinks – 0.1% | ||||||||||||
Coca-Cola Amatil Ltd. | 208,886 | 1,470,077 | ||||||||||
|
| |||||||||||
Tobacco – 0.3% | ||||||||||||
Altria Group, Inc. | 62,227 | 4,047,244 | ||||||||||
British American Tobacco PLC | 20,270 | 878,710 | ||||||||||
|
| |||||||||||
4,925,954 | ||||||||||||
|
| |||||||||||
9,812,152 | ||||||||||||
|
| |||||||||||
Telecommunication Services – 0.5% | ||||||||||||
Integrated Telecommunication Services – 0.5% | ||||||||||||
Deutsche Telekom AG | 54,170 | 888,479 | ||||||||||
Eurazeo SE | 27,350 | 1,997,301 | ||||||||||
Orange SA | 137,380 | 2,144,275 | ||||||||||
Telenor ASA | 114,937 | 2,107,411 | ||||||||||
Verizon Communications, Inc. | 22,733 | 1,297,827 | ||||||||||
|
| |||||||||||
8,435,293 | ||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 29 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Insurance – 0.5% | ||||||||||||
Life & Health Insurance – 0.4% | ||||||||||||
CNP Assurances | 89,992 | $ | 2,005,695 | |||||||||
Japan Post Holdings Co., Ltd. | 131,700 | 1,561,762 | ||||||||||
Legal & General Group PLC | 665,522 | 2,135,578 | ||||||||||
|
| |||||||||||
5,703,035 | ||||||||||||
|
| |||||||||||
Multi-line Insurance – 0.0% | ||||||||||||
Ageas | 6,005 | 300,461 | ||||||||||
|
| |||||||||||
Property & Casualty Insurance – 0.1% | ||||||||||||
Admiral Group PLC | 80,288 | 2,063,884 | ||||||||||
|
| |||||||||||
8,067,380 | ||||||||||||
|
| |||||||||||
Consumer Services – 0.4% | ||||||||||||
Education Services – 0.0% | ||||||||||||
Benesse Holdings, Inc. | 7,800 | 217,531 | ||||||||||
|
| |||||||||||
Restaurants – 0.4% | ||||||||||||
Compass Group PLC | 50,569 | 994,631 | ||||||||||
McDonald’s Corp. | 23,363 | 4,132,915 | ||||||||||
Starbucks Corp. | 37,114 | 2,162,633 | ||||||||||
|
| |||||||||||
7,290,179 | ||||||||||||
|
| |||||||||||
7,507,710 | ||||||||||||
|
| |||||||||||
Automobiles & Components – 0.3% | ||||||||||||
Automobile Manufacturers – 0.3% | ||||||||||||
Ford Motor Co. | 361,418 | 3,451,542 | ||||||||||
General Motors Co. | 50,655 | 1,853,467 | ||||||||||
Honda Motor Co., Ltd. | 6,000 | 171,273 | ||||||||||
|
| |||||||||||
5,476,282 | ||||||||||||
|
| |||||||||||
Commercial & Professional Services – 0.2% | ||||||||||||
Human Resource & Employment Services – 0.0% | ||||||||||||
ManpowerGroup, Inc. | 1,791 | 136,635 | ||||||||||
|
| |||||||||||
Research & Consulting Services – 0.1% | ||||||||||||
RELX PLC (London) | 66,132 | 1,307,870 | ||||||||||
Wolters Kluwer NV | 8,519 | 483,322 | ||||||||||
|
| |||||||||||
1,791,192 | ||||||||||||
|
| |||||||||||
Security & Alarm Services – 0.1% | ||||||||||||
G4S PLC | 718,818 | 1,972,691 | ||||||||||
|
| |||||||||||
3,900,518 | ||||||||||||
|
|
30 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Household & Personal Products – 0.2% | ||||||||||||
Household Products – 0.2% | ||||||||||||
Kimberly-Clark Corp. | 29,003 | $ | 3,025,013 | |||||||||
|
| |||||||||||
Personal Products – 0.0% | ||||||||||||
L’Oreal SA | 1,311 | 295,376 | ||||||||||
|
| |||||||||||
3,320,389 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment – 0.2% | ||||||||||||
Semiconductors – 0.2% | ||||||||||||
Texas Instruments, Inc. | 35,590 | 3,303,820 | ||||||||||
|
| |||||||||||
Total Common Stocks | 1,115,641,360 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
INFLATION-LINKED SECURITIES – 20.9% | ||||||||||||
Japan – 7.7% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 11,795,560 | 108,667,382 | |||||||||
Series 22 | 2,531,434 | 23,340,527 | ||||||||||
|
| |||||||||||
132,007,909 | ||||||||||||
|
| |||||||||||
United States – 13.2% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 177,876 | 171,900,654 | |||||||||
0.125%, 7/15/26 (TIPS) | 57,892 | 53,885,176 | ||||||||||
|
| |||||||||||
225,785,830 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 357,793,739 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 5.7% | ||||||||||||
Funds and Investment Trusts – 5.7%(h) | ||||||||||||
iShares Global Timber & Forestry ETF | 51,558 | 3,412,109 | ||||||||||
iShares MSCI ACWI ETF | 299,160 | 20,564,258 | ||||||||||
iShares MSCI Global Metals & Mining Producers ETF | 296,360 | 8,748,547 | ||||||||||
SPDR S&P Bank ETF(a) | 500,486 | 21,450,830 | ||||||||||
VanEck Vectors Agribusiness ETF(a) | 138,202 | 8,495,277 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 31 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Vanguard Global ex-U.S. Real Estate ETF | 165,003 | $ | 8,733,609 | |||||||||
Vanguard Real Estate ETF | 336,159 | 26,327,973 | ||||||||||
|
| |||||||||||
Total Investment Companies | 97,732,603 | |||||||||||
|
| |||||||||||
Notional Amount | ||||||||||||
OPTIONS PURCHASED – PUTS – 0.4% | ||||||||||||
Options on Funds and Investment Trusts – 0.2% | ||||||||||||
SPDR S&P 500 ETF Trust | USD | 637,100 | 3,462,638 | |||||||||
|
| |||||||||||
Options on Forward Contracts – 0.2% | ||||||||||||
AUD/USD | AUD | 31,745,000 | 438,185 | |||||||||
CNH/USD | CNH | 373,615,200 | 395,709 | |||||||||
CNH/USD | CNH | 1,237,110,000 | 2,087,913 | |||||||||
EUR/USD | EUR | 23,009,000 | 175,652 | |||||||||
|
| |||||||||||
3,097,459 | ||||||||||||
|
| |||||||||||
Total Options Purchased – Puts | 6,560,097 | |||||||||||
|
|
32 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Notional Amount | U.S. $ Value | |||||||||||
| ||||||||||||
OPTIONS PURCHASED – CALLS – 0.1% | ||||||||||||
Options on Forward Contracts – 0.1% | ||||||||||||
BRL/USD | BRL | 38,252,000 | $ | 22,212 | ||||||||
BRL/USD | BRL | 30,677,400 | 394,087 | |||||||||
TRY/EUR | TRY | 47,939,640 | 223,797 | |||||||||
TRY/USD | TRY | 58,724,800 | 338,538 | |||||||||
ZAR/USD | ZAR | 146,196,000 | 9,216 | |||||||||
|
| |||||||||||
Total Options Purchased – Calls | 987,850 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
WARRANTS – 0.0% | ||||||||||||
Real Estate – 0.0% | ||||||||||||
Diversified Real Estate Activities – 0.0% | ||||||||||||
Eastern & Oriental Bhd, | 12,100 | 72 | ||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 6.2% | ||||||||||||
Investment Companies – 6.2% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 2.08%(h)(i)(j) | 105,546,952 | 105,546,952 | ||||||||||
|
|
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 – 98.6% | $ | 1,684,262,673 | ||||||||||
|
| |||||||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED – 1.0% | ||||||||||||
Investment Companies – 1.0% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 2.08%(h)(i)(j) | 17,529,675 | 17,529,675 | ||||||||||
|
| |||||||||||
Total Investments – 99.6% | 1,701,792,348 | |||||||||||
Other assets less liabilities – 0.4% | 7,661,273 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 1,709,453,621 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at October 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
Bcom Commodity Index Futures | 2,024 | December 2018 | USD | 202 | $ | 17,192,646 | $ | 16,819,440 | $ | (373,206 | ) | |||||||||||||||||
Brent Crude Futures | 6 | November 2018 | USD | 6 | 480,248 | 450,240 | (30,008 | ) | ||||||||||||||||||||
Coffee Robusta Futures | 172 | January 2019 | USD | 2 | 2,946,140 | 2,881,000 | (65,140 | ) | ||||||||||||||||||||
Copper Futures | 22 | December 2018 | USD | 550 | 1,499,936 | 1,462,450 | (37,486 | ) | ||||||||||||||||||||
Gold 100 OZ Futures | 365 | December 2018 | USD | 37 | 44,858,350 | 44,347,500 | (510,850 | ) | ||||||||||||||||||||
Lean Hogs Futures | 101 | December 2018 | USD | 4,040 | 2,119,688 | 2,361,380 | 241,692 | |||||||||||||||||||||
Live Cattle Futures | 140 | December 2018 | USD | 5,600 | 6,560,166 | 6,549,200 | (10,966 | ) | ||||||||||||||||||||
LME Primary Aluminum Futures | 137 | November 2018 | USD | 3 | 7,066,745 | 6,668,475 | (398,270 | ) | ||||||||||||||||||||
LME Primary Aluminum Futures | 128 | December 2018 | USD | 3 | 6,724,027 | 6,267,200 | (456,827 | ) | ||||||||||||||||||||
LME Primary Aluminum Futures | 74 | January 2019 | USD | 2 | 3,644,696 | 3,604,725 | (39,971 | ) | ||||||||||||||||||||
LME Zinc Futures | 202 | December 2018 | USD | 5 | 12,339,473 | 12,699,488 | 360,015 | |||||||||||||||||||||
Natural Gas Futures | 261 | November 2018 | USD | 2,610 | 7,959,226 | 8,511,210 | 551,984 |
34 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at October 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Natural Gas Futures | 1,186 | December 2018 | USD | 11,860 | $ | 36,784,063 | $ | 39,161,720 | $ | 2,377,657 | ||||||||||||||||||
Soybean Futures | 88 | January 2019 | USD | 440 | 3,838,161 | 3,747,700 | (90,461 | ) | ||||||||||||||||||||
WTI Crude Futures | 18 | November 2018 | USD | 18 | 1,347,020 | 1,175,580 | (171,440 | ) | ||||||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 54 | December 2018 | JPY | 5,400,000 | 71,928,297 | 72,087,739 | (159,442 | ) | ||||||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 155 | December 2018 | JPY | 1,550,000 | 20,645,671 | 20,678,114 | (32,443 | ) | ||||||||||||||||||||
Coffee C Futures | 125 | December 2018 | USD | 4,688 | 5,284,609 | 5,282,813 | 1,796 | |||||||||||||||||||||
Corn Futures | 83 | December 2018 | USD | 415 | 1,523,840 | 1,507,487 | 16,353 | |||||||||||||||||||||
Cotton No.2 Futures | 103 | December 2018 | USD | 5,150 | 3,995,327 | 3,958,290 | 37,037 | |||||||||||||||||||||
LME Primary Aluminum Futures | 137 | November 2018 | USD | 3 | 6,871,979 | 6,668,475 | 203,504 | |||||||||||||||||||||
LME Primary Aluminum Futures | 128 | December 2018 | USD | 3 | 6,538,861 | 6,267,200 | 271,661 | |||||||||||||||||||||
LME Zinc Futures | 202 | December 2018 | USD | 5 | 13,252,693 | 12,699,488 | 553,205 | |||||||||||||||||||||
Soybean Meal Futures | 147 | December 2018 | USD | 15 | 4,564,160 | 4,504,080 | 60,080 | |||||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 250 | December 2018 | USD | 50,000 | 52,663,755 | 52,664,062 | (307 | ) | ||||||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 556 | December 2018 | USD | 55,600 | 65,893,920 | 65,851,250 | 42,670 | |||||||||||||||||||||
Wheat Futures (CBT) | 176 | December 2018 | USD | 880 | 4,385,181 | 4,404,400 | (19,219 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | 2,321,618 | |||||||||||||||||||||||||||
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 35 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Australia and New Zealand Banking Group Ltd. | AUD | 14,673 | USD | 10,389 | 12/07/18 | $ | (6,007 | ) | ||||||||||||
Australia and New Zealand Banking Group Ltd. | CNY | 157,705 | USD | 22,766 | 12/13/18 | 192,474 | ||||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 7,800 | CNY | 53,870 | 12/13/18 | (89,393 | ) | |||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 10,634 | JPY | 1,188,752 | 12/13/18 | (63,713 | ) | |||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 47,966 | JPY | 5,377,300 | 12/14/18 | (148,050 | ) | |||||||||||||
Bank of America, NA | BRL | 6,482 | USD | 1,744 | 11/05/18 | 1,780 | ||||||||||||||
Bank of America, NA | USD | 1,764 | BRL | 6,482 | 11/05/18 | (22,039 | ) | |||||||||||||
Bank of America, NA | TRY | 41,973 | USD | 6,819 | 11/09/18 | (654,059 | ) | |||||||||||||
Bank of America, NA | USD | 6,288 | BRL | 23,476 | 11/13/18 | 14,129 | ||||||||||||||
Bank of America, NA | RUB | 17,854 | USD | 270 | 11/14/18 | (1,076 | ) | |||||||||||||
Bank of America, NA | USD | 3,853 | KRW | 4,320,376 | 11/15/18 | (66,886 | ) | |||||||||||||
Bank of America, NA | USD | 5,113 | CAD | 6,630 | 11/16/18 | (75,736 | ) | |||||||||||||
Bank of America, NA | USD | 2,506 | ZAR | 37,562 | 11/29/18 | 31,648 | ||||||||||||||
Bank of America, NA | BRL | 6,482 | USD | 1,760 | 12/04/18 | 22,821 | ||||||||||||||
Bank of America, NA | USD | 22,742 | CNY | 157,705 | 12/13/18 | (169,165 | ) | |||||||||||||
Bank of America, NA | USD | 12,514 | JPY | 1,416,516 | 12/13/18 | 80,766 | ||||||||||||||
Bank of America, NA | GBP | 7,923 | USD | 10,385 | 12/14/18 | 237,158 | ||||||||||||||
Bank of America, NA | EUR | 2,230 | USD | 2,553 | 1/09/19 | 10,561 | ||||||||||||||
Barclays Bank PLC | BRL | 7,202 | USD | 1,954 | 11/05/18 | 19,063 | ||||||||||||||
Barclays Bank PLC | USD | 1,937 | BRL | 7,202 | 11/05/18 | (1,978 | ) | |||||||||||||
Barclays Bank PLC | IDR | 131,712,798 | USD | 8,942 | 11/08/18 | 286,943 | ||||||||||||||
Barclays Bank PLC | USD | 2,812 | IDR | 43,327,742 | 11/08/18 | 35,407 | ||||||||||||||
Barclays Bank PLC | USD | 12,896 | IDR | 190,791,236 | 11/08/18 | (358,742 | ) | |||||||||||||
Barclays Bank PLC | RUB | 226,373 | USD | 3,421 | 11/14/18 | (10,213 | ) | |||||||||||||
Barclays Bank PLC | USD | 8,294 | RUB | 548,852 | 11/14/18 | 24,761 | ||||||||||||||
Barclays Bank PLC | CLP | 969,028 | USD | 1,447 | 11/15/18 | 54,795 | ||||||||||||||
Barclays Bank PLC | KRW | 23,343,664 | USD | 20,664 | 11/15/18 | 208,963 | ||||||||||||||
Barclays Bank PLC | SEK | 37,443 | USD | 4,098 | 11/15/18 | 2,461 | ||||||||||||||
Barclays Bank PLC | USD | 1,288 | COP | 3,935,515 | 11/15/18 | (66,294 | ) | |||||||||||||
Barclays Bank PLC | USD | 18,264 | KRW | 20,367,614 | 11/15/18 | (416,242 | ) | |||||||||||||
Barclays Bank PLC | USD | 2,041 | CAD | 2,667 | 11/16/18 | (15,037 | ) | |||||||||||||
Barclays Bank PLC | MYR | 10,675 | USD | 2,566 | 11/29/18 | 17,344 | ||||||||||||||
Barclays Bank PLC | ZAR | 96,384 | USD | 6,534 | 11/29/18 | 22,447 | ||||||||||||||
Barclays Bank PLC | TWD | 314,044 | USD | 10,200 | 12/11/18 | 26,696 | ||||||||||||||
Barclays Bank PLC | TWD | 106,100 | USD | 3,425 | 12/11/18 | (11,562 | ) | |||||||||||||
Barclays Bank PLC | USD | 11,794 | PHP | 641,533 | 12/11/18 | 207,181 | ||||||||||||||
Barclays Bank PLC | USD | 1,619 | TWD | 49,740 | 12/11/18 | (7,382 | ) | |||||||||||||
Barclays Bank PLC | INR | 2,702,025 | USD | 38,185 | 12/13/18 | 1,885,514 | ||||||||||||||
Barclays Bank PLC | JPY | 228,217 | USD | 2,035 | 12/13/18 | 5,985 | ||||||||||||||
Barclays Bank PLC | JPY | 459,607 | USD | 4,084 | 12/13/18 | (2,438 | ) |
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) | ||||||||||||||||
Barclays Bank PLC | USD | 7,642 | CNY | 52,897 | 12/13/18 | $ | (70,516 | ) | ||||||||||||
Barclays Bank PLC | USD | 2,583 | INR | 193,764 | 12/13/18 | 20,275 | ||||||||||||||
Barclays Bank PLC | USD | 18,751 | INR | 1,367,198 | 12/13/18 | (383,500 | ) | |||||||||||||
Barclays Bank PLC | ZAR | 39,789 | USD | 2,579 | 12/13/18 | (104,469 | ) | |||||||||||||
Barclays Bank PLC | CHF | 19,221 | USD | 19,428 | 12/14/18 | 265,579 | ||||||||||||||
Barclays Bank PLC | ILS | 15,121 | USD | 4,244 | 12/14/18 | 165,618 | ||||||||||||||
Barclays Bank PLC | NOK | 83,766 | USD | 10,111 | 12/14/18 | 155,147 | ||||||||||||||
Barclays Bank PLC | NZD | 1,427 | USD | 931 | 12/14/18 | (567 | ) | |||||||||||||
Barclays Bank PLC | TRY | 44,002 | USD | 6,544 | 12/14/18 | (1,128,311 | ) | |||||||||||||
Barclays Bank PLC | USD | 37,968 | CAD | 49,572 | 12/14/18 | (280,968 | ) | |||||||||||||
Barclays Bank PLC | USD | 6,939 | CNY | 47,960 | 12/14/18 | (74,510 | ) | |||||||||||||
Barclays Bank PLC | USD | 13,888 | NZD | 21,286 | 12/14/18 | 8,463 | ||||||||||||||
Barclays Bank PLC | USD | 6,532 | TRY | 44,002 | 12/14/18 | 1,139,376 | ||||||||||||||
Barclays Bank PLC | TRY | 24,030 | USD | 3,881 | 1/15/19 | (229,540 | ) | |||||||||||||
Barclays Bank PLC | CNY | 153,892 | USD | 22,059 | 1/24/19 | 79,466 | ||||||||||||||
BNP Paribas SA | USD | 1,833 | TRY | 10,139 | 11/09/18 | (27,454 | ) | |||||||||||||
BNP Paribas SA | USD | 5,245 | MXN | 99,400 | 11/14/18 | (358,239 | ) | |||||||||||||
BNP Paribas SA | KRW | 5,812,145 | USD | 5,137 | 11/15/18 | 43,944 | ||||||||||||||
BNP Paribas SA | ILS | 5,799 | USD | 1,628 | 11/29/18 | 65,095 | ||||||||||||||
BNP Paribas SA | USD | 7,648 | AUD | 10,708 | 12/07/18 | (62,169 | ) | |||||||||||||
BNP Paribas SA | TWD | 642,546 | USD | 20,940 | 12/11/18 | 125,538 | ||||||||||||||
BNP Paribas SA | USD | 728 | TWD | 22,320 | 12/11/18 | (4,805 | ) | |||||||||||||
BNP Paribas SA | CNY | 157,705 | USD | 22,783 | 12/13/18 | 210,235 | ||||||||||||||
BNP Paribas SA | USD | 74,338 | CNY | 515,238 | 12/13/18 | (589,238 | ) | |||||||||||||
BNP Paribas SA | CZK | 42,709 | USD | 1,939 | 12/14/18 | 67,548 | ||||||||||||||
BNP Paribas SA | USD | 24,599 | NZD | 38,215 | 12/14/18 | 349,185 | ||||||||||||||
Brown Brothers Harriman & Co. | USD | 11,770 | HKD | 92,167 | 12/14/18 | (1,798 | ) | |||||||||||||
Citibank, NA | ARS | 141,885 | USD | 3,671 | 11/02/18 | (280,821 | ) | |||||||||||||
Citibank, NA | USD | 1,926 | ARS | 69,646 | 11/02/18 | 14,466 | ||||||||||||||
Citibank, NA | USD | 2,408 | ARS | 72,239 | 11/02/18 | (395,738 | ) | |||||||||||||
Citibank, NA | BRL | 86,283 | USD | 23,281 | 11/05/18 | 96,268 | ||||||||||||||
Citibank, NA | BRL | 58,650 | USD | 14,488 | 11/05/18 | (1,272,123 | ) | |||||||||||||
Citibank, NA | USD | 9,028 | BRL | 37,391 | 11/05/18 | 1,018,692 | ||||||||||||||
Citibank, NA | USD | 28,986 | BRL | 107,543 | 11/05/18 | (88,490 | ) | |||||||||||||
Citibank, NA | MXN | 125,716 | USD | 6,591 | 11/14/18 | 411,180 | ||||||||||||||
Citibank, NA | CLP | 8,679,017 | USD | 12,913 | 11/15/18 | 441,789 | ||||||||||||||
Citibank, NA | EUR | 1,820 | SEK | 18,864 | 11/15/18 | (308 | ) | |||||||||||||
Citibank, NA | KRW | 15,039,061 | USD | 13,298 | 11/15/18 | 120,169 | ||||||||||||||
Citibank, NA | SEK | 46,103 | EUR | 4,460 | 11/15/18 | 13,562 | ||||||||||||||
Citibank, NA | USD | 18,920 | CLP | 12,716,787 | 11/15/18 | (647,324 | ) | |||||||||||||
Citibank, NA | USD | 11,422 | KRW | 12,916,729 | 11/15/18 | (103,211 | ) | |||||||||||||
Citibank, NA | CAD | 16,976 | USD | 13,197 | 11/16/18 | 298,088 | ||||||||||||||
Citibank, NA | USD | 4,181 | CAD | 5,430 | 11/16/18 | (55,454 | ) | |||||||||||||
Citibank, NA | USD | 6,451 | ZAR | 92,949 | 11/29/18 | (170,943 | ) | |||||||||||||
Citibank, NA | USD | 9,903 | BRL | 36,308 | 12/04/18 | (175,145 | ) | |||||||||||||
Citibank, NA | AUD | 8,935 | USD | 6,360 | 12/07/18 | 30,086 | ||||||||||||||
Citibank, NA | USD | 2,554 | AUD | 3,575 | 12/07/18 | (21,439 | ) | |||||||||||||
Citibank, NA | USD | 2,562 | NZD | 3,910 | 12/07/18 | (9,819 | ) | |||||||||||||
Citibank, NA | INR | 191,726 | USD | 2,605 | 12/13/18 | 29,280 | ||||||||||||||
Citibank, NA | USD | 5,107 | CNY | 35,627 | 12/13/18 | (7,962 | ) |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 37 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Citibank, NA | USD | 27,548 | INR | 1,922,174 | 12/13/18 | $ | (1,725,231 | ) | ||||||||||||
Citibank, NA | EUR | 29,852 | USD | 34,862 | 12/14/18 | 927,125 | ||||||||||||||
Citibank, NA | GBP | 2,901 | USD | 3,773 | 12/14/18 | 57,145 | ||||||||||||||
Citibank, NA | USD | 2,207 | EUR | 1,866 | 12/14/18 | (85,967 | ) | |||||||||||||
Citibank, NA | USD | 25,826 | JPY | 2,909,911 | 12/14/18 | 50,618 | ||||||||||||||
Citibank, NA | EUR | 1,801 | USD | 2,062 | 1/09/19 | 9,000 | ||||||||||||||
Citibank, NA | USD | 2,714 | EUR | 2,327 | 1/09/19 | (61,790 | ) | |||||||||||||
Credit Suisse International | USD | 8,022 | IDR | 117,116,173 | 11/08/18 | (325,938 | ) | |||||||||||||
Credit Suisse International | COP | 17,613,727 | USD | 5,804 | 11/15/18 | 335,640 | ||||||||||||||
Credit Suisse International | KRW | 4,803,371 | USD | 4,230 | 11/15/18 | 21,175 | ||||||||||||||
Credit Suisse International | NOK | 86,683 | EUR | 9,097 | 11/15/18 | 26,219 | ||||||||||||||
Credit Suisse International | SEK | 126,921 | USD | 14,060 | 11/15/18 | 176,738 | ||||||||||||||
Credit Suisse International | USD | 368 | COP | 1,115,811 | 11/15/18 | (21,262 | ) | |||||||||||||
Credit Suisse International | USD | 7,129 | KRW | 8,043,847 | 11/15/18 | (80,033 | ) | |||||||||||||
Credit Suisse International | USD | 5,115 | NOK | 41,585 | 11/15/18 | (178,853 | ) | |||||||||||||
Credit Suisse International | USD | 5,243 | INR | 363,664 | 12/13/18 | (357,588 | ) | |||||||||||||
Credit Suisse International | AUD | 38,097 | USD | 26,923 | 12/14/18 | (67,252 | ) | |||||||||||||
Credit Suisse International | CZK | 107,168 | USD | 4,754 | 12/14/18 | 58,959 | ||||||||||||||
Credit Suisse International | EUR | 23,155 | USD | 27,126 | 12/14/18 | 803,696 | ||||||||||||||
Credit Suisse International | USD | 10,196 | AUD | 14,158 | 12/14/18 | (165,033 | ) | |||||||||||||
Credit Suisse International | USD | 6,577 | HUF | 1,840,602 | 12/14/18 | (136,330 | ) | |||||||||||||
Credit Suisse International | USD | 5,143 | NZD | 7,796 | 12/14/18 | (53,441 | ) | |||||||||||||
Credit Suisse International | USD | 15,519 | SEK | 140,839 | 12/14/18 | (69,065 | ) | |||||||||||||
Credit Suisse International | USD | 3,664 | TRY | 22,515 | 12/14/18 | 261,988 | ||||||||||||||
Credit Suisse International | USD | 4,845 | TRY | 30,493 | 1/15/19 | 371,495 | ||||||||||||||
Credit Suisse International | AUD | 7,144 | USD | 5,272 | 6/28/19 | 192,914 | ||||||||||||||
Deutsche Bank AG | USD | 2,509 | TRY | 14,760 | 11/09/18 | 119,236 | ||||||||||||||
Deutsche Bank AG | USD | 2,716 | PEN | 9,052 | 11/15/18 | (32,063 | ) | |||||||||||||
Deutsche Bank AG | EUR | 4,486 | USD | 5,240 | 1/09/19 | 125,964 | ||||||||||||||
Goldman Sachs Bank USA | USD | 3,932 | KRW | 4,419,965 | 11/15/18 | (58,960 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 2,532 | CAD | 3,307 | 11/16/18 | (18,819 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 2,701 | BRL | 10,070 | 11/28/18 | (1,048 | ) | |||||||||||||
Goldman Sachs Bank USA | ZAR | 53,909 | USD | 3,624 | 11/29/18 | (18,621 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 1,841 | BRL | 6,842 | 12/04/18 | (8,193 | ) | |||||||||||||
Goldman Sachs Bank USA | JPY | 2,895,137 | USD | 25,594 | 12/13/18 | (148,069 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 20,630 | INR | 1,434,995 | 12/13/18 | (1,351,534 | ) | |||||||||||||
Goldman Sachs Bank USA | CAD | 36,574 | USD | 28,185 | 12/14/18 | 379,502 | ||||||||||||||
Goldman Sachs Bank USA | GBP | 11,164 | USD | 14,598 | 12/14/18 | 298,301 | ||||||||||||||
Goldman Sachs Bank USA | MXN | 162,405 | USD | 8,384 | 12/14/18 | 440,319 | ||||||||||||||
Goldman Sachs Bank USA | TRY | 15,650 | USD | 2,290 | 12/14/18 | (438,176 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 26,315 | JPY | 2,940,077 | 12/14/18 | (169,934 | ) | |||||||||||||
Goldman Sachs Bank USA | USD | 9,865 | MXN | 191,090 | 12/14/18 | (518,090 | ) | |||||||||||||
HSBC Bank USA | KRW | 5,838,829 | USD | 5,255 | 11/15/18 | 138,188 | ||||||||||||||
HSBC Bank USA | USD | 3,144 | CLP | 2,137,519 | 11/15/18 | (72,510 | ) | |||||||||||||
HSBC Bank USA | USD | 4,221 | CAD | 5,531 | 11/16/18 | (18,850 | ) | |||||||||||||
HSBC Bank USA | MXN | 201,042 | USD | 10,533 | 12/05/18 | 685,552 | ||||||||||||||
HSBC Bank USA | JPY | 568,715 | AUD | 7,145 | 12/07/18 | 8,164 | ||||||||||||||
HSBC Bank USA | NZD | 4,067 | USD | 2,623 | 12/07/18 | (31,907 | ) | |||||||||||||
HSBC Bank USA | CNY | 802,015 | USD | 115,137 | 12/13/18 | 339,879 | ||||||||||||||
HSBC Bank USA | INR | 210,210 | USD | 2,880 | 12/13/18 | 55,775 | ||||||||||||||
HSBC Bank USA | USD | 4,156 | JPY | 462,622 | 12/13/18 | (42,819 | ) |
38 | 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) | ||||||||||||||||
HSBC Bank USA | GBP | 1,616 | USD | 2,103 | 12/14/18 | $ | 32,666 | |||||||||||||
HSBC Bank USA | AUD | 3,783 | USD | 2,705 | 6/28/19 | 15,047 | ||||||||||||||
JPMorgan Chase Bank, NA | BRL | 4,586 | USD | 1,234 | 11/05/18 | 1,260 | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,239 | BRL | 4,586 | 11/05/18 | (6,926 | ) | |||||||||||||
JPMorgan Chase Bank, NA | KRW | 14,396,454 | USD | 12,787 | 11/15/18 | 171,730 | ||||||||||||||
JPMorgan Chase Bank, NA | NOK | 65,012 | USD | 7,852 | 11/15/18 | 135,709 | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 5,162 | KRW | 5,779,001 | 11/15/18 | (98,214 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 25,814 | NOK | 210,176 | 11/15/18 | (868,076 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 6,346 | SEK | 56,718 | 11/15/18 | (141,949 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 3,448 | BRL | 12,573 | 12/04/18 | (79,743 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 11,324 | JPY | 1,266,730 | 12/13/18 | (60,930 | ) | |||||||||||||
JPMorgan Chase Bank, NA | CNY | 94,954 | USD | 13,751 | 12/14/18 | 160,347 | ||||||||||||||
JPMorgan Chase Bank, NA | GBP | 6,451 | USD | 8,541 | 12/14/18 | 278,988 | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 17,897 | NOK | 148,046 | 12/14/18 | (301,215 | ) | |||||||||||||
JPMorgan Chase Bank, NA | USD | 580 | ZAR | 8,848 | 12/14/18 | 17,117 | ||||||||||||||
JPMorgan Chase Bank, NA | EUR | 3,602 | USD | 4,126 | 1/09/19 | 20,070 | ||||||||||||||
JPMorgan Chase Bank, NA | USD | 7,953 | EUR | 6,856 | 1/09/19 | (137,401 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | BRL | 21,667 | USD | 5,828 | 11/05/18 | 5,951 | ||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 16,183 | USD | 4,315 | 11/05/18 | (33,624 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 5,246 | BRL | 21,667 | 11/05/18 | 576,566 | ||||||||||||||
Morgan Stanley & Co., Inc. | USD | 4,353 | BRL | 16,183 | 11/05/18 | (4,445 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | BRL | 23,476 | USD | 6,288 | 11/13/18 | (14,179 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | PEN | 38,953 | USD | 11,635 | 11/15/18 | 85,611 | ||||||||||||||
Morgan Stanley & Co., Inc. | USD | 2,632 | KRW | 2,941,791 | 11/15/18 | (54,234 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 19,457 | SEK | 172,545 | 11/15/18 | (583,204 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | BRL | 10,171 | USD | 2,701 | 11/28/18 | (25,670 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 2,557 | ZAR | 37,162 | 11/29/18 | (46,061 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | NZD | 12,724 | USD | 8,210 | 12/07/18 | (95,422 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 5,190 | INR | 377,456 | 12/13/18 | (119,205 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 4,076 | JPY | 456,434 | 12/13/18 | (18,006 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | GBP | 33,398 | USD | 43,635 | 12/14/18 | 856,767 | ||||||||||||||
Morgan Stanley & Co., Inc. | HKD | 32,766 | USD | 4,181 | 12/14/18 | (2,577 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | JPY | 20,572,221 | USD | 185,761 | 12/14/18 | 2,821,427 | ||||||||||||||
Morgan Stanley & Co., Inc. | PLN | 3,822 | USD | 1,030 | 12/14/18 | 33,385 | ||||||||||||||
Morgan Stanley & Co., Inc. | SEK | 290,645 | USD | 32,387 | 12/14/18 | 502,964 | ||||||||||||||
Morgan Stanley & Co., Inc. | USD | 25,230 | AUD | 35,407 | 12/14/18 | (144,719 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | USD | 14,804 | JPY | 1,639,530 | 12/14/18 | (224,857 | ) | |||||||||||||
Morgan Stanley & Co., Inc. | SGD | 919 | USD | 668 | 1/24/19 | 3,373 | ||||||||||||||
Morgan Stanley & Co., Inc. | AUD | 3,546 | USD | 2,627 | 6/28/19 | 106,112 | ||||||||||||||
Morgan Stanley & Co., Inc. | USD | 10,678 | AUD | 14,460 | 6/28/19 | (396,862 | ) | |||||||||||||
Natwest Markets PLC | BRL | 4,586 | USD | 1,241 | 11/05/18 | 9,174 | ||||||||||||||
Natwest Markets PLC | USD | 1,234 | BRL | 4,586 | 11/05/18 | (1,260 | ) | |||||||||||||
Natwest Markets PLC | USD | 6,741 | TRY | 41,110 | 11/09/18 | 578,166 | ||||||||||||||
Natwest Markets PLC | CLP | 7,116,714 | USD | 10,504 | 11/15/18 | 277,963 | ||||||||||||||
Natwest Markets PLC | COP | 30,427,386 | USD | 9,918 | 11/15/18 | 472,513 | ||||||||||||||
Natwest Markets PLC | KRW | 7,640,941 | USD | 6,750 | 11/15/18 | 54,675 | ||||||||||||||
Natwest Markets PLC | KRW | 7,016,408 | USD | 6,142 | 11/15/18 | (6,552 | ) | |||||||||||||
Natwest Markets PLC | CAD | 5,491 | USD | 4,190 | 11/16/18 | 17,911 | ||||||||||||||
Natwest Markets PLC | ARS | 193,178 | USD | 5,070 | 11/28/18 | (140,290 | ) | |||||||||||||
Natwest Markets PLC | MXN | 80,892 | USD | 4,158 | 12/05/18 | 195,153 | ||||||||||||||
Natwest Markets PLC | TWD | 156,570 | USD | 5,109 | 12/11/18 | 37,037 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 39 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Natwest Markets PLC | USD | 13,026 | TWD | 397,805 | 12/11/18 | $ | (139,579 | ) | ||||||||||||
Natwest Markets PLC | INR | 1,126,102 | USD | 15,328 | 12/13/18 | 199,654 | ||||||||||||||
Natwest Markets PLC | USD | 10,210 | INR | 752,617 | 12/13/18 | (99,261 | ) | |||||||||||||
Natwest Markets PLC | USD | 13,265 | JPY | 1,495,036 | 12/13/18 | 28,406 | ||||||||||||||
Natwest Markets PLC | CAD | 9,824 | USD | 7,496 | 12/14/18 | 27,393 | ||||||||||||||
Natwest Markets PLC | EUR | 5,959 | USD | 6,889 | 12/14/18 | 114,868 | ||||||||||||||
Natwest Markets PLC | USD | 6,228 | SGD | 8,555 | 12/14/18 | (46,823 | ) | |||||||||||||
Natwest Markets PLC | EUR | 1,799 | USD | 2,059 | 1/09/19 | 8,106 | ||||||||||||||
Natwest Markets PLC | USD | 5,124 | EUR | 4,411 | 1/09/19 | (94,823 | ) | |||||||||||||
Nomura Global Financial Products, Inc. | THB | 80,190 | USD | 2,448 | 12/14/18 | 26,393 | ||||||||||||||
Standard Chartered Bank | TRY | 9,505 | USD | 1,670 | 11/09/18 | (22,127 | ) | |||||||||||||
Standard Chartered Bank | EUR | 11,914 | USD | 13,764 | 11/15/18 | 256,568 | ||||||||||||||
Standard Chartered Bank | NOK | 17,426 | USD | 2,126 | 11/15/18 | 57,828 | ||||||||||||||
Standard Chartered Bank | USD | 6,937 | CAD | 8,986 | 11/16/18 | (109,857 | ) | |||||||||||||
Standard Chartered Bank | USD | 793 | AUD | 1,113 | 12/07/18 | (4,474 | ) | |||||||||||||
Standard Chartered Bank | USD | 1,867 | NZD | 2,839 | 12/07/18 | (13,285 | ) | |||||||||||||
Standard Chartered Bank | JPY | 500,039 | USD | 4,479 | 12/13/18 | 32,682 | ||||||||||||||
Standard Chartered Bank | USD | 3,466 | CNY | 24,048 | 12/13/18 | (24,051 | ) | |||||||||||||
Standard Chartered Bank | USD | 1,714 | GBP | 1,302 | 12/14/18 | (46,647 | ) | |||||||||||||
Standard Chartered Bank | USD | 8,278 | EUR | 7,154 | 1/09/19 | (123,012 | ) | |||||||||||||
State Street Bank & Trust Co. | CAD | 261 | USD | 202 | 11/16/18 | 4,059 | ||||||||||||||
State Street Bank & Trust Co. | USD | 19,685 | MYR | 79,360 | 11/29/18 | (739,748 | ) | |||||||||||||
State Street Bank & Trust Co. | NZD | 3,918 | USD | 2,531 | 12/07/18 | (26,439 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 2,555 | JPY | 285,097 | 12/13/18 | (19,975 | ) | |||||||||||||
State Street Bank & Trust Co. | CHF | 22,923 | USD | 23,810 | 12/14/18 | 956,568 | ||||||||||||||
State Street Bank & Trust Co. | EUR | 1,866 | USD | 2,179 | 12/14/18 | 58,229 | ||||||||||||||
State Street Bank & Trust Co. | GBP | 1,113 | USD | 1,467 | 12/14/18 | 41,563 | ||||||||||||||
State Street Bank & Trust Co. | SEK | 18,958 | USD | 2,118 | 12/14/18 | 38,606 | ||||||||||||||
State Street Bank & Trust Co. | USD | 13,669 | AUD | 19,286 | 12/14/18 | (5,829 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 9,597 | CHF | 9,239 | 12/14/18 | (385,544 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 7,171 | THB | 234,544 | 12/14/18 | (87,157 | ) | |||||||||||||
State Street Bank & Trust Co. | ZAR | 166 | USD | 11 | 12/14/18 | (322 | ) | |||||||||||||
State Street Bank & Trust Co. | USD | 551 | CHF | 539 | 1/17/19 | (12,163 | ) | |||||||||||||
UBS AG | CAD | 10,185 | USD | 7,935 | 11/16/18 | 196,169 | ||||||||||||||
UBS AG | CNY | 43,948 | USD | 6,325 | 12/13/18 | 34,208 | ||||||||||||||
UBS AG | JPY | 1,825,736 | USD | 16,287 | 12/13/18 | 53,797 | ||||||||||||||
UBS AG | USD | 13,294 | JPY | 1,485,940 | 12/13/18 | (81,164 | ) | |||||||||||||
UBS AG | JPY | 2,471,895 | USD | 22,038 | 12/14/18 | 56,602 | ||||||||||||||
UBS AG | EUR | 7,358 | USD | 8,515 | 1/09/19 | 127,514 | ||||||||||||||
|
| |||||||||||||||||||
$ | 3,552,283 | |||||||||||||||||||
|
|
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(k) | Morgan Stanley & Co. | 12,742 | USD | 249.00 | | November 2018 | | USD | 1,274 | $ | 2,305,835 | $ | (866,456 | ) | ||||||||||||||||||||
SPDR S&P 500 ETF Trust(k) | Morgan Stanley & Co. | 6,371 | USD | 259.00 | | November 2018 | | USD | 637 | 853,484 | (1,073,514 | ) | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||
$ | 3,159,319 | $ | (1,939,970 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
40 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED 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 |
| |||||||||||||||||||||||||||
AUD vs. USD/ Morgan Stanley Capital Services LLC(l) | AUD | 1.282 | 06/2019 | 31,745,000 | AUD | 31,745 | $ | 329,573 | $ | (88,212 | ) | |||||||||||||||||
Put | ||||||||||||||||||||||||||||
BRL vs. USD/Bank of America, NA(l) | BRL | 4.580 | 11/2018 | 36,026,280 | BRL | 36,026 | 146,111 | (2,236 | ) | |||||||||||||||||||
BRL vs. USD/Deutsche Bank AG(l) | BRL | 4.560 | 11/2018 | 59,644,800 | BRL | 59,645 | 167,816 | (3,750 | ) | |||||||||||||||||||
BRL vs. USD/Morgan Stanley Capital Services LLC(l) | BRL | 3.880 | 11/2018 | 40,662,400 | BRL | 40,662 | 143,838 | (10,435 | ) | |||||||||||||||||||
TRY vs. EUR/JPMorgan Chase Bank, NA(l) | TRY | 7.510 | 01/2019 | 55,303,640 | TRY | 55,304 | 141,843 | (99,039 | ) | |||||||||||||||||||
TRY vs. USD/Goldman Sachs Bank USA(l) | TRY | 7.000 | 12/2018 | 92,610,000 | TRY | 92,610 | 136,004 | (15,872 | ) | |||||||||||||||||||
TRY vs. USD/Barclays Bank PLC(l) | TRY | 6.900 | 01/2019 | 70,104,000 | TRY | 70,104 | 227,279 | (74,311 | ) | |||||||||||||||||||
TRY vs. USD/JPMorgan Chase Bank, NA(l) | TRY | 7.380 | 12/2018 | 96,530,400 | TRY | 96,530 | 312,076 | (24,454 | ) | |||||||||||||||||||
ZAR vs. USD/JPMorgan Chase Bank, NA(l) | ZAR | 14.900 | 11/2018 | 156,152,000 | ZAR | 156,152 | 94,006 | (124,668 | ) | |||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
$ | 1,698,546 | $ | (442,977 | ) | ||||||||||||||||||||||||
|
|
|
|
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||
Swap Counterparty | Notional | 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 | $ | (480,958 | ) | |||||||||||||||
Citibank, NA | USD | 7,920 | 3/08/21 | 2.200 | % | CPI | # | Maturity | (15,342 | ) | ||||||||||||||||
Deutsche Bank AG | USD | 66,990 | 3/20/21 | 2.221 | % | CPI | # | Maturity | (207,593 | ) | ||||||||||||||||
Deutsche Bank AG | USD | 12,504 | 3/26/25 | 2.170 | % | CPI | # | Maturity | 46,817 | |||||||||||||||||
HSBC Bank USA | USD | 247,500 | 4/15/21 | 2.265 | % | CPI | # | Maturity | (408,828 | ) |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 41 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Rate Type | ||||||||||||||||||||||||||
Swap Counterparty | Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 63,990 | 5/23/22 | 2.318 | % | CPI | # | Maturity | $ | (249,365 | ) | |||||||||||||||
JPMorgan Chase Bank, NA | USD | 11,499 | 3/30/25 | 2.170 | % | CPI | # | Maturity | 44,393 | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 76,719 | 4/01/25 | 2.170 | % | CPI | # | Maturity | 288,520 | |||||||||||||||||
|
| |||||||||||||||||||||||||
$ | (982,356 | ) | ||||||||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
TOTAL RETURN SWAPS (see Note D)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | 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(1) | 142,513 | 0.02 | % | Quarterly | USD | 28,539 | 5/15/19 | $ | 546,111 | |||||||||||||||||||
Barclays Commodity Hedging Insights 2 Index | 65,388 | 0.02 | % | Quarterly | USD | 13,094 | 5/15/19 | 250,568 | ||||||||||||||||||||
Barclays Commodity Hedging Insights 2 Index(2) | 139,225 | 0.02 | % | Maturity | USD | 28,064 | 10/15/19 | 351,410 | ||||||||||||||||||||
Barclays Commodity Hedging Insights 2 Index(3) | 29,646 | 0.30 | % | Maturity | USD | 17,312 | 10/15/19 | (482,698 | ) | |||||||||||||||||||
Barclays Commodity Strategy 1673 Index | 16,725 | 0.30 | % | Quarterly | USD | 9,572 | 5/15/19 | (84,120 | ) | |||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||
Goldman Sachs Commodity Trend 10% Volatility Target Excess Return Strategy | 16,613 | 0.00 | % | Quarterly | USD | 1,669 | 5/15/19 | (47,585 | ) | |||||||||||||||||||
Goldman Sachs Commodity Trend 10% Volatility Target Excess Return Strategy | 66,627 | 0.00 | % | Quarterly | USD | 6,695 | 5/15/19 | (190,843 | ) |
42 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Goldman Sachs Commodity Trend 10% Volatility Target Excess Return Strategy | 79,797 | 0.00 | % | Maturity | USD | 8,093 | 10/15/19 | $ | (303,576 | ) | ||||||||||||||||||
JPMorgan Chase Bank, NA | ||||||||||||||||||||||||||||
Bloomberg Industrial Metals Subindex 3 Month Forward | 396,771 | 0.12 | % | Maturity | USD | 70,918 | 12/17/18 | (701,414 | ) | |||||||||||||||||||
Bloomberg Petroleum Subindex 3 Month Forward | 207,248 | 0.11 | % | Maturity | USD | 103,066 | 12/17/18 | (3,254,014 | ) | |||||||||||||||||||
Bloomberg Precious Metals Subindex 3 Month Forward | 338,725 | 0.11 | % | Maturity | USD | 54,619 | 12/17/18 | 383,997 | ||||||||||||||||||||
Bloomberg Softs Subindex 3 Month Forward | 440,691 | 0.18 | % | Maturity | USD | 28,512 | 12/17/18 | 2,878,193 | ||||||||||||||||||||
JPMorgan Cross Sectional Momentum R | 9,882 | 0.48 | % | Quarterly | USD | 2,194 | 5/15/19 | (57,478 | ) | |||||||||||||||||||
JPMorgan Cross Sectional Momentum R | 48,975 | 0.48 | % | Quarterly | USD | 10,875 | 5/15/19 | (284,858 | ) | |||||||||||||||||||
JPMorgan Cross Sectional Momentum R | 62,664 | 0.48 | % | Maturity | USD | 14,187 | 10/15/19 | (621,179 | ) | |||||||||||||||||||
JPMorgan JMABRF34 Index(4) | 13,787 | 0.60 | % | Quarterly | USD | 24,059 | 5/15/19 | 110,193 | ||||||||||||||||||||
JPMorgan JMABRF34 Index | 2,783 | 0.60 | % | Quarterly | USD | 4,857 | 5/15/19 | 22,243 | ||||||||||||||||||||
JPMorgan JMABRF34 Index(5) | 18,096 | 0.60 | % | Maturity | USD | 32,236 | 10/15/19 | (466,478 | ) | |||||||||||||||||||
JPMorgan RCI – 24 Alpha | 39,427 | 0.50 | % | Quarterly | USD | 11,002 | 5/15/19 | (268,647 | ) | |||||||||||||||||||
JPMorgan RCI – 24 Alpha | 49,909 | 0.50 | % | Maturity | USD | 14,118 | 10/15/19 | (513,958 | ) | |||||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||
Bloomberg Grains Subindex 3 Month Forward | 1,938,041 | 0.15 | % | Maturity | USD | 108,387 | 12/17/18 | 1,569,159 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 43 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Bloomberg Livestock Subindex 3 Month Forward | 194,624 | 0.16 | % | Maturity | USD | 28,068 | 12/17/18 | $ | 53,333 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (1,111,641 | ) | ||||||||||||||||||||||||||
|
|
(a) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(b) | Non-income producing security. |
(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 October 31, 2018, the aggregate market value of these securities amounted to $9,526,512 or 0.6% 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. |
(k) | One contract relates to 100 shares. |
(l) | One contract relates to 1 share. |
Currency Abbreviations:
ARS – Argentine Peso AUD – Australian Dollar BRL – Brazilian Real CAD – Canadian Dollar CHF – Swiss Franc CLP – Chilean Peso CNH – Chinese Yuan Renminbi (Offshore) CNY – Chinese Yuan Renminbi COP – Colombian Peso CZK – Czech Koruna EUR – Euro GBP – Great British Pound HKD – Hong Kong Dollar HUF – Hungarian Forint IDR – Indonesian Rupiah ILS – Israeli Shekel | INR – Indian Rupee JPY – Japanese Yen KRW – South Korean Won MXN – Mexican Peso MYR – Malaysian Ringgit NOK – Norwegian Krone NZD – New Zealand Dollar PEN – Peruvian Sol PHP – Philippine Peso PLN – Polish Zloty RUB – Russian Ruble SEK – Swedish Krona SGD – Singapore Dollar THB – Thailand Baht TRY – Turkish Lira TWD – New Taiwan Dollar USD – United States Dollar ZAR – South African Rand |
44 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
Glossary:
ADR – American Depositary Receipt
CBT – Chicago Board of Trade
CPI – Consumer Price Index
ETF – Exchange Traded Fund
GDR – Global Depositary Receipt
LME – London Metal Exchange
MSCI – Morgan Stanley Capital International
OSE – Osaka Securities Exchange
PJSC – Public Joint Stock Company
REIT – Real Estate Investment Trust
SPDR – Standard & Poor’s Depository Receipt
TIPS – Treasury Inflation Protected Security
WTI – West Texas Intermediate
(1) | The following table represents the (long/short) basket holdings underlying the total return swap with BCCFHI2P as of October 31, 2018. |
Security Description | Shares | Notional Amount as of 10/31/18 | Percent of Basket’s Value | |||||||||
Natural Gas Futures | (554,852 | ) | $ | (1,809,373 | ) | (6.3 | )% | |||||
Lean Hogs Futures | (30,858 | ) | (1,803,665 | ) | (6.3 | )% | ||||||
Cattle Feeder Futures | 11,938 | 1,792,249 | 6.3 | % | ||||||||
Cocoa Futures | 795 | 1,775,126 | 6.2 | % | ||||||||
Soybean Futures | 2,084 | 1,775,126 | 6.2 | % | ||||||||
Wheat (CBT) Futures | (3,541 | ) | (1,772,272 | ) | (6.2 | )% | ||||||
Live Cattle Futures | (15,105 | ) | (1,766,564 | ) | (6.2 | )% | ||||||
KC HRW Wheat Futures | (3,576 | ) | (1,763,710 | ) | (6.2 | )% | ||||||
Gold 100 oz. Futures | 1,447 | 1,758,002 | 6.2 | % | ||||||||
Cotton No.2 Futures | 22,761 | 1,749,441 | 6.1 | % | ||||||||
Silver Futures | 121,693 | 1,738,025 | 6.1 | % | ||||||||
Copper Futures | 6,526 | 1,735,171 | 6.1 | % | ||||||||
Sugar #11 (World) Futures | (129,172 | ) | (1,703,778 | ) | (6.0 | )% | ||||||
WTI Crude Oil Futures | 19,839 | 1,295,671 | 4.5 | % | ||||||||
Gasoline RBOB Futures | (7,398 | ) | (1,295,671 | ) | (4.5 | )% | ||||||
NY Harbor ULSD Futures | (3,879 | ) | (873,293 | ) | (3.1 | )% | ||||||
Corn Futures | (1,218 | ) | (442,355 | ) | (1.6 | )% | ||||||
Coffee ‘C’ Futures | (3,748 | ) | (422,377 | ) | (1.5 | )% |
(2) | The following table represents the (long/short) basket holdings underlying the total return swap with BCCFHI2P as of October 31, 2018. |
Security Description | Shares | Notional Amount as of 10/31/18 | Percent of Basket’s Value | |||||||||
Natural Gas Futures | (545,617 | ) | $ | (1,779,258 | ) | (6.3 | )% | |||||
Lean Hogs Futures | (30,345 | ) | (1,773,645 | ) | (6.3 | )% | ||||||
Cattle Feeder Futures | 11,740 | 1,762,419 | 6.3 | % | ||||||||
Cocoa Futures | 781 | 1,745,581 | 6.2 | % | ||||||||
Soybean Futures | 2,049 | 1,745,581 | 6.2 | % | ||||||||
Wheat (CBT) Futures | (3,482 | ) | (1,742,774 | ) | (6.2 | )% | ||||||
Live Cattle Futures | (14,854 | ) | (1,737,162 | ) | (6.2 | )% | ||||||
KC HRW Wheat Futures | (3,516 | ) | (1,734,355 | ) | (6.2 | )% | ||||||
Gold 100 oz. Futures | 1,423 | 1,728,742 | 6.2 | % | ||||||||
Cotton No.2 Futures | 22,383 | 1,720,323 | 6.1 | % | ||||||||
Silver Futures | 119,668 | 1,709,098 | 6.1 | % | ||||||||
Copper Futures | 6,417 | 1,706,291 | 6.1 | % | ||||||||
Sugar #11 (World) Futures | (127,022 | ) | (1,675,421 | ) | (6.0 | )% | ||||||
WTI Crude Oil Futures | 19,509 | 1,274,106 | 4.5 | % | ||||||||
Gasoline RBOB Futures | (7,275 | ) | (1,274,106 | ) | (4.5 | )% | ||||||
NY Harbor ULSD Futures | (3,814 | ) | (858,758 | ) | (3.1 | )% | ||||||
Corn Futures | (1,198 | ) | (434,992 | ) | (1.6 | )% | ||||||
Coffee ‘C’ Futures | (3,685 | ) | (415,347 | ) | (1.5 | )% |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 45 |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
(3) | The following table represents the (long/short) basket holdings underlying the total return swap with BCCFHI2P as of October 31, 2018. |
Security Description | Shares | Notional Amount as of 10/31/18 | Percent of Basket’s Value | |||||||||
Natural Gas Futures | (336,578 | ) | $ | (1,097,581 | ) | (6.3 | )% | |||||
Lean Hogs Futures | (18,719 | ) | (1,094,118 | ) | (6.3 | )% | ||||||
Cattle Feeder Futures | 7,242 | 1,087,194 | 6.3 | % | ||||||||
Cocoa Futures | 482 | 1,076,806 | 6.2 | % | ||||||||
Soybean Futures | 1,264 | 1,076,806 | 6.2 | % | ||||||||
Wheat (CBT) Futures | (2,148 | ) | (1,075,075 | ) | (6.2 | )% | ||||||
Live Cattle Futures | (9,163 | ) | (1,071,613 | ) | (6.2 | )% | ||||||
KC HRW Wheat Futures | (2,169 | ) | (1,069,882 | ) | (6.2 | )% | ||||||
Gold 100 oz. Futures | 878 | 1,066,419 | 6.2 | % | ||||||||
Cotton No.2 Futures | 13,807 | 1,061,226 | 6.1 | % | ||||||||
Silver Futures | 73,820 | 1,054,301 | 6.1 | % | ||||||||
Copper Futures | 3,959 | 1,052,570 | 6.1 | % | ||||||||
Sugar #11 (World) Futures | (78,357 | ) | (1,033,526 | ) | (6.0 | )% | ||||||
WTI Crude Oil Futures | 12,034 | 785,965 | 4.5 | % | ||||||||
Gasoline RBOB Futures | (4,488 | ) | (785,965 | ) | (4.5 | )% | ||||||
NY Harbor ULSD Futures | (2,353 | ) | (529,747 | ) | (3.1 | )% | ||||||
Corn Futures | (739 | ) | (268,336 | ) | (1.6 | )% | ||||||
Coffee ‘C’ Futures | (2,273 | ) | (256,218 | ) | (1.5 | )% |
(4) | The following table represents the 50 largest (long/short) basket holdings underlying the total return swap with JMABRCSM as of October 31, 2018. |
Security Description | Shares | Notional Amount as of 10/31/18 | Percent of Basket’s Value | |||||||||
Soybean Futures | (2,692 | ) | $ | (2,293,234 | ) | (9.5 | )% | |||||
Silver Futures | (144,268 | ) | (2,060,441 | ) | (8.6 | )% | ||||||
Low Sulphur Gasoil Futures | 2,840 | 1,985,048 | 8.3 | % | ||||||||
Gold 100 oz. Futures | (1,516 | ) | (1,841,388 | ) | (7.7 | )% | ||||||
Brent Crude Oil Futures | 20,909 | 1,568,984 | 6.5 | % | ||||||||
Coffee ‘C’ Futures | (13,177 | ) | (1,485,050 | ) | (6.2 | )% | ||||||
NY Harbor ULSD Futures | 6,352 | 1,429,989 | 5.9 | % | ||||||||
WTI Crude Oil Futures | 21,375 | 1,395,973 | 5.8 | % | ||||||||
LME Copper Futures | (203 | ) | (1,220,777 | ) | (5.1 | )% | ||||||
Cotton No.2 Futures | 15,759 | 1,211,238 | 5.0 | % | ||||||||
LME Lead Futures | (628 | ) | (1,208,578 | ) | (5.0 | )% | ||||||
LME Zinc Futures | (439 | ) | (1,104,395 | ) | (4.6 | )% | ||||||
Gasoline RBOB Futures | 4,875 | 853,753 | 3.5 | % | ||||||||
Natural Gas Futures | 238,457 | 777,609 | 3.2 | % | ||||||||
Corn Futures | (1,969 | ) | (715,396 | ) | (3.0 | )% | ||||||
Sugar #11 (World) Futures | (44,060 | ) | (581,148 | ) | (2.4 | )% | ||||||
Live Cattle Futures | (4,260 | ) | (498,214 | ) | (2.1 | )% | ||||||
Cocoa Futures | 222 | 496,097 | 2.1 | % | ||||||||
Wheat (CBT) Futures | 870 | 435,321 | 1.8 | % | ||||||||
Cattle Feeder Futures | (1,978 | ) | (296,916 | ) | (1.2 | )% | ||||||
LME Nickel Futures | 25 | 291,134 | 1.2 | % | ||||||||
KC HRW Wheat Futures | 368 | 181,273 | 0.8 | % | ||||||||
LME PRI Aluminum Futures | (38 | ) | (74,284 | ) | (0.3 | )% | ||||||
Lean Hogs Futures | 903 | 52,759 | 0.2 | % |
46 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED PORTFOLIO OF INVESTMENTS (continued)
(5) | The following table represents the 50 largest (long/short) basket holdings underlying the total return swap with JMABRCSM as of October 31, 2018. |
Security Description | Shares | Notional Amount as of 10/31/18 | Percent of Basket’s Value | |||||||||
Soybean Futures | (3,607 | ) | $ | (3,072,642 | ) | (9.5 | )% | |||||
Silver Futures | (193,301 | ) | (2,760,729 | ) | (8.6 | )% | ||||||
Low Sulphur Gasoil Futures | 3,805 | 2,659,711 | 8.3 | % | ||||||||
Gold 100 oz. Futures | (2,031 | ) | (2,467,226 | ) | (7.7 | )% | ||||||
Brent Crude Oil Futures | 28,015 | 2,102,239 | 6.5 | % | ||||||||
Coffee ‘C’ Futures | (17,656 | ) | (1,989,778 | ) | (6.2 | )% | ||||||
NY Harbor ULSD Futures | 8,510 | 1,916,004 | 5.9 | % | ||||||||
WTI Crude Oil Futures | 28,639 | 1,870,426 | 5.8 | % | ||||||||
LME Copper Futures | (273 | ) | (1,635,686 | ) | (5.1 | )% | ||||||
Cotton No.2 Futures | 21,115 | 1,622,905 | 5.0 | % | ||||||||
LME Lead Futures | (842 | ) | (1,619,341 | ) | (5.0 | )% | ||||||
LME Zinc Futures | (588 | ) | (1,479,749 | ) | (4.6 | )% | ||||||
Gasoline RBOB Futures | 6,531 | 1,143,920 | 3.5 | % | ||||||||
Natural Gas Futures | 319,502 | 1,041,898 | 3.2 | % | ||||||||
Corn Futures | (2,639 | ) | (958,540 | ) | (3.0 | )% | ||||||
Sugar #11 (World) Futures | (59,034 | ) | (778,664 | ) | (2.4 | )% | ||||||
Live Cattle Futures | (5,708 | ) | (667,543 | ) | (2.1 | )% | ||||||
Cocoa Futures | 298 | 664,707 | 2.1 | % | ||||||||
Wheat (CBT) Futures | 1,165 | 583,274 | 1.8 | % | ||||||||
Cattle Feeder Futures | (2,650 | ) | (397,830 | ) | (1.2 | )% | ||||||
LME Nickel Futures | 34 | 390,083 | 1.2 | % | ||||||||
KC HRW Wheat Futures | 492 | 242,883 | 0.8 | % | ||||||||
LME PRI Aluminum Futures | (51 | ) | (99,531 | ) | (0.3 | )% | ||||||
Lean Hogs Futures | 1,209 | 70,690 | 0.2 | % |
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 47 |
CONSOLIDATED STATEMENT OF ASSETS & LIABILITIES
October 31, 2018
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $1,626,458,172) | $ | 1,578,715,721 | (a) | |
Affiliated issuers (cost $123,076,627—including investment of cash collateral for securities loaned of $17,529,675) | 123,076,627 | |||
Foreign currencies, at value (cost $1,336,313) | 1,314,648 | |||
Cash collateral due from broker | 8,295,085 | |||
Receivable for investment securities sold | 92,583,636 | |||
Receivable for capital stock sold | 753,565 | |||
Unrealized appreciation on forward currency exchange contracts | 24,228,433 | |||
Unrealized appreciation on total return swaps | 6,165,207 | |||
Unaffiliated dividends and interest receivable | 2,157,303 | |||
Receivable for variation margin on futures | 898,019 | |||
Unrealized appreciation on inflation swaps | 379,730 | |||
Affiliated dividends receivable | 243,472 | |||
|
| |||
Total assets | 1,838,811,446 | |||
|
| |||
Liabilities | ||||
Due to custodian | 1,871,292 | |||
Options written, at value (net premiums received $4,857,865) | 2,382,947 | |||
Payable for investment securities purchased and foreign currency transactions | 70,140,652 | |||
Unrealized depreciation on forward currency exchange contracts | 20,676,150 | |||
Payable for collateral received on securities loaned | 17,529,675 | |||
Unrealized depreciation on total return swaps | 7,276,848 | |||
Cash collateral due to broker | 5,751,577 | |||
Unrealized depreciation on inflation swaps | 1,362,086 | |||
Management fee payable | 1,249,979 | |||
Payable for capital stock redeemed | 488,685 | |||
Distribution fee payable | 144,852 | |||
Transfer Agent fee payable | 30,506 | |||
Administrative fee payable | 22,250 | |||
Directors’ fees payable | 2,071 | |||
Accrued expenses and other liabilities | 428,255 | |||
|
| |||
Total liabilities | 129,357,825 | |||
|
| |||
Net Assets | $ | 1,709,453,621 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 202,689 | ||
Additional paid-in capital | 1,793,413,172 | |||
Accumulated loss | (84,162,240 | ) | ||
|
| |||
$ | 1,709,453,621 | |||
|
|
See notes to consolidated financial statements.
48 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
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 | $ | 11,477,830 | 1,345,616 | $ | 8.53 | * | ||||||
| ||||||||||||
C | $ | 1,224,815 | 144,343 | $ | 8.49 | |||||||
| ||||||||||||
Advisor | $ | 26,030,475 | 3,058,589 | $ | 8.51 | |||||||
| ||||||||||||
R | $ | 271,414 | 32,312 | $ | 8.40 | |||||||
| ||||||||||||
K | $ | 2,604,002 | 309,114 | $ | 8.42 | |||||||
| ||||||||||||
I | $ | 12,212,951 | 1,443,952 | $ | 8.46 | |||||||
| ||||||||||||
1 | $ | 641,890,895 | 76,529,438 | $ | 8.39 | |||||||
| ||||||||||||
2 | $ | 8,584 | 1,000 | $ | 8.58 | |||||||
| ||||||||||||
Z | $ | 1,013,732,655 | 119,824,581 | $ | 8.46 | |||||||
|
(a) | Includes securities on loan with a value of $17,083,420 (see Note E). |
* | The maximum offering price per share for Class A shares was $8.91 which reflects a sales charge of 4.25%. |
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 49 |
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Dividends | ||||||||
Unaffiliated issuers (net of foreign taxes withheld of $1,630,313) | $ | 35,466,167 | ||||||
Affiliated issuers | 1,526,962 | |||||||
Interest (net of foreign taxes withheld of $13,349) | 8,357,827 | |||||||
Securities lending income | 80,371 | $ | 45,431,327 | |||||
|
| |||||||
Expenses | ||||||||
Management fee (see Note B) | 12,473,295 | |||||||
Distribution fee—Class A | 30,716 | |||||||
Distribution fee—Class C | 15,500 | |||||||
Distribution fee—Class R | 1,564 | |||||||
Distribution fee—Class K | 6,261 | |||||||
Distribution fee—Class 1 | 1,679,006 | |||||||
Transfer agency—Class A | 24,660 | |||||||
Transfer agency—Class C | 3,133 | |||||||
Transfer agency—Advisor Class | 55,415 | |||||||
Transfer agency—Class R | 796 | |||||||
Transfer agency—Class K | 5,027 | |||||||
Transfer agency—Class I | 2,709 | |||||||
Transfer agency—Class 1 | 85,266 | |||||||
Transfer agency—Class 2 | 1 | |||||||
Transfer agency—Class Z | 193,572 | |||||||
Custodian | 487,236 | |||||||
Registration fees | 245,551 | |||||||
Audit and tax | 133,850 | |||||||
Administrative | 66,162 | |||||||
Legal | 59,051 | |||||||
Printing | 32,155 | |||||||
Directors’ fees | 25,435 | |||||||
Miscellaneous | 104,039 | |||||||
|
| |||||||
Total expenses | 15,730,400 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (129,271 | ) | ||||||
|
| |||||||
Net expenses | 15,601,129 | |||||||
|
| |||||||
Net investment income | 29,830,198 | |||||||
|
|
See notes to consolidated financial statements.
50 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions(a) | $ | 30,377,009 | ||||||
Forward currency exchange contracts | 1,600,742 | |||||||
Futures | 3,112,357 | |||||||
Options written | 2,385,421 | |||||||
Swaps | (26,010,542 | ) | ||||||
Foreign currency transactions | (3,677,910 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments(b) | (111,877,245 | ) | ||||||
Forward currency exchange contracts | 1,779,817 | |||||||
Futures | 3,926,904 | |||||||
Options written | 2,474,918 | |||||||
Swaps | (7,078,305 | ) | ||||||
Foreign currency denominated assets and liabilities | 148,850 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (102,837,984 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (73,007,786 | ) | |||||
|
|
(a) | Net of foreign capital gains taxes of $46,831. |
(b) | Net of decrease in accrued foreign capital gains taxes of $8,642. |
See notes to consolidated financial statements.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 51 |
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 29,830,198 | $ | 15,285,041 | ||||
Net realized gain on investment and foreign currency transactions | 7,787,077 | 19,925,451 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (110,625,061 | ) | 63,279,638 | |||||
Contributions from Affiliates (see Note B) | – 0 | – | 8,946 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (73,007,786 | ) | 98,499,076 | |||||
Distributions to Shareholders | ||||||||
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 | (431,253 | ) | (435,380 | ) | ||||
Class 1 | (21,767,349 | ) | (12,411,895 | ) | ||||
Class 2 | (317 | ) | (227 | ) | ||||
Class Z | (18,426,298 | ) | (224,457 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 421,628,704 | 745,154,738 | ||||||
|
|
|
| |||||
Total increase | 306,581,748 | 829,549,074 | ||||||
Net Assets | ||||||||
Beginning of period | 1,402,871,873 | 573,322,799 | ||||||
|
|
|
| |||||
End of period | $ | 1,709,453,621 | $ | 1,402,871,873 | ||||
|
|
|
|
See notes to consolidated financial statements.
52 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2018
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 October 31, 2018, consolidated net assets of the Fund were $1,709,453,621, of which $208,403,337, or 12%, 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 October 31, 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
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 53 |
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
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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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Real Estate | $ | 246,649,921 | $ | 191,661,175 | $ | – 0 | – | $ | 438,311,096 | |||||||
Energy | 123,385,264 | 154,155,521 | – 0 | – | 277,540,785 | |||||||||||
Materials | 71,250,458 | 61,989,118 | 0 | (a) | 133,239,576 | |||||||||||
Pharmaceuticals & Biotechnology | 24,680,938 | 10,679,197 | – 0 | – | 35,360,135 | |||||||||||
Software & Services | 18,392,292 | 5,893,917 | – 0 | – | 24,286,209 | |||||||||||
Banks | 11,551,581 | 8,463,389 | – 0 | – | 20,014,970 | |||||||||||
Retailing | 12,989,665 | 5,107,966 | – 0 | – | 18,097,631 | |||||||||||
Diversified Financials | 13,807,287 | 3,417,732 | – 0 | – | 17,225,019 | |||||||||||
Media & Entertainment | 10,991,547 | 4,838,774 | – 0 | – | 15,830,321 | |||||||||||
Transportation | 6,197,156 | 7,919,068 | – 0 | – | 14,116,224 | |||||||||||
Food & Staples Retailing | 5,571,381 | 8,286,165 | – 0 | – | 13,857,546 | |||||||||||
Technology Hardware & Equipment | 12,587,074 | – 0 | – | – 0 | – | 12,587,074 | ||||||||||
Health Care Equipment & Services | 8,889,952 | 3,045,517 | – 0 | – | 11,935,469 | |||||||||||
Capital Goods | 9,048,331 | 2,803,987 | – 0 | – | 11,852,318 | |||||||||||
Utilities | 2,534,812 | 8,415,244 | – 0 | – | 10,950,056 | |||||||||||
Consumer Durables & Apparel | 3,723,940 | 6,889,447 | 0 | (a) | 10,613,387 | |||||||||||
Food Beverage & Tobacco | 7,463,365 | 2,348,787 | – 0 | – | 9,812,152 | |||||||||||
Telecommunication Services | 1,297,827 | 7,137,466 | – 0 | – | 8,435,293 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Insurance | $ | – 0 | – | $ | 8,067,380 | $ | – 0 | – | $ | 8,067,380 | ||||||
Consumer Services | 6,295,548 | 1,212,162 | – 0 | – | 7,507,710 | |||||||||||
Automobiles & Components | 5,305,009 | 171,273 | – 0 | – | 5,476,282 | |||||||||||
Commercial & Professional Services | 136,635 | 3,763,883 | – 0 | – | 3,900,518 | |||||||||||
Household & Personal Products | 3,025,013 | 295,376 | – 0 | – | 3,320,389 | |||||||||||
Semiconductors & Semiconductor Equipment | 3,303,820 | – 0 | – | – 0 | – | 3,303,820 | ||||||||||
Inflation-Linked Securities | – 0 | – | 357,793,739 | – 0 | – | 357,793,739 | ||||||||||
Investment Companies | 97,732,603 | – 0 | – | – 0 | – | 97,732,603 | ||||||||||
Options Purchased – Puts | – 0 | – | 6,560,097 | – 0 | – | 6,560,097 | ||||||||||
Options Purchased – Calls | – 0 | – | 987,850 | – 0 | – | 987,850 | ||||||||||
Warrants | 72 | – 0 | – | – 0 | – | 72 | ||||||||||
Short-Term Investments | 105,546,952 | – 0 | – | – 0 | – | 105,546,952 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 17,529,675 | – 0 | – | – 0 | – | 17,529,675 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 829,888,118 | 871,904,230 | – 0 | – | 1,701,792,348 | |||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 4,717,654 | – 0 | – | – 0 | – | 4,717,654 | (c) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 24,228,433 | – 0 | – | 24,228,433 | ||||||||||
Inflation (CPI) Swaps | – 0 | – | 379,730 | – 0 | – | 379,730 | ||||||||||
Total Return Swaps | – 0 | – | 6,165,207 | – 0 | – | 6,165,207 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (2,396,036 | ) | – 0 | – | – 0 | – | (2,396,036 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (20,676,150 | ) | – 0 | – | (20,676,150 | ) | ||||||||
Put Options Written | – 0 | – | (1,939,970 | ) | – 0 | – | (1,939,970 | ) | ||||||||
Currency Options Written | – 0 | – | (442,977 | ) | – 0 | – | (442,977 | ) | ||||||||
Inflation (CPI) Swaps | – 0 | – | (1,362,086 | ) | – 0 | – | (1,362,086 | ) | ||||||||
Total Return Swaps | – 0 | – | (7,276,848 | ) | – 0 | – | (7,276,848 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(d)(e)(f) | $ | 832,209,736 | $ | 870,979,569 | $ | – 0 | – | $ | 1,703,189,305 | |||||||
|
|
|
|
|
|
|
|
(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) on futures and centrally cleared swaps as reported in the consolidated portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(d) | An amount of $2,513,835 was transferred from Level 1 to Level 2 due to decrease in trading volume during the reporting period. |
(e) | An amount of $16,265,794 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 de minimis transfers under 1% of net assets from Level 2 to Level 1 during the reporting period. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
Common Stocks - Materials(a) | Common Stocks - Consumer Durables & Apparel(a) | Warrants | ||||||||||
Balance as of 10/31/17 | $ | – 0 | – | $ | – 0 | – | $ | 11,983 | ||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | – 0 | – | ||||||
Realized gain (loss) | – 0 | – | – 0 | – | 2,191 | |||||||
Change in unrealized appreciation/depreciation | – 0 | – | (102 | ) | (2,498 | ) | ||||||
Purchases | – 0 | – | – 0 | – | – 0 | – | ||||||
Sales | – 0 | – | – 0 | – | (11,676 | ) | ||||||
Transfers in to Level 3 | – 0 | – | 102 | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | |||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | |||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Balance as of 10/31/17 | $ | 11,983 | ||||||||||
Accrued discounts/(premiums) | – 0 | – | ||||||||||
Realized gain (loss) | 2,191 | |||||||||||
Change in unrealized appreciation/depreciation | (2,600 | ) | ||||||||||
Purchases | – 0 | – | ||||||||||
Sales | (11,676 | ) | ||||||||||
Transfers in to Level 3 | 102 | (c) | ||||||||||
Transfers out of Level 3 | – 0 | – | ||||||||||
|
| |||||||||||
Balance as of 10/31/18 | $ | – 0 | – | |||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | – 0 | – | |||||||||
|
|
(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 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
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,
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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.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
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 year ended October 31, 2018, such reimbursement amounted to $73.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
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 year ended October 31, 2018, the reimbursement for such services amounted to $66,162.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $289,246 for the year ended October 31, 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 $305 from the sale of Class A shares and received $6 and $28 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended October 31, 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. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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 year ended October 31, 2018, such waiver amounted to $101,193.
A summary of the Fund’s transactions in AB mutual funds for the year ended October 31, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 20,772 | $ | 1,968,423 | $ | 1,883,648 | $ | 105,547 | $ | 1,151 | ||||||||||
Government Money Market Portfolio* | 15,609 | 478,627 | 476,706 | 17,530 | 376 | |||||||||||||||
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|
| |||||||||||||||||
Total | $ | 123,077 | $ | 1,527 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
64 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Brokerage commissions paid on investment transactions for the year ended October 31, 2018 amounted to $2,695,295, 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 $157,992, $15,865, $18,721 and $1,651,214 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 year ended October 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 2,052,992,937 | $ | 1,757,003,982 | ||||
U.S. government securities | 480,558,989 | 469,429,452 |
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 65 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 1,907,483,378 | ||
|
| |||
Gross unrealized appreciation | $ | 67,626,845 | ||
Gross unrealized depreciation | (221,637,250 | ) | ||
|
| |||
Net unrealized depreciation | $ | (154,010,405 | ) | |
|
|
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 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.
66 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 year ended October 31, 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 year ended October 31, 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. The Fund’s maximum payment for written put options equates to the number of shares multiplied by the strike price, as included on the Portfolio of Investments. 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. 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.
During the year ended October 31, 2018, the Fund held purchased options for hedging and non-hedging purposes.
During the year ended October 31, 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
68 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 termination of swaps. Upfront premiums paid or received for OTC swaps 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 year ended October 31, 2018, the Fund held inflation (CPI) swaps for hedging and non-hedging purposes.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 69 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 year ended October 31, 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.
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 ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the year ended October 31, 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 | $ | 42,669 | * | Receivable/Payable for variation margin on futures | $ | 192,193 | * | ||||
Commodity contracts | Receivable/Payable for variation margin on futures | | 4,674,985 | * | Receivable/Payable for variation margin on futures | | 2,203,843 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | | 24,228,433 | Unrealized depreciation on forward currency exchange contracts | | 20,676,150 | ||||||
Foreign exchange contracts | Investments in securities, at value | | 4,085,308 | |||||||||
Equity contracts | Investments in securities, at value | 3,462,639 | ||||||||||
Foreign exchange contracts | Options written, at value | | 442,977 | |||||||||
Equity contracts | Options written, at value | 1,939,970 | ||||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps | | 379,730 | Unrealized depreciation on inflation swaps | | 1,362,086 | ||||||
Equity contracts | Unrealized appreciation on total return swaps | 6,165,207 | Unrealized depreciation on total return swaps | 7,276,848 | ||||||||
|
|
|
| |||||||||
Total | $ | 43,038,971 | $ | 34,094,067 | ||||||||
|
|
|
|
* | 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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 71 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) on Derivatives Within Consolidated 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 | $ | 1,083,454 | $ | (701,013 | ) | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,369,110 | ) | – 0 | – | |||||
Commodity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | 3,398,013 | 4,627,917 | |||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts |
| 1,600,742 |
|
| 1,779,817 |
| |||
Foreign exchange contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments |
| (5,309,738 | ) |
| 718,853 |
| |||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (1,095,092 | ) | 1,290,829 | ||||||
Foreign exchange contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written |
| 289,795 |
|
| 1,255,569 |
| |||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 2,095,626 | 1,219,349 | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 1,443,639 | 127,817 |
72 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or (Loss) on Derivatives Within Consolidated Statement of Operations | 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 | $ | (27,454,181 | ) | $ | (7,206,122 | ) | |||
|
|
|
| |||||||
Total | $ | (25,316,852 | ) | $ | 3,113,016 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 120,260,660 | ||
Average original value of sale contracts | $ | 228,610,820 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 788,670,339 | ||
Average principal amount of sale contracts | $ | 1,041,146,620 | ||
Purchased Options: | ||||
Average notional amount | $ | 247,487,300 | (a) | |
Options Written: | ||||
Average notional amount | $ | 43,673,441 | (a) | |
Inflation Swaps: | ||||
Average notional amount | $ | 529,945,846 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 642,635,675 |
(a) | Positions were open for eight months during the year. |
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 (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 73 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All Market Real Return Portfolio
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 192,474 | $ | (192,474 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Bank of America, NA | 792,950 | (792,950 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Barclays Bank PLC | 4,970,022 | (3,643,028 | ) | (1,326,994 | ) | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 861,545 | (861,545 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 3,517,468 | (3,517,468 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 2,248,824 | (1,454,795 | ) | – 0 | – | – 0 | – | 794,029 | ||||||||||||
Deutsche Bank AG | 292,017 | (243,406 | ) | – 0 | – | – 0 | – | 48,611 | ||||||||||||
Goldman Sachs Bank USA | 1,118,122 | (1,118,122 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 1,275,271 | (574,914 | ) | – 0 | – | – 0 | – | 700,357 | ||||||||||||
JPMorgan Chase Bank, NA | 3,673,162 | (2,105,311 | ) | (980,000 | ) | – 0 | – | 587,851 | ||||||||||||
Morgan Stanley & Co., Inc./ Morgan Stanley Capital Services LLC | 5,452,553 | (1,861,712 | ) | (260,000 | ) | – 0 | – | 3,330,841 | ||||||||||||
Natwest Markets PLC | 2,011,845 | (527,328 | ) | (670,000 | ) | – 0 | – | 814,517 | ||||||||||||
Nomura Global Financial Products, Inc. | 26,393 | – 0 | – | – 0 | – | – 0 | – | 26,393 | ||||||||||||
Standard Chartered Bank | 347,078 | (343,453 | ) | – 0 | – | – 0 | – | 3,625 | ||||||||||||
State Street Bank & Trust Co. | 1,040,796 | (1,040,796 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
UBS AG | 643,942 | (81,164 | ) | – 0 | – | – 0 | – | 562,778 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 28,464,462 | $ | (18,358,466 | ) | $ | (3,236,994 | ) | $ | – 0 | – | $ | 6,869,002 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
74 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Australia and New Zealand Banking Group Ltd. | $ | 307,163 | $ | (192,474 | ) | $ | – 0 | – | $ | – 0 | – | $ | 114,689 | |||||||
Bank of America, NA | 991,197 | (792,950 | ) | – 0 | – | – 0 | – | 198,247 | ||||||||||||
Barclays Bank PLC | 3,643,028 | (3,643,028 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 1,041,905 | (861,545 | ) | (180,360 | ) | – 0 | – | – 0 | – | |||||||||||
Brown Brothers Harriman & Co. | 1,798 | – 0 | – | – 0 | – | – 0 | – | 1,798 | ||||||||||||
Citibank, NA | 5,031,140 | (3,517,468 | ) | – 0 | – | (1,513,672 | ) | – 0 | – | |||||||||||
Credit Suisse International | 1,454,795 | (1,454,795 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 243,406 | (243,406 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs Bank USA | 2,747,316 | (1,118,122 | ) | – 0 | – | (1,282,421 | ) | 346,773 | ||||||||||||
HSBC Bank USA | 574,914 | (574,914 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 2,105,311 | (2,105,311 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co., Inc./ Morgan Stanley Capital Services LLC | 1,861,712 | (1,861,712 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Natwest Markets PLC | 527,328 | (527,328 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank | 343,453 | (343,453 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 1,277,177 | (1,040,796 | ) | – 0 | – | (236,381 | ) | – 0 | – | |||||||||||
UBS AG | 81,164 | (81,164 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 22,232,807 | $ | (18,358,466 | ) | $ | (180,360 | ) | $ | (3,032,474 | ) | $ | 661,507 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 75 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
AllianceBernstein Cayman Inflation Strategy, Ltd.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Barclays Bank PLC | $ | 1,148,089 | $ | (641,328 | ) | $ | – 0 | – | $ | – 0 | – | $ | 506,761 | |||||||
JPMorgan Chase Bank, NA | 3,556,233 | (3,556,233 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services LLC | 1,622,492 | – 0 | – | (1,622,492 | ) | – 0 | – | – 0 | – | |||||||||||
Natwest Markets PLC | 9,174 | (1,260 | ) | – 0 | – | – 0 | – | 7,914 | ||||||||||||
State Street Bank & Trust Co. | 58,229 | – 0 | – | – 0 | – | – 0 | – | 58,229 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 6,394,217 | $ | (4,198,821 | ) | $ | (1,622,492 | ) | $ | – 0 | – | $ | 572,904 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 641,328 | $ | (641,328 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Citibank, NA | 85,967 | – 0 | – | – 0 | – | – 0 | – | 85,967 | ||||||||||||
Goldman Sachs International | 542,004 | – 0 | – | – 0 | – | (506,010 | ) | 35,994 | ||||||||||||
JPMorgan Chase Bank, NA | 6,254,695 | (3,556,233 | ) | – 0 | – | (2,698,462 | ) | – 0 | – | |||||||||||
Natwest Markets PLC | 1,260 | (1,260 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 7,525,254 | $ | (4,198,821 | ) | $ | – 0 | – | $ | (3,204,472 | ) | $ | 121,961 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | 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
76 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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 October 31, 2018, the Fund had securities on loan with a value of $17,083,420 and had received cash collateral which has been invested into Government Money Market Portfolio of $17,529,675. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The cash collateral will be adjusted on the next business
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 77 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
day to maintain the required collateral amount. The Fund earned securities lending income of $80,371 and $376,048 from the borrowers and Government Money Market Portfolio, respectively, for the year ended October 31, 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 Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended October 31, 2018, such waiver amounted to $28,005. 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.
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 | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A |
| |||||||||||||||||||||||
Shares sold | 185,393 | 171,006 | $ | 1,700,425 | $ | 1,442,288 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 37,934 | 31,975 | 330,783 | 271,464 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 1,471 | 12,155 | 13,244 | 101,981 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (206,436 | ) | (548,796 | ) | (1,859,480 | ) | (4,608,625 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 18,362 | (333,660 | ) | $ | 184,972 | $ | (2,792,892 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Class C |
| |||||||||||||||||||||||
Shares sold | 3,477 | 9,618 | $ | 31,579 | $ | 81,032 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 3,549 | 4,093 | 30,973 | 34,707 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (1,471 | ) | (12,213 | ) | (13,244 | ) | (101,981 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (65,084 | ) | (142,206 | ) | (583,217 | ) | (1,197,112 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (59,529 | ) | (140,708 | ) | $ | (533,909 | ) | $ | (1,183,354 | ) | ||||||||||||||
|
78 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Advisor Class |
| |||||||||||||||||||||||
Shares sold | 314,220 | 993,203 | $ | 2,817,286 | $ | 8,359,654 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 83,713 | 56,670 | 726,628 | 478,860 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (452,667 | ) | (1,014,816 | ) | (4,056,076 | ) | (8,538,361 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (54,734 | ) | 35,057 | $ | (512,162 | ) | $ | 300,153 | ||||||||||||||||
| ||||||||||||||||||||||||
Class R |
| |||||||||||||||||||||||
Shares sold | 12,047 | 6,261 | $ | 106,908 | $ | 52,776 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 1,051 | 536 | 9,053 | 4,501 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (8,026 | ) | (4,225 | ) | (69,814 | ) | (35,553 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 5,072 | 2,572 | $ | 46,147 | $ | 21,724 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class K |
| |||||||||||||||||||||||
Shares sold | 96,940 | 71,290 | $ | 855,707 | $ | 595,688 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 8,805 | 5,695 | 75,813 | 47,782 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (53,920 | ) | (51,419 | ) | (474,140 | ) | (430,763 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 51,825 | 25,566 | $ | 457,380 | $ | 212,707 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I |
| |||||||||||||||||||||||
Shares sold | 86,550 | 173,303 | $ | 767,698 | $ | 1,455,308 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 50,087 | 51,893 | 431,253 | 435,380 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (589,045 | ) | (243,462 | ) | (5,253,410 | ) | (2,034,442 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (452,408 | ) | (18,266 | ) | $ | (4,054,459 | ) | $ | (143,754 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class 1 |
| |||||||||||||||||||||||
Shares sold | 11,945,265 | 26,258,027 | $ | 105,428,597 | $ | 218,420,428 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 2,141,761 | 1,153,504 | 18,333,476 | 9,620,222 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (11,665,113 | ) | (15,599,644 | ) | (103,089,485 | ) | (129,652,987 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,421,913 | 11,811,887 | $ | 20,672,588 | $ | 98,387,663 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z |
| |||||||||||||||||||||||
Shares sold | 103,611,910 | 98,160,962 | $ | 952,574,384 | $ | 824,387,060 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 2,140,104 | 26,752 | 18,426,298 | 224,457 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (64,369,383 | ) | (20,802,361 | ) | (565,632,535 | ) | (174,259,026 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 41,382,631 | 77,385,353 | $ | 405,368,147 | $ | 650,352,491 | ||||||||||||||||||
|
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 79 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
There were no transactions in capital shares for Class 2 for the year ended October 31, 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.
At October 31, 2018, certain AB mutual funds owned approximately 48% of the Fund’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Fund’s performance.
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.
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
80 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally go down.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the 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.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 81 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the consolidated statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 42,039,170 | $ | 14,104,740 | ||||
|
|
|
| |||||
Total distributions paid | $ | 42,039,170 | $ | 14,104,740 | ||||
|
|
|
|
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 19,785,513 | ||
Accumulated capital and other losses | (34,415,104 | )(a) | ||
Unrealized appreciation/(depreciation) | (154,093,052 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (168,722,643 | )(c) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $34,415,104. During the fiscal year, the Fund utilized $28,702,798 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 passive foreign investment companies (PFICs), the recognition for tax purposes of unrealized gains/losses on certain derivative instruments, and the tax treatment of earnings from the Subsidiary. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the accrual of foreign capital gains tax. |
82 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
NOTES TO CONSOLIDATED 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 incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-December 22, 2010 capital losses must be utilized prior to the earlier capital losses, which are subject to expiration. Post-December 22, 2010 capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation.
As of October 31, 2018, the Fund had a net capital loss carryforward of $34,415,104 which will expire as follows:
Short-Term | Long-Term | Expiration | ||
$ 6,012,702 | n/a | 2019 | ||
$ 28,402,402 | n/a | No Expiration |
During the current fiscal year, permanent differences primarily due to book/tax differences associated with the treatment of earnings from the Subsidiary resulted in a net decrease in accumulated loss and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
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 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 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 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.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 83 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the consolidated financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements 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.
84 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.90 | $ 8.24 | $ 8.13 | $ 10.52 | $ 11.04 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .14 | .09 | .10 | .06 | .12 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.23 | ) | .76 | .11 | (2.26 | ) | (.50 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.09 | ) | .85 | .21 | (2.20 | ) | (.38 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.19 | ) | (.10 | ) | (.19 | ) | (.14 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.53 | $ 8.90 | $ 8.24 | $ 8.13 | $ 10.52 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.11 | )% | 10.45 | % | 2.75 | % | (21.16 | )% | (3.45 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $11,478 | $11,819 | $13,682 | $16,611 | $28,434 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | 1.26 | % | 1.27 | % | 1.30 | % | 1.30 | % | 1.23 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | 1.27 | % | 1.28 | % | 1.36 | % | 1.47 | % | 1.30 | % | ||||||||||
Net investment income(b) | 1.52 | % | 1.05 | % | 1.23 | % | .62 | % | 1.03 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 85 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.83 | $ 8.17 | $ 8.03 | $ 10.40 | $ 10.90 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (loss)(a)(b) | .07 | .02 | .04 | (.01 | ) | .04 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.23 | ) | .76 | .12 | (2.23 | ) | (.49 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.16 | ) | .78 | .16 | (2.24 | ) | (.45 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.18 | ) | (.12 | ) | (.02 | ) | (.13 | ) | (.05 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.49 | $ 8.83 | $ 8.17 | $ 8.03 | $ 10.40 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.82 | )% | 9.73 | % | 2.07 | %†† | (21.75 | )% | (4.13 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $1,225 | $1,801 | $2,814 | $4,202 | $8,531 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | 2.01 | % | 2.02 | % | 2.03 | % | 2.00 | % | 1.93 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | 2.02 | % | 2.03 | % | 2.11 | % | 2.16 | % | 2.02 | % | ||||||||||
Net investment income (loss)(b) | .78 | % | .27 | % | .51 | % | (.07 | )% | .34 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
86 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.89 | $ 8.22 | $ 8.13 | $ 10.56 | $ 11.09 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .16 | .11 | .12 | .09 | .15 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | .77 | .11 | (2.27 | ) | (.50 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .88 | .23 | (2.18 | ) | (.35 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.21 | ) | (.14 | ) | (.25 | ) | (.18 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.51 | $ 8.89 | $ 8.22 | $ 8.13 | $ 10.56 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.96 | )% | 10.87 | % | 3.00 | % | (20.95 | )% | (3.20 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $26,030 | $27,670 | $25,307 | $30,541 | $58,399 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | 1.01 | % | 1.02 | % | 1.04 | % | 1.00 | % | .94 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | 1.02 | % | 1.02 | % | 1.10 | % | 1.17 | % | 1.02 | % | ||||||||||
Net investment income(b) | 1.77 | % | 1.31 | % | 1.51 | % | .95 | % | 1.33 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 87 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.79 | $ 8.14 | $ 8.06 | $ 10.51 | $ 11.04 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .11 | .07 | .07 | .04 | .15 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.23 | ) | .76 | .11 | (2.24 | ) | (.55 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.12 | ) | .83 | .18 | (2.20 | ) | (.40 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.27 | ) | (.18 | ) | (.10 | ) | (.25 | ) | (.13 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.40 | $ 8.79 | $ 8.14 | $ 8.06 | $ 10.51 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.47 | )% | 10.29 | % | 2.41 | %†† | (21.37 | )% | (3.66 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $271 | $239 | $201 | $162 | $182 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | 1.55 | % | 1.54 | % | 1.54 | % | 1.50 | % | 1.44 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | 1.58 | % | 1.60 | % | 1.66 | % | 1.64 | % | 1.55 | % | ||||||||||
Net investment income(b) | 1.24 | % | .81 | % | .91 | % | .42 | % | 1.36 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
88 | 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 K | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.80 | $ 8.15 | $ 8.07 | $ 10.50 | $ 11.03 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .13 | .09 | .10 | .06 | .12 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.23 | ) | .75 | .11 | (2.25 | ) | (.49 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.10 | ) | .84 | .21 | (2.19 | ) | (.37 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.19 | ) | (.13 | ) | (.24 | ) | (.16 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.42 | $ 8.80 | $ 8.15 | $ 8.07 | $ 10.50 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.20 | )% | 10.48 | % | 2.81 | % | (21.19 | )% | (3.39 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,604 | $2,265 | $1,888 | $1,668 | $2,174 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | 1.26 | % | 1.28 | % | 1.29 | % | 1.25 | % | 1.19 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | 1.27 | % | 1.29 | % | 1.35 | % | 1.34 | % | 1.24 | % | ||||||||||
Net investment income(b) | 1.52 | % | 1.05 | % | 1.23 | % | .67 | % | 1.10 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 89 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.54 | $ 11.07 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a) | .17 | (b) | .12 | (b) | .12 | (b) | .09 | .15 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.22 | ) | .77 | .11 | (2.25 | ) | (.49 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.05 | ) | .89 | .23 | (2.16 | ) | (.34 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.23 | ) | (.17 | ) | (.27 | ) | (.19 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.46 | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.54 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.69 | )% | 10.98 | % | 3.03 | %†† | (20.97 | )% | (3.09 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $12,213 | $16,753 | $15,646 | $14,508 | $21,341 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | .83 | % | .85 | % | .91 | % | .96 | % | .91 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | .84 | % | .86 | % | .92 | % | .96 | % | .91 | % | ||||||||||
Net investment income | 1.96 | %(b) | 1.48 | %(b) | 1.61 | %(b) | .99 | % | 1.37 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
90 | 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 1 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.76 | $ 8.11 | $ 8.05 | $ 10.46 | $ 11.00 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a) | .15 | (b) | .10 | (b) | .11 | (b) | .07 | .13 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.22 | ) | .76 | .10 | (2.24 | ) | (.50 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.07 | ) | .86 | .21 | (2.17 | ) | (.37 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.21 | ) | (.15 | ) | (.24 | ) | (.17 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.39 | $ 8.76 | $ 8.11 | $ 8.05 | $ 10.46 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.92 | )% | 10.69 | % | 2.82 | %†† | (21.12 | )% | (3.35 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $641,891 | $649,421 | $505,143 | $474,631 | $513,633 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | 1.08 | % | 1.09 | % | 1.15 | % | 1.16 | % | 1.14 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | 1.08 | % | 1.10 | % | 1.16 | % | 1.16 | % | 1.14 | % | ||||||||||
Net investment income | 1.71 | %(b) | 1.24 | %(b) | 1.38 | %(b) | .79 | % | 1.16 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 91 |
CONSOLIDATED FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 8.96 | $ 8.29 | $ 8.22 | $ 10.68 | $ 11.19 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a) | .18 | (b) | .13 | (b) | .13 | (b) | .09 | .15 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.24 | ) | .77 | .11 | (2.28 | ) | (.50 | ) | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | .00 | (c) | .00 | (c) | .00 | (c) | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.06 | ) | .90 | .24 | (2.19 | ) | (.35 | ) | ||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.23 | ) | (.17 | ) | (.27 | ) | (.16 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.58 | $ 8.96 | $ 8.29 | $ 8.22 | $ 10.68 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(b) | (.77 | )% | 10.96 | % | 3.17 | % | (20.85 | )% | (3.12 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $9 | $9 | $8 | $8 | $11 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | .82 | % | .82 | % | .90 | % | .92 | % | .89 | % | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | .82 | % | .83 | % | .90 | % | .92 | % | .89 | % | ||||||||||
Net investment income | 1.95 | %(b ) | 1.50 | %(b) | 1.60 | %(b) | .92 | % | 1.36 | % | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
92 | 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 Z | ||||||||||||||||||||
Year Ended October 31, | January 31, 2014(f) to October 31, 2014 | |||||||||||||||||||
2018 | 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) | .17 | (b) | .13 | (b) | .12 | (b) | .07 | .13 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.22 | ) | .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 | (.05 | ) | .89 | .23 | (2.17 | ) | .02 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.32 | ) | (.23 | ) | (.17 | ) | (.27 | ) | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 8.46 | $ 8.83 | $ 8.17 | $ 8.11 | $ 10.55 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(b) | (.68 | )% | 10.98 | % | 3.09 | % | (20.94 | )% | .19 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $1,013,733 | $692,895 | $8,634 | $3,166 | $10 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e)‡ | .83 | % | .82 | % | .92 | % | .96 | % | .88 | %^ | ||||||||||
Expenses, before waivers/reimbursements(e)‡ | .84 | % | .83 | % | .92 | % | .96 | % | .88 | %^ | ||||||||||
Net investment income | 1.86 | %(b) | 1.60 | %(b) | 1.56 | %(b) | .92 | % | 1.59 | %^ | ||||||||||
Portfolio turnover rate | 141 | % | 123 | % | 119 | % | 53 | % | 73 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .02 | % | .00 | % | .00 | % |
See footnote summary on page 94.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 93 |
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 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 years ended October 31, 2018 and October 31, 2017, such waiver amounted to .01% and .01%, respectively. |
(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.
94 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of the AB All Market Real Return Portfolio
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities of AB All Market Real Return Portfolio (the “Fund”), (one of the portfolios constituting AB Bond Fund, Inc. (the “Company”)), including the consolidated portfolio of investments, as of October 31, 2018, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, the consolidated financial highlights for each of the five years in period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Fund (one of the funds constituting AB Bond Fund, Inc.) at October 31, 2018, the consolidated results of its operations for the year then ended, the consolidated changes in its net assets for each of the two years in the period then ended and its consolidated financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 95 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 28, 2018
96 | AB ALL MARKET REAL RETURN PORTFOLIO | abfunds.com |
2018 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during the taxable period ended October 31, 2018. For individual shareholders, the Fund designates 49.22% of dividends paid as qualified dividend income. For corporate shareholders, 9.41% of dividends paid qualify for the dividends received deduction. For foreign shareholders, 4.35% of ordinary dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2019.
abfunds.com | AB ALL MARKET REAL RETURN PORTFOLIO | 97 |
RESULTS OF SHAREHOLDERS MEETING
(unaudited)
A Special Meeting of Shareholders of AB Bond Fund, Inc. (the “Company”)—AB All Market Real Return Portfolio (the “Fund”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund’s proxy statement):
1: | To approve and vote upon the election of the Directors of the Company, each such Director to serve a term of indefinite duration and until his or her successor is duly elected and qualifies: |
Director: | Voted For | Withheld Authority | ||
Michael J. Downey | 568,159,897 | 6,636,404 | ||
William H. Foulk, Jr. | 567,840,093 | 6,956,208 | ||
Nancy P. Jacklin | 568,944,215 | 5,852,087 | ||
Robert M. Keith | 569,042,667 | 5,753,635 | ||
Carol C. McMullen | 569,162,511 | 5,633,791 | ||
Garry L. Moody | 568,383,443 | 6,412,859 | ||
Marshall C. Turner, Jr. | 568,160,864 | 6,635,437 | ||
Earl D. Weiner | 567,806,291 | 6,990,010 |
2: | To vote upon the approval of new advisory agreements for the Fund with AllianceBernstein L.P. |
Voted For | Voted Against | Abstained | Broker-Non Votes | |||
179,583,919 | 176,658 | 775,120 | 511,522 |
98 | AB ALL MARKET REAL RETURN 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
Vinod Chathlani(2), Vice President Daniel J. Loewy(2), Vice President Leon Zhu(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company 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. |
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MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Strategy are managed under the direction of the Board of Directors. Certain information concerning the Strategy’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 74 (2005) | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
William H. Foulk, Jr.,##, ^ 86 (1998) | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund as defined in the “40 Act”, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Daniel J. Loewy 44 | Senior Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Leon Zhu 51 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Vinod Chathlani 36 | Vice President | Vice President of the Adviser,** with which he has been associated since December 2013. Prior thereto, he was an investment risk manager at Oppenheimer Funds and a corporate strategist at Reliance Communications since prior to 2013. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc, (“ABIS”),** with which he has been associated since prior to 2013. | ||
Phyllis J. Clarke 57 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Strategy. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-800-227-4618, or visit www.abfunds.com, for a free prospectus or SAI.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB All Market Real Return Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature
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and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of
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the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed Agreements with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is
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affected by numerous factors. The Directors focused on the profitability of the Adviser’s relationship with each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by
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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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the Funds, and
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the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current 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
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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 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
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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 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.
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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.
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
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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 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
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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.
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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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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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AB ALL MARKET REAL RETURN PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
AMRR-0151-1018
OCT 10.31.18
ANNUAL REPORT
AB BOND INFLATION STRATEGY
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
ANNUAL REPORT
December 14, 2018
This report provides management’s discussion of fund performance for AB Bond Inflation Strategy for the annual reporting period ended October 31, 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 OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB BOND INFLATION STRATEGY | ||||||||
Class 1 Shares1,2 | -0.97% | -0.87% | ||||||
Class 2 Shares1 | -0.82% | -0.77% | ||||||
Class A Shares | -1.01% | -0.99% | ||||||
Class C Shares | -1.35% | -1.77% | ||||||
Advisor Class Shares3 | -0.78% | -0.68% | ||||||
Class R Shares3 | -1.09% | -1.15% | ||||||
Class K Shares3 | -1.00% | -1.01% | ||||||
Class I Shares3 | -0.84% | -0.73% | ||||||
Class Z Shares3 | -0.82% | -0.77% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | -0.45% | -0.61% |
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 | The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the Financial Highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America. |
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. |
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 October 31, 2018.
During the 12-month period, all share classes of the Fund underperformed the benchmark, before sales charges. The Fund’s long exposure to breakeven inflation rates detracted relative to the benchmark. The Fund’s shorter-than-benchmark duration contributed, as yields rose across the spectrum during the period. Allocations to commercial mortgage-backed
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securities (“CMBS”) and agency risk-sharing bonds were also positive. Within currency selection, long positions in the Brazilian real and Indian rupee detracted, while a long position in the Mexican peso and a short position in the British pound contributed.
During the six-month period, all share classes of the Fund underperformed the benchmark, before sales charges. Sector allocation detracted, primarily the result of exposure to non-agency mortgages and non-investment grade corporates. An allocation to CMBS added to returns. Currency positioning contributed, helped by short positions in the British pound and Mexican peso, while a long position in the Indian rupee took back some of these gains.
During both periods, the Fund utilized currency forwards to hedge currency risk and actively manage currency positions. Credit default swaps were utilized to hedge credit risk and as a tool to effectively gain exposure to specific sectors. 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, and did not have a material impact on performance. Variance swaps were utilized as tail hedges against flight-to-quality tail events. During the six-month period, interest rate swaptions were used for investment purposes to take active yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets had mixed performance over the 12-month period, as volatility spiked in the latter part of the period on tighter monetary policy and the onset of a global trade war. Developed-market treasuries rallied, outperforming the positive returns of emerging-market local-currency government bonds, while global high yield and investment-grade securities ended the period in negative territory. A stronger US dollar, slowing Chinese growth, the global trade war and a hawkish US Federal Reserve (the “Fed”) weighed on emerging markets. Developed-market yield curves moved in different directions (bond yields move inversely to price).
The Fed raised interest rates four times in the period, while the European Central Bank started to scale back asset purchases but updated forward guidance to say that it would not change its policy rate until summer 2019 at the earliest. The Bank of Japan tweaked its monetary policy, holding rates and yields steady, but widening the band around 10-year yields, potentially allowing them to move higher.
US yields rose dramatically, with the 10- and 30-year Treasury yields soaring to multiyear highs, on the back of higher inflation forecasts, the Fed’s expected rate hike path and a robust US labor market. The US administration announced tariffs on imports from China, the European Union, Mexico and Canada, all of which reciprocated with tariffs on the US, triggering a global trade war. An upsurge in geopolitical uncertainty, including governmental turmoil in Italy, sparked a flight to quality.
abfunds.com | AB BOND INFLATION STRATEGY | 3 |
INVESTMENT POLICIES
The Fund seeks real return. Real return is the rate of return after adjusting 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.
(continued on next page)
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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 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, generally 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
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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
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
1/26/20101 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB Bond Inflation Strategy Class A shares (from 1/26/20101 to 10/31/2018) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
1 | Inception date: 1/26/2010. |
abfunds.com | AB BOND INFLATION STRATEGY | 9 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS 1 SHARES2 | 0.60% | |||||||||||
1 Year | -0.87% | -0.87% | ||||||||||
5 Years | 1.23% | 1.23% | ||||||||||
Since Inception3 | 2.35% | 2.35% | ||||||||||
CLASS 2 SHARES2 | 0.69% | |||||||||||
1 Year | -0.77% | -0.77% | ||||||||||
5 Years | 1.34% | 1.34% | ||||||||||
Since Inception3 | 2.45% | 2.45% | ||||||||||
CLASS A SHARES | 0.27% | |||||||||||
1 Year | -0.99% | -5.19% | ||||||||||
5 Years | 1.06% | 0.18% | ||||||||||
Since Inception3 | 2.16% | 1.66% | ||||||||||
CLASS C SHARES | -0.46% | |||||||||||
1 Year | -1.77% | -2.74% | ||||||||||
5 Years | 0.32% | 0.32% | ||||||||||
Since Inception3 | 1.42% | 1.42% | ||||||||||
ADVISOR CLASS SHARES4 | 0.54% | |||||||||||
1 Year | -0.68% | -0.68% | ||||||||||
5 Years | 1.34% | 1.34% | ||||||||||
Since Inception3 | 2.44% | 2.44% | ||||||||||
CLASS R SHARES4 | -0.05% | |||||||||||
1 Year | -1.15% | -1.15% | ||||||||||
5 Years | 0.87% | 0.87% | ||||||||||
Since Inception3 | 1.96% | 1.96% | ||||||||||
CLASS K SHARES4 | 0.26% | |||||||||||
1 Year | -1.01% | -1.01% | ||||||||||
5 Years | 1.09% | 1.09% | ||||||||||
Since Inception3 | 2.19% | 2.19% | ||||||||||
CLASS I SHARES4 | 0.59% | |||||||||||
1 Year | -0.73% | -0.73% | ||||||||||
5 Years | 1.36% | 1.36% | ||||||||||
Since Inception3 | 2.46% | 2.46% | ||||||||||
CLASS Z SHARES4 | 0.69% | |||||||||||
1 Year | -0.77% | -0.77% | ||||||||||
Since Inception3 | 1.61% | 1.61% |
(footnotes continued on next page)
10 | AB BOND INFLATION STRATEGY | abfunds.com |
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 section since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 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. |
abfunds.com | AB BOND INFLATION STRATEGY | 11 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 0.40% | |||
5 Years | 1.58% | |||
Since Inception2 | 2.51% | |||
CLASS 2 SHARES1 | ||||
1 Year | 0.59% | |||
5 Years | 1.69% | |||
Since Inception2 | 2.60% | |||
CLASS A SHARES | ||||
1 Year | -3.93% | |||
5 Years | 0.54% | |||
Since Inception2 | 1.80% | |||
CLASS C SHARES | ||||
1 Year | -1.42% | |||
5 Years | 0.69% | |||
Since Inception2 | 1.58% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 0.56% | |||
5 Years | 1.69% | |||
Since Inception2 | 2.60% | |||
CLASS R SHARES3 | ||||
1 Year | 0.08% | |||
5 Years | 1.20% | |||
Since Inception2 | 2.10% | |||
CLASS K SHARES3 | ||||
1 Year | 0.32% | |||
5 Years | 1.43% | |||
Since Inception2 | 2.35% | |||
CLASS I SHARES3 | ||||
1 Year | 0.62% | |||
5 Years | 1.70% | |||
Since Inception2 | 2.61% | |||
CLASS Z SHARES3 | ||||
1 Year | 0.58% | |||
Since Inception2 | 1.94% |
(footnotes continued on next page)
12 | AB BOND INFLATION STRATEGY | abfunds.com |
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. |
abfunds.com | AB BOND INFLATION STRATEGY | 13 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of a mutual fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
14 | AB BOND INFLATION STRATEGY | abfunds.com |
EXPENSE EXAMPLE (continued)
Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 989.90 | $ | 6.97 | 1.39 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.20 | $ | 7.07 | 1.39 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 986.50 | $ | 10.72 | 2.14 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,014.42 | $ | 10.87 | 2.14 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 992.20 | $ | 5.72 | 1.14 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.46 | $ | 5.80 | 1.14 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 989.10 | $ | 8.22 | 1.64 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,016.94 | $ | 8.34 | 1.64 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 990.00 | $ | 6.97 | 1.39 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.20 | $ | 7.07 | 1.39 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.60 | $ | 5.82 | 1.16 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.36 | $ | 5.90 | 1.16 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 990.30 | $ | 6.22 | 1.24 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,018.95 | $ | 6.31 | 1.24 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.80 | $ | 5.67 | 1.13 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.51 | $ | 5.75 | 1.13 | % | ||||||||
Class Z | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.80 | $ | 5.77 | 1.15 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.41 | $ | 5.85 | 1.15 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | 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 184/365 (to reflect the one-half year period). |
abfunds.com | AB BOND INFLATION STRATEGY | 15 |
PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $613.1
Total Investments ($mil): $789.1
INFLATION PROTECTION BREAKDOWN1
U.S. Inflation-Protected Exposure | 99.2% | |||
Non-U.S. Inflation-Protected Exposure | 0.7 | |||
Non-Inflation Exposure | 0.1 | |||
100.0% |
SECTOR BREAKDOWN OF NET PORTFOLIO ASSETS, EXCLUDING TREASURY SECURITIES, TIPS, INTEREST RATE DERIVATIVES AND NET CASH EQUIVALENTS1
Corporates–Investment Grade | 12.0% | |||
Commercial Mortgage-Backed Securities | 8.8% | |||
Asset-Backed Securities | 4.6% | |||
Collateralized Mortgage Obligations | 4.4% | |||
Corporates–Non-Investment Grade | 2.8% | |||
Emerging Markets–Corporate Bonds | 0.4% | |||
Quasi-Sovereigns | 0.2% | |||
Governments–Sovereign Bonds | 0.1% |
SECTOR BREAKDOWN OF TOTAL PORTFOLIO INVESTMENTS, EXCLUDING DERIVATIVES2
Inflation-Linked Securities | 71.3% | |||
Corporates–Investment Grade | 10.4% | |||
Commercial Mortgage-Backed Securities | 6.0% | |||
Asset-Backed Securities | 3.6% | |||
Collateralized Mortgage Obligations | 3.4% | |||
Corporates–Non-Investment Grade | 2.3% | |||
Emerging Markets–Corporate Bonds | 0.3% | |||
Quasi-Sovereigns | 0.2% | |||
Governments–Sovereign Bonds | 0.1% | |||
Short-Term | 2.4% |
1 | All data are as of October 31, 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. |
16 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS
October 31, 2018
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
INFLATION-LINKED SECURITIES – 91.8% | ||||||||||||
Japan – 0.7% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 485,256 | $ | 4,474,193 | ||||||||
|
| |||||||||||
United States – 91.1% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 146,556 | 139,946,483 | |||||||||
0.125%, 4/15/20 (TIPS)(a)(b) | 50,434 | 49,574,641 | ||||||||||
0.375%, 7/15/23 (TIPS)(a)(b) | 24,302 | 23,667,877 | ||||||||||
0.375%, 7/15/25 (TIPS)(a) | 45,478 | 43,545,151 | ||||||||||
0.375%, 7/15/27 (TIPS) | 47,428 | 44,626,495 | ||||||||||
0.625%, 7/15/21-1/15/24 (TIPS)(a) | 113,516 | 111,689,589 | ||||||||||
0.625%, 1/15/26 (TIPS) | 30,756 | 29,723,150 | ||||||||||
0.75%, 7/15/28 (TIPS) | 12,616 | 12,216,097 | ||||||||||
1.25%, 7/15/20 (TIPS)(a) | 6,133 | 6,166,971 | ||||||||||
1.75%, 1/15/28 (TIPS) | 7,124 | 7,503,440 | ||||||||||
1.875%, 7/15/19 (TIPS) | 5,450 | 5,490,681 | ||||||||||
2.00%, 1/15/26 (TIPS) | 11,353 | 12,051,924 | ||||||||||
2.375%, 1/15/25 (TIPS) | 8,109 | 8,737,204 | ||||||||||
2.375%, 1/15/27 (TIPS)(a) | 50,108 | 54,986,000 | ||||||||||
2.50%, 1/15/29 (TIPS) | 7,393 | 8,349,227 | ||||||||||
|
| |||||||||||
558,274,930 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 562,749,123 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 13.4% | ||||||||||||
Financial Institutions – 7.2% | ||||||||||||
Banking – 6.2% | ||||||||||||
ABN AMRO Bank NV | 200 | 198,614 | ||||||||||
Banco Santander SA | EUR | 400 | 466,430 | |||||||||
3.50%, 4/11/22 | U.S.$ | 600 | 586,302 | |||||||||
5.179%, 11/19/25 | 600 | 593,268 | ||||||||||
Bank of America Corp. | 295 | 310,682 | ||||||||||
Series L | 2,182 | 2,115,536 | ||||||||||
Series Z | 458 | 484,298 | ||||||||||
Bank of Nova Scotia (The) | 344 | 337,712 |
abfunds.com | AB BOND INFLATION STRATEGY | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Banque Federative du Credit Mutuel SA | U.S.$ | 555 | $ | 546,225 | ||||||
Barclays PLC | 700 | 677,537 | ||||||||
BB&T Corp. | 480 | 474,874 | ||||||||
BNP Paribas SA | 534 | 526,796 | ||||||||
3.80%, 1/10/24(c) | 332 | 322,990 | ||||||||
Series E | EUR | 199 | 225,395 | |||||||
BPCE SA | U.S.$ | 470 | 460,717 | |||||||
5.70%, 10/22/23(c) | 213 | 220,415 | ||||||||
Capital One Financial Corp. | 1,241 | 1,172,373 | ||||||||
Citigroup, Inc. | 655 | 631,466 | ||||||||
4.044%, 6/01/24 | 2,091 | 2,086,316 | ||||||||
Compass Bank | 1,508 | 1,447,348 | ||||||||
Cooperatieve Rabobank UA | 396 | 387,395 | ||||||||
Credit Agricole SA/London | 565 | 558,938 | ||||||||
Credit Suisse Group Funding Guernsey Ltd. | 1,285 | 1,261,754 | ||||||||
4.55%, 4/17/26 | 891 | 881,805 | ||||||||
Discover Bank | 327 | 323,040 | ||||||||
Goldman Sachs Group, Inc. (The) | 382 | 367,526 | ||||||||
2.905%, 7/24/23 | 922 | 886,844 | ||||||||
3.85%, 7/08/24 | 1,000 | 979,460 | ||||||||
3.917% (LIBOR 3 Month + 1.60%), 11/29/23(e) | 406 | 418,578 | ||||||||
HSBC Bank USA NA | 535 | 547,439 | ||||||||
HSBC Holdings PLC | 1,148 | 1,133,455 | ||||||||
4.292%, 9/12/26 | 627 | 618,235 | ||||||||
ING Bank NV | 1,359 | 1,424,599 | ||||||||
Intesa Sanpaolo SpA | 510 | 416,813 | ||||||||
JPMorgan Chase & Co. | 322 | 311,683 |
18 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
3.22%, 3/01/25 | U.S.$ | 1,180 | $ | 1,134,818 | ||||||||
4.25%, 10/15/20 | 55 | 55,850 | ||||||||||
KeyBank NA/Cleveland OH | 833 | 821,779 | ||||||||||
Lloyds Banking Group PLC | 1,191 | 1,147,362 | ||||||||||
Manufacturers & Traders Trust Co. | 947 | 930,636 | ||||||||||
Morgan Stanley | 1,196 | 1,182,605 | ||||||||||
5.00%, 11/24/25 | 300 | 306,765 | ||||||||||
Series G | 929 | 907,187 | ||||||||||
5.50%, 7/28/21 | 456 | 477,409 | ||||||||||
National Australia Bank Ltd./New York | 400 | 395,036 | ||||||||||
Nationwide Building Society | 820 | 755,556 | ||||||||||
PNC Bank NA | 250 | 247,012 | ||||||||||
3.80%, 7/25/23 | 940 | 936,447 | ||||||||||
Santander Holdings USA, Inc. | 1,190 | 1,111,222 | ||||||||||
Santander UK PLC | 505 | 506,131 | ||||||||||
UBS AG/Stamford CT | 465 | 509,147 | ||||||||||
UBS Group Funding Switzerland AG | 1,153 | 1,135,244 | ||||||||||
US Bancorp | 427 | 418,029 | ||||||||||
Wells Fargo & Co. | 759 | 735,463 | ||||||||||
|
| |||||||||||
38,116,556 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
Synchrony Financial | 1,250 | 1,184,250 | ||||||||||
|
| |||||||||||
Insurance – 0.6% | ||||||||||||
American International Group, Inc. | 665 | 631,178 | ||||||||||
Coventry Health Care, Inc. | 415 | 432,256 |
abfunds.com | AB BOND INFLATION STRATEGY | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Guardian Life Insurance Co. of America (The) | U.S.$ | 183 | $ | 175,636 | ||||||||
Halfmoon Parent, Inc. | 318 | 315,294 | ||||||||||
4.125%, 11/15/25(c) | 374 | 369,534 | ||||||||||
4.375%, 10/15/28(c) | 501 | 489,387 | ||||||||||
MetLife, Inc. | 90 | 99,928 | ||||||||||
Nationwide Financial Services, Inc. | 360 | 371,790 | ||||||||||
Nationwide Mutual Insurance Co. | 125 | 188,525 | ||||||||||
New York Life Global Funding | 905 | 891,606 | ||||||||||
|
| |||||||||||
3,965,134 | ||||||||||||
|
| |||||||||||
REITS – 0.2% | ||||||||||||
American Tower Corp. | 398 | 398,227 | ||||||||||
Welltower, Inc. | 708 | 691,737 | ||||||||||
|
| |||||||||||
1,089,964 | ||||||||||||
|
| |||||||||||
44,355,904 | ||||||||||||
|
| |||||||||||
Industrial – 5.8% | ||||||||||||
Basic – 0.8% | ||||||||||||
Eastman Chemical Co. | 227 | 220,605 | ||||||||||
Mexichem SAB de CV | 826 | 826,000 | ||||||||||
Minsur SA | 314 | 319,103 | ||||||||||
Mosaic Co. (The) | 363 | 359,356 | ||||||||||
Sociedad Quimica y Minera de Chile SA | 393 | 379,736 | ||||||||||
Suzano Austria GmbH | 937 | 952,226 | ||||||||||
Vale Overseas Ltd. | 1,640 | 1,752,783 | ||||||||||
Yamana Gold, Inc. | 403 | 393,586 | ||||||||||
|
| |||||||||||
5,203,395 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.3% | ||||||||||||
Embraer Netherlands Finance BV | 590 | 608,438 |
20 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
General Electric Co. | U.S.$ | 191 | $ | 177,177 | ||||||||
United Technologies Corp. | 750 | 742,470 | ||||||||||
|
| |||||||||||
1,528,085 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.1% | ||||||||||||
CBS Corp. | 300 | 283,938 | ||||||||||
Cox Communications, Inc. | 163 | 155,171 | ||||||||||
Time Warner Cable LLC | 235 | 189,231 | ||||||||||
5.00%, 2/01/20 | 35 | 35,572 | ||||||||||
8.75%, 2/14/19 | 25 | 25,392 | ||||||||||
|
| |||||||||||
689,304 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.8% | ||||||||||||
AT&T, Inc. | 1,382 | 1,299,329 | ||||||||||
4.125%, 2/17/26 | 431 | 417,294 | ||||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | 1,150 | 1,149,287 | ||||||||||
Verizon Communications, Inc. | 574 | 549,312 | ||||||||||
Vodafone Group PLC | 478 | 467,431 | ||||||||||
4.125%, 5/30/25 | 1,046 | 1,024,756 | ||||||||||
|
| |||||||||||
4,907,409 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.0% | ||||||||||||
Baxalta, Inc. | 209 | 207,631 | ||||||||||
CVS Health Corp. | 685 | 676,403 | ||||||||||
4.30%, 3/25/28 | 685 | 667,519 | ||||||||||
Gilead Sciences, Inc. | 1,360 | 1,343,843 | ||||||||||
Mylan NV | EUR | 549 | 625,488 | |||||||||
Reynolds American, Inc. | U.S.$ | 570 | 597,947 | |||||||||
Sigma Alimentos SA de CV | 209 | 192,803 | ||||||||||
Tyson Foods, Inc. | 199 | 198,331 |
abfunds.com | AB BOND INFLATION STRATEGY | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
3.95%, 8/15/24 | U.S.$ | 650 | $ | 646,275 | ||||||||
Zimmer Biomet Holdings, Inc. | 570 | 563,935 | ||||||||||
Zoetis, Inc. | 509 | 509,840 | ||||||||||
|
| |||||||||||
6,230,015 | ||||||||||||
|
| |||||||||||
Energy – 1.7% | ||||||||||||
Cenovus Energy, Inc. | 33 | 31,569 | ||||||||||
5.70%, 10/15/19 | 61 | 62,445 | ||||||||||
Energy Transfer Partners LP | 510 | 527,121 | ||||||||||
Energy Transfer Partners LP/Regency Energy Finance Corp. | 115 | 115,736 | ||||||||||
Enterprise Products Operating LLC | 771 | 745,549 | ||||||||||
5.20%, 9/01/20 | 335 | 345,228 | ||||||||||
Hess Corp. | 1,053 | 992,052 | ||||||||||
Kinder Morgan Energy Partners LP | 104 | 104,943 | ||||||||||
5.00%, 10/01/21 | 1,200 | 1,237,752 | ||||||||||
Marathon Petroleum Corp. | 280 | 288,837 | ||||||||||
Noble Energy, Inc. | 491 | 477,360 | ||||||||||
4.15%, 12/15/21 | 561 | 565,454 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 621 | 590,590 | ||||||||||
Sabine Pass Liquefaction LLC | 418 | 421,808 | ||||||||||
TransCanada PipeLines Ltd. | 930 | 1,049,133 | ||||||||||
Valero Energy Corp. | 476 | 492,079 | ||||||||||
Western Gas Partners LP | 375 | 354,491 | ||||||||||
4.75%, 8/15/28 | 249 | 238,438 | ||||||||||
Williams Cos., Inc. (The) | 1,250 | 1,207,488 | ||||||||||
4.125%, 11/15/20 | 300 | 302,100 | ||||||||||
|
| |||||||||||
10,150,173 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
Alfa SAB de CV | 600 | 592,500 | ||||||||||
|
|
22 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Services – 0.3% | ||||||||||||
Expedia Group, Inc. | U.S.$ | 886 | $ | 801,254 | ||||||||
S&P Global, Inc. | 611 | 622,859 | ||||||||||
Total System Services, Inc. | 496 | 496,303 | ||||||||||
|
| |||||||||||
1,920,416 | ||||||||||||
|
| |||||||||||
Technology – 0.6% | ||||||||||||
Agilent Technologies, Inc. | 7 | 7,180 | ||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 190 | 182,066 | ||||||||||
3.875%, 1/15/27 | 407 | 373,528 | ||||||||||
Dell International LLC/EMC Corp. | 456 | 459,831 | ||||||||||
5.45%, 6/15/23(c) | 200 | 206,904 | ||||||||||
6.02%, 6/15/26(c) | 424 | 439,955 | ||||||||||
Hewlett Packard Enterprise Co. | 871 | 862,473 | ||||||||||
KLA-Tencor Corp. | 639 | 651,339 | ||||||||||
Lam Research Corp. | 250 | 244,873 | ||||||||||
Seagate HDD Cayman | 398 | 364,102 | ||||||||||
|
| |||||||||||
3,792,251 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 565 | 551,708 | ||||||||||
|
| |||||||||||
35,565,256 | ||||||||||||
|
| |||||||||||
Utility – 0.4% | ||||||||||||
Electric – 0.4% | ||||||||||||
CMS Energy Corp. | 144 | 149,692 | ||||||||||
Enel Chile SA | 821 | 806,633 | ||||||||||
Exelon Generation Co. LLC | 736 | 731,120 | ||||||||||
Israel Electric Corp., Ltd. | 620 | 626,200 | ||||||||||
|
| |||||||||||
2,313,645 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 82,234,805 | |||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 7.7% | ||||||||||||
Non-Agency Fixed Rate CMBS – 5.7% | ||||||||||||
CCUBS Commercial Mortgage Trust | U.S.$ | 1,210 | $ | 1,162,368 | ||||||||
CFCRE Commercial Mortgage Trust | 730 | 698,462 | ||||||||||
CGRBS Commercial Mortgage Trust | 885 | 875,191 | ||||||||||
Citigroup Commercial Mortgage Trust | 191 | 186,644 | ||||||||||
Series 2015-GC27, Class A5 | 1,382 | 1,332,224 | ||||||||||
Series 2015-GC27, Class XA | 12,654 | 830,599 | ||||||||||
Series 2015-GC35, Class A4 | 450 | 447,762 | ||||||||||
Series 2016-C1, Class A4 | 775 | 739,148 | ||||||||||
Series 2016-GC36, Class A5 | 565 | 554,924 | ||||||||||
Commercial Mortgage Trust | 227 | 218,224 | ||||||||||
Series 2015-CR24, Class A5 | 590 | 583,401 | ||||||||||
Series 2015-CR25, Class A4 | 1,155 | 1,147,653 | ||||||||||
Series 2015-DC1, Class A5 | 1,220 | 1,183,458 | ||||||||||
Series 2015-PC1, Class A5 | 745 | 743,666 | ||||||||||
CSAIL Commercial Mortgage Trust | 475 | 464,944 | ||||||||||
Series 2015-C3, Class A4 | 395 | 391,418 | ||||||||||
Series 2015-C4, Class A4 | 1,853 | 1,838,130 | ||||||||||
GS Mortgage Securities Corp. II | 684 | 679,908 |
24 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
GS Mortgage Securities Trust | U.S.$ | 392 | $ | 380,557 | ||||||
Series 2014-GC18, Class D | 581 | 525,151 | ||||||||
Series 2018-GS9, Class A4 | 1,150 | 1,142,725 | ||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 108 | 108,459 | ||||||||
Series 2011-C5, Class D | 129 | 128,192 | ||||||||
JPMBB Commercial Mortgage Securities Trust | 1,220 | 1,219,951 | ||||||||
Series 2014-C22, Class XA | 22,199 | 877,175 | ||||||||
Series 2015-C30, Class A5 | 585 | 582,472 | ||||||||
Series 2015-C31, Class A3 | 990 | 984,681 | ||||||||
Series 2015-C32, Class C | 545 | 536,476 | ||||||||
Series 2015-C33, Class A4 | 1,150 | 1,139,493 | ||||||||
JPMCC Commercial Mortgage Securities Trust | 9,028 | 611,040 | ||||||||
LB-UBS Commercial Mortgage Trust | 145 | 100,054 | ||||||||
LSTAR Commercial Mortgage Trust | 7 | 7,157 | ||||||||
Series 2015-3, Class A2 | 494 | 488,129 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 11,077 | 621,032 | ||||||||
Morgan Stanley Capital I Trust | 320 | 297,008 | ||||||||
Series 2016-UB12, Class A4 | 870 | 847,989 |
abfunds.com | AB BOND INFLATION STRATEGY | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
UBS Commercial Mortgage Trust | U.S.$ | 1,200 | $ | 1,221,276 | ||||||||
Series 2018-C8, Class A4 | 990 | 982,921 | ||||||||||
Series 2018-C9, Class A4 | 1,800 | 1,801,301 | ||||||||||
UBS-Barclays Commercial Mortgage Trust | 2,309 | 2,248,378 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 1,160 | 1,133,661 | ||||||||||
Series 2015-SG1, Class C | 537 | 520,555 | ||||||||||
Series 2016-LC25, Class C | 330 | 320,755 | ||||||||||
Series 2016-NXS6, Class A4 | 900 | 837,762 | ||||||||||
Series 2016-NXS6, Class C | 525 | 514,976 | ||||||||||
WF-RBS Commercial Mortgage Trust | 507 | 506,719 | ||||||||||
|
| |||||||||||
34,764,169 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 2.0% | ||||||||||||
Ashford Hospitality Trust | 1,093 | 1,091,503 | ||||||||||
Series 2018-KEYS, Class A | 1,250 | 1,250,072 | ||||||||||
BAMLL Commercial Mortgage Securities Trust | 1,755 | 1,774,813 | ||||||||||
BHMS Mortgage Trust | 1,235 | 1,234,641 | ||||||||||
Braemar Hotels & Resorts Trust | 1,000 | 999,372 |
26 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BX Trust | U.S.$ | 1,150 | $ | 1,149,996 | ||||||||
Series 2018-EXCL, Class A | 1,245 | 1,241,123 | ||||||||||
Credit Suisse Mortgage Trust | 185 | 185,308 | ||||||||||
Great Wolf Trust | 745 | 744,075 | ||||||||||
Morgan Stanley Capital I Trust | 195 | 195,011 | ||||||||||
Natixis Commercial Mortgage Securities Trust | 1,200 | 1,193,303 | ||||||||||
RETL | 495 | 495,182 | ||||||||||
Starwood Retail Property Trust | 988 | 989,456 | ||||||||||
|
| |||||||||||
12,543,855 | ||||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 47,308,024 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 4.6% | ||||||||||||
Autos - Fixed Rate – 2.2% | ||||||||||||
Avis Budget Rental Car Funding AESOP LLC | 193 | 192,652 | ||||||||||
Series 2018-1A, Class A | 1,760 | 1,742,481 | ||||||||||
Series 2018-2A, Class A | 1,425 | 1,425,995 | ||||||||||
CPS Auto Receivables Trust | 407 | 405,309 |
abfunds.com | AB BOND INFLATION STRATEGY | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Exeter Automobile Receivables Trust | U.S.$ | 250 | $ | 263,674 | ||||||||
Series 2016-3A, Class A | 16 | 15,973 | ||||||||||
Series 2017-2A, Class A | 148 | 147,748 | ||||||||||
Series 2017-3A, Class A | 390 | 388,356 | ||||||||||
Series 2018-2A, Class A | 499 | 498,739 | ||||||||||
Flagship Credit Auto Trust | 325 | 343,279 | ||||||||||
Series 2016-4, Class D | 330 | 327,909 | ||||||||||
Series 2017-2, Class A | 344 | 342,056 | ||||||||||
Series 2017-4, Class A | 215 | 212,962 | ||||||||||
Series 2018-3, Class B | 1,200 | 1,196,179 | ||||||||||
Ford Credit Auto Owner Trust | 728 | 722,849 | ||||||||||
Hertz Vehicle Financing II LP | 625 | 618,463 | ||||||||||
Series 2015-1A, Class B | 489 | 485,680 | ||||||||||
Series 2015-3A, Class A | 1,000 | 980,993 | ||||||||||
Series 2016-1A, Class A | 737 | 735,049 | ||||||||||
Series 2017-1A, Class A | 1,510 | 1,489,505 | ||||||||||
Santander Drive Auto Receivables Trust | 37 | 36,488 | ||||||||||
Westlake Automobile Receivables Trust | 875 | 890,962 | ||||||||||
|
| |||||||||||
13,463,301 | ||||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 1.5% | ||||||||||||
CLUB Credit Trust | 260 | 259,096 |
28 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CNH Equipment Trust | U.S.$ | 441 | $ | 440,071 | ||||||||
Consumer Loan Underlying Bond Credit Trust | 650 | 648,974 | ||||||||||
Marlette Funding Trust | 82 | 81,655 | ||||||||||
Series 2017-2A, Class A | 172 | 172,069 | ||||||||||
Series 2017-3A, Class A | 181 | 180,224 | ||||||||||
Series 2017-3A, Class B | 297 | 294,559 | ||||||||||
Series 2018-1A, Class A | 445 | 443,783 | ||||||||||
Series 2018-3A, Class A | 1,301 | 1,297,830 | ||||||||||
Prosper Marketplace Issuance Trust | 285 | 284,565 | ||||||||||
SBA Tower Trust | 851 | 844,175 | ||||||||||
SoFi Consumer Loan Program LLC | 110 | 109,524 | ||||||||||
Series 2016-3, Class A | 304 | 303,171 | ||||||||||
Series 2017-2, Class A | 734 | 732,065 | ||||||||||
Series 2017-5, Class A2 | 855 | 839,144 | ||||||||||
Series 2017-6, Class A2 | 990 | 978,394 | ||||||||||
SoFi Consumer Loan Program Trust | 1,166 | 1,167,321 | ||||||||||
|
| |||||||||||
9,076,620 | ||||||||||||
|
| |||||||||||
Credit Cards - Fixed Rate – 0.8% | ||||||||||||
GE Capital Credit Card Master Note Trust | 1,084 | 1,082,929 | ||||||||||
Synchrony Credit Card Master Note Trust | 209 | 208,450 |
abfunds.com | AB BOND INFLATION STRATEGY | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
World Financial Network Credit Card Master Trust | U.S.$ | 1,675 | $ | 1,656,950 | ||||||||
Series 2018-B, Class A | 850 | 848,149 | ||||||||||
Series 2018-B, Class M | 935 | 933,100 | ||||||||||
|
| |||||||||||
4,729,578 | ||||||||||||
|
| |||||||||||
Autos - Floating Rate – 0.1% | ||||||||||||
Ford Credit Floorplan Master Owner Trust | 692 | 694,955 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 27,964,454 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 4.4% | ||||||||||||
Risk Share Floating Rate – 3.5% | ||||||||||||
Bellemeade Re Ltd. | 364 | 365,224 | ||||||||||
Series 2018-3A, Class M1B | 755 | 754,998 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 1,588 | 1,755,010 | ||||||||||
Series 2014-DN3, Class M3 | 859 | 935,769 | ||||||||||
Series 2014-HQ3, Class M3 | 273 | 301,956 | ||||||||||
Series 2015-DNA2, Class M2 | 362 | 368,420 | ||||||||||
Series 2015-DNA2, Class M3 | 805 | 887,418 | ||||||||||
Series 2015-HQA1, Class M2 | 251 | 255,348 |
30 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2015-HQA2, Class M3 | U.S.$ | 276 | $ | 320,139 | ||||||||
Series 2016-DNA1, Class M3 | 324 | 389,132 | ||||||||||
Series 2016-DNA2, Class M3 | 1,100 | 1,261,410 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 424 | 452,089 | ||||||||||
Series 2014-C04, Class 1M2 | 424 | 484,414 | ||||||||||
Series 2014-C04, Class 2M2 | 128 | 144,240 | ||||||||||
Series 2015-C01, Class 1M2 | 1,037 | 1,136,087 | ||||||||||
Series 2015-C01, Class 2M2 | 244 | 263,255 | ||||||||||
Series 2015-C02, Class 1M2 | 386 | 422,926 | ||||||||||
Series 2015-C02, Class 2M2 | 282 | 303,985 | ||||||||||
Series 2015-C03, Class 1M2 | 506 | 569,033 | ||||||||||
Series 2015-C03, Class 2M2 | 485 | 538,873 | ||||||||||
Series 2015-C04, Class 1M2 | 987 | 1,141,218 | ||||||||||
Series 2015-C04, Class 2M2 | 472 | 535,023 | ||||||||||
Series 2016-C01, Class 1M2 | 587 | 705,380 |
abfunds.com | AB BOND INFLATION STRATEGY | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2016-C01, Class 2M2 | U.S.$ | 429 | $ | 504,812 | ||||||||
Series 2016-C02, Class 1M2 | 505 | 589,889 | ||||||||||
Series 2016-C03, Class 2M2 | 1,834 | 2,104,000 | ||||||||||
Series 2016-C05, Class 2M2 | 1,165 | 1,294,850 | ||||||||||
Series 2016-C07, Class 2M2 | 1,138 | 1,264,189 | ||||||||||
Series 2018-R07, Class 1M2 | 711 | 710,909 | ||||||||||
Home Re Ltd. | 574 | 573,680 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 29 | 28,946 | ||||||||||
|
| |||||||||||
21,362,622 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 0.9% | ||||||||||||
Federal Home Loan Mortgage Corp. REMICs | 5,144 | 716,130 | ||||||||||
Series 4693, Class SL | 2,725 | 450,850 | ||||||||||
Series 4727, Class SA | 3,130 | 502,841 | ||||||||||
Federal National Mortgage Association REMICs | 1,389 | 236,619 | ||||||||||
Series 2014-17, Class SA | 3,426 | 496,936 |
32 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2014-78, Class SE | U.S.$ | 2,405 | $ | 349,573 | ||||||||
Series 2014-92, Class SX | 3,073 | 446,634 | ||||||||||
Series 2016-77, Class DS | 2,826 | 416,597 | ||||||||||
Series 2017-62, Class AS | 2,795 | 433,028 | ||||||||||
Series 2017-81, Class SA | 2,918 | 472,169 | ||||||||||
Series 2017-97, Class LS | 2,993 | 507,490 | ||||||||||
Government National Mortgage Association | 2,016 | 324,850 | ||||||||||
Series 2017-134, Class MS | 1,942 | 331,212 | ||||||||||
|
| |||||||||||
5,684,929 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 27,047,551 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 3.0% | ||||||||||||
Industrial – 1.7% | ||||||||||||
Communications - Media – 0.4% | ||||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 656 | 624,381 | ||||||||||
5.00%, 2/01/28(c) | 702 | 654,152 | ||||||||||
CSC Holdings LLC | 145 | 151,738 | ||||||||||
Sirius XM Radio, Inc. | 897 | 843,054 | ||||||||||
|
| |||||||||||
2,273,325 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
Sprint Capital Corp. | 1,000 | 1,012,700 | ||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Adient Global Holdings Ltd. | U.S.$ | 321 | $ | 275,280 | ||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.2% | ||||||||||||
International Game Technology PLC | 360 | 371,567 | ||||||||||
6.50%, 2/15/25(c) | 460 | 466,799 | ||||||||||
KB Home | 345 | 345,186 | ||||||||||
|
| |||||||||||
1,183,552 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
HCA, Inc. | 733 | 727,055 | ||||||||||
Tenet Healthcare Corp. | 967 | 929,113 | ||||||||||
|
| |||||||||||
1,656,168 | ||||||||||||
|
| |||||||||||
Energy – 0.6% | ||||||||||||
Antero Resources Corp. | 146 | 145,238 | ||||||||||
Diamond Offshore Drilling, Inc. | 575 | 398,027 | ||||||||||
Nabors Industries, Inc. | 671 | 631,243 | ||||||||||
5.75%, 2/01/25 | 614 | 565,924 | ||||||||||
PDC Energy, Inc. | 643 | 590,017 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 618 | 596,932 | ||||||||||
5.875%, 3/15/28(c) | 640 | 596,390 | ||||||||||
|
| |||||||||||
3,523,771 | ||||||||||||
|
| |||||||||||
Technology – 0.1% | ||||||||||||
Western Digital Corp. | 480 | 443,895 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.0% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 270 | 241,010 | ||||||||||
|
| |||||||||||
10,609,701 | ||||||||||||
|
| |||||||||||
Financial Institutions – 1.2% | ||||||||||||
Banking – 0.9% | ||||||||||||
American Express Co. | 485 | 483,031 |
34 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Barclays Bank PLC | U.S.$ | 137 | $ | 146,901 | ||||||||
CIT Group, Inc. | 579 | 583,429 | ||||||||||
Citigroup, Inc. | 257 | 256,553 | ||||||||||
Series O | 485 | 491,737 | ||||||||||
Series Q | 409 | 415,245 | ||||||||||
Goldman Sachs Group, Inc. (The) | 650 | 599,333 | ||||||||||
Morgan Stanley | 195 | 198,239 | ||||||||||
Royal Bank of Scotland Group PLC | EUR | 150 | 163,951 | |||||||||
8.625%, 8/15/21(d) | U.S.$ | 480 | 505,358 | |||||||||
Series U | 600 | 561,516 | ||||||||||
Standard Chartered PLC | 400 | 329,248 | ||||||||||
7.50%, 4/02/22(c)(d) | 380 | 384,275 | ||||||||||
SunTrust Banks, Inc. | 300 | 302,994 | ||||||||||
|
| |||||||||||
5,421,810 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
Navient Corp. | 722 | 701,805 | ||||||||||
6.625%, 7/26/21 | 415 | 427,442 | ||||||||||
7.25%, 1/25/22 | 54 | 56,255 | ||||||||||
|
| |||||||||||
1,185,502 | ||||||||||||
|
| |||||||||||
Insurance – 0.1% | ||||||||||||
Voya Financial, Inc. | 335 | 330,176 | ||||||||||
|
| |||||||||||
6,937,488 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
AES Corp./VA | 562 | 556,706 | ||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 18,103,895 | |||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.4% | ||||||||||||
Industrial – 0.3% | ||||||||||||
Capital Goods – 0.0% | ||||||||||||
Odebrecht Finance Ltd. | U.S.$ | 426 | $ | 70,290 | ||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
Millicom International Cellular SA | 625 | 633,606 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.1% | ||||||||||||
BRF SA | 312 | 281,580 | ||||||||||
Minerva Luxembourg SA | 218 | 200,320 | ||||||||||
Virgolino de Oliveira Finance SA | 655 | 39,922 | ||||||||||
|
| |||||||||||
521,822 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg SARL | 458 | 434,528 | ||||||||||
|
| |||||||||||
1,660,246 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Genneia SA | 366 | 339,923 | ||||||||||
Terraform Global Operating LLC | 222 | 207,370 | ||||||||||
|
| |||||||||||
547,293 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 2,207,539 | |||||||||||
|
| |||||||||||
QUASI-SOVEREIGNS – 0.2% | ||||||||||||
Quasi-Sovereign Bonds – 0.2% | ||||||||||||
Indonesia – 0.2% | ||||||||||||
Pertamina Persero PT | 575 | 572,125 | ||||||||||
Perusahaan Listrik Negara PT | 776 | 767,270 | ||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 1,339,395 | |||||||||||
|
| |||||||||||
36 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.1% | ||||||||||||
Mexico – 0.1% | ||||||||||||
Mexico Government International Bond | U.S.$ | 650 | $ | 614,250 | ||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 0.1% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentina POM Politica Monetaria | ARS | 8,700 | 274,555 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.0% | ||||||||||||
Financials – 0.0% | ||||||||||||
Insurance – 0.0% | ||||||||||||
Mt Logan Re Ltd. (Preference Shares)(f)(m) | 260 | 260,766 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.0% | ||||||||||||
Egypt – 0.0% | ||||||||||||
Egypt Government International Bond | U.S.$ | 255 | 251,812 | |||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 3.0% | ||||||||||||
Governments – Treasuries – 3.0% | ||||||||||||
Japan – 3.0% | ||||||||||||
Japan Treasury Discount Bill | JPY | 1,343,500 | 11,906,886 | |||||||||
Series 776 | 740,000 | 6,558,511 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 18,465,397 | |||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Investment Companies – 0.0% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, | 245,202 | $ | 245,202 | |||||||||
|
| |||||||||||
Total Short-Term Investments | 18,710,599 | |||||||||||
|
| |||||||||||
Total Investments – 128.7% | 789,066,768 | |||||||||||
Other assets less liabilities – (28.7)% | (175,985,081 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 613,081,687 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at October 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 99 | | December 2018 | | USD | 19,800 | $ | 20,924,696 | $ | 20,854,969 | $ | (69,727 | ) | |||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 430 | | December 2018 | | USD | 43,000 | 48,676,456 | 48,324,610 | (351,846 | ) | ||||||||||||||
Sold Contracts | ||||||||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 4 | | December 2018 | | JPY | 400,000 | 5,328,023 | 5,339,833 | (11,810 | ) | ||||||||||||||
Euro-BOBL Futures | 45 | | December 2018 | | EUR | 4,500 | 6,708,015 | 6,699,400 | 8,615 | |||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 906 | | December 2018 | | USD | 90,600 | 108,620,356 | 107,304,375 | 1,315,981 | |||||||||||||||
U.S. Ultra Bond (CBT) Futures | 58 | | December 2018 | | USD | 5,800 | 9,097,542 | 8,654,688 | 442,854 | |||||||||||||||
|
| |||||||||||||||||||||||
$ | 1,334,067 | |||||||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Barclays Bank PLC | KRW | 1,765,357 | USD | 1,547 | 11/15/18 | $ | 181 | |||||||||
Barclays Bank PLC | USD | 1,539 | INR | 107,103 | 12/13/18 | (99,972 | ) | |||||||||
BNP Paribas SA | MXN | 17,556 | USD | 927 | 12/05/18 | 67,171 | ||||||||||
BNP Paribas SA | CNY | 15,020 | USD | 2,170 | 12/13/18 | 20,022 | ||||||||||
BNP Paribas SA | USD | 797 | JPY | 90,042 | 11/05/18 | 1,262 |
38 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Citibank, NA | JPY | 2,773,957 | USD | 24,425 | 11/05/18 | $ | (164,193 | ) | ||||||||
Citibank, NA | NOK | 12,506 | USD | 1,497 | 11/15/18 | 12,152 | ||||||||||
Citibank, NA | USD | 797 | JPY | 90,042 | 11/05/18 | 1,273 | ||||||||||
Citibank, NA | USD | 1,518 | INR | 105,929 | 12/13/18 | (95,075 | ) | |||||||||
Deutsche Bank AG | USD | 1,256 | JPY | 140,446 | 12/13/18 | (7,619 | ) | |||||||||
Goldman Sachs Bank USA | NZD | 2,403 | USD | 1,550 | 12/07/18 | (18,258 | ) | |||||||||
HSBC Bank USA | AUD | 5,480 | USD | 3,887 | 12/07/18 | 5,028 | ||||||||||
HSBC Bank USA | BRL | 3,514 | USD | 956 | 11/05/18 | 12,206 | ||||||||||
HSBC Bank USA | ARS | 2,974 | USD | 76 | 11/13/18 | (5,552 | ) | |||||||||
HSBC Bank USA | ARS | 2,915 | USD | 76 | 11/16/18 | (3,882 | ) | |||||||||
HSBC Bank USA | CAD | 2,047 | USD | 1,585 | 11/16/18 | 30,252 | ||||||||||
HSBC Bank USA | ARS | 5,069 | USD | 127 | 11/05/18 | (13,829 | ) | |||||||||
HSBC Bank USA | USD | 945 | BRL | 3,514 | 11/05/18 | (966 | ) | |||||||||
HSBC Bank USA | USD | 954 | BRL | 3,514 | 12/04/18 | (12,642 | ) | |||||||||
JPMorgan Chase Bank, NA | NOK | 12,750 | USD | 1,541 | 11/15/18 | 27,471 | ||||||||||
JPMorgan Chase Bank, NA | GBP | 4,124 | USD | 5,460 | 12/14/18 | 178,358 | ||||||||||
JPMorgan Chase Bank, NA | EUR | 1,388 | NOK | 13,299 | 11/15/18 | 4,822 | ||||||||||
JPMorgan Chase Bank, NA | USD | 1,530 | NOK | 12,400 | 11/15/18 | (58,435 | ) | |||||||||
JPMorgan Chase Bank, NA | USD | 1,224 | TWD | 37,577 | 12/11/18 | (6,533 | ) | |||||||||
Morgan Stanley Capital Services, Inc. | BRL | 1,198 | USD | 290 | 11/05/18 | (31,891 | ) | |||||||||
Morgan Stanley Capital Services, Inc. | USD | 322 | BRL | 1,198 | 11/05/18 | (329 | ) | |||||||||
Natwest Markets PLC | USD | 1,552 | CAD | 2,035 | 11/16/18 | (5,736 | ) | |||||||||
Standard Chartered Bank | KRW | 1,738,272 | USD | 1,548 | 11/15/18 | 25,226 | ||||||||||
Standard Chartered Bank | TWD | 186,968 | USD | 6,110 | 12/11/18 | 53,398 | ||||||||||
Standard Chartered Bank | INR | 72,680 | USD | 974 | 12/13/18 | (2,373 | ) | |||||||||
Standard Chartered Bank | BRL | 4,712 | USD | 1,267 | 11/05/18 | 1,294 | ||||||||||
Standard Chartered Bank | USD | 304 | BRL | 1,195 | 11/05/18 | 17,077 | ||||||||||
Standard Chartered Bank | USD | 946 | BRL | 3,517 | 11/05/18 | (817 | ) | |||||||||
Standard Chartered Bank | USD | 2,108 | TWD | 64,326 | 12/11/18 | (24,641 | ) | |||||||||
Standard Chartered Bank | USD | 1,477 | INR | 108,640 | 12/13/18 | (17,076 | ) | |||||||||
Standard Chartered Bank | USD | 3,144 | KRW | 3,502,325 | 11/15/18 | (75,315 | ) | |||||||||
State Street Bank & Trust Co. | JPY | 5,904 | USD | 53 | 12/13/18 | 359 | ||||||||||
State Street Bank & Trust Co. | PLN | 5,679 | USD | 1,537 | 1/18/19 | 53,578 | ||||||||||
State Street Bank & Trust Co. | JPY | 3,639 | USD | 32 | 11/05/18 | 214 | ||||||||||
State Street Bank & Trust Co. | NOK | 1,238 | USD | 151 | 11/15/18 | 4,266 | ||||||||||
State Street Bank & Trust Co. | NZD | 750 | USD | 489 | 12/07/18 | (1,060 | ) | |||||||||
State Street Bank & Trust Co. | EUR | 691 | USD | 800 | 1/09/19 | 12,000 | ||||||||||
State Street Bank & Trust Co. | SEK | 628 | USD | 70 | 11/15/18 | 1,392 | ||||||||||
State Street Bank & Trust Co. | CAD | 281 | USD | 217 | 11/16/18 | 3,752 | ||||||||||
State Street Bank & Trust Co. | USD | 227 | CAD | 293 | 11/16/18 | (4,582 | ) | |||||||||
State Street Bank & Trust Co. | USD | 150 | NOK | 1,238 | 11/15/18 | (3,064 | ) | |||||||||
State Street Bank & Trust Co. | USD | 2,217 | MYR | 8,937 | 11/29/18 | (83,303 | ) | |||||||||
|
| |||||||||||||||
$ | (204,389 | ) | ||||||||||||||
|
|
abfunds.com | AB BOND INFLATION STRATEGY | 39 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||
CDX-NAIG Series 31, 5 Year Index, 12/20/23* | (1.00 | )% | Quarterly | 0.68 | % | USD | 8,750 | $ | (140,753 | ) | $ | (158,461 | ) | $ | 17,708 |
* | 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 | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
EUR | 40,940 | 6/11/20 | (0.115%) | 6 Month EURIBOR | Annual/ Semi-Annual | $ | (74,255 | ) | $ | — | $ | (74,255 | ) | |||||||||
AUD | 47,270 | 6/21/20 | 2.118% | 3 Month BBSW | Quarterly/ Quarterly | (89,423 | ) | — | (89,423 | ) | ||||||||||||
NOK | 538,890 | 6/22/20 | 6 Month NIBOR | 1.378% | Semi-Annual/ Annual | (118,114 | ) | — | (118,114 | ) | ||||||||||||
EUR | 34,450 | 8/07/20 | (0.143%) | 6 Month EURIBOR | Annual/ Semi-Annual | (21,492 | ) | — | (21,492 | ) | ||||||||||||
USD | 4,610 | 8/22/22 | 3 Month LIBOR | 2.886% | Quarterly/Semi-Annual | (35,894 | ) | — | (35,894 | ) | ||||||||||||
USD | 15,580 | 9/10/23 | 3 Month LIBOR | 2.896% | Quarterly/Semi-Annual | (160,606 | ) | — | (160,606 | ) | ||||||||||||
USD | 1,160 | 6/09/25 | 2.488% | 3 Month LIBOR | Semi-Annual/Quarterly | 40,102 | — | 40,102 | ||||||||||||||
USD | 2,106 | 8/04/25 | 2.293% | 3 Month LIBOR | Semi-Annual/Quarterly | 114,082 | — | 114,082 | ||||||||||||||
USD | 5,400 | 10/04/26 | 1.487% | 3 Month LIBOR | Semi-Annual/Quarterly | 656,523 | — | 656,523 | ||||||||||||||
USD | 1,080 | 11/08/26 | 1.657% | 3 Month LIBOR | Semi-Annual/Quarterly | 114,834 | — | 114,834 | ||||||||||||||
USD | 1,080 | 11/09/26 | 1.672% | 3 Month LIBOR | Semi-Annual/Quarterly | 113,626 | — | 113,626 |
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 | 7,030 | 4/04/27 | 2.436% | 3 Month LIBOR | Semi-Annual/Quarterly | $ | 405,748 | $ | — | $ | 405,748 | |||||||||||
USD | 2,190 | 7/12/27 | 2.355% | 3 Month LIBOR | Semi-Annual/Quarterly | 131,837 | — | 131,837 | ||||||||||||||
USD | 3,380 | 3/28/28 | 2.920% | 3 Month LIBOR | Semi-Annual/Quarterly | 85,614 | — | 85,614 | ||||||||||||||
NOK | 61,650 | 8/31/28 | 2.186% | 6 Month NIBOR | Annual/ Semi-Annual | 51,791 | — | 51,791 | ||||||||||||||
USD | 3,690 | 8/31/28 | 3 Month LIBOR | 2.986% | Quarterly/ Semi-Annual | (76,208 | ) | — | (76,208 | ) | ||||||||||||
USD | 1,490 | 11/10/35 | 2.631% | 3 Month LIBOR | Semi-Annual/Quarterly | 128,330 | — | 128,330 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||
$ | 1,266,495 | $ | — | $ | 1,266,495 | |||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||
Sprint Communications, Inc., | (5.00 | )% | Quarterly | 0.30 | % | USD | 466 | $ | (16,635 | ) | $ | (3,625 | ) | $ | (13,010 | ) | ||||||||||||
Sprint Communications, Inc., | (5.00 | ) | Quarterly | 0.30 | USD | 534 | (19,063 | ) | (4,307 | ) | (14,756 | ) | ||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 30 | (78 | ) | 376 | (454 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 1,683 | 129,114 | 121,662 | 7,452 |
abfunds.com | AB BOND INFLATION STRATEGY | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) % | Monthly | 4.43 | % | USD | 1,367 | $ | 104,872 | $ | 102,271 | $ | 2,601 | |||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 346 | 26,544 | 24,337 | 2,207 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 346 | 26,544 | 24,337 | 2,207 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 328 | 25,163 | 23,588 | 1,575 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 1,367 | 104,872 | 105,877 | (1,005 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 683 | 52,397 | 56,184 | (3,787 | ) | ||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 26 | (67 | ) | 236 | (303 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 2,785 | (7,233 | ) | 34,662 | (41,895 | ) | |||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 354 | (920 | ) | 4,750 | (5,670 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 1,041 | (2,703 | ) | 10,866 | (13,569 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 3,469 | (9,010 | ) | 36,521 | (45,531 | ) | |||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 226 | (587 | ) | 2,132 | (2,719 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 387 | (1,005 | ) | 5,151 | (6,156 | ) | |||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 418 | (1,086 | ) | 5,415 | (6,501 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 836 | (2,171 | ) | 10,830 | (13,001 | ) |
42 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 547 | $ | (75,824 | ) | $ | (86,188 | ) | $ | 10,364 | |||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 209 | (28,971 | ) | (31,969 | ) | 2,998 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 67 | (9,287 | ) | (11,076 | ) |
| 1,789 |
| ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 210 | (29,109 | ) | (29,264 | ) | 155 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 69 | (9,564 | ) | (9,120 | ) | (444 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 248 | (34,377 | ) | (33,758 | ) | (619 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 335 | (46,437 | ) | (45,061 | ) | (1,376 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 292 | (40,476 | ) | (38,025 | ) | (2,451 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 340 | (47,129 | ) | (44,275 | ) | (2,854 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 475 | (65,843 | ) | (61,855 | ) | (3,988 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 723 | (100,220 | ) | (91,836 | ) | (8,384 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 475 | (65,843 | ) | (55,813 | ) | (10,030 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 376 | (52,120 | ) | (41,524 | ) | (10,596 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 683 | (94,675 | ) | (80,253 | ) | (14,422 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 950 | (131,686 | ) | (109,160 | ) | (22,526 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 953 | (132,102 | ) | (107,355 | ) | (24,747 | ) |
abfunds.com | AB BOND INFLATION STRATEGY | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 1,016 | $ | (140,835 | ) | $ | (112,346 | ) | $ | (28,489 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,367 | (189,489 | ) | (157,076 | ) | (32,413 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,367 | (189,489 | ) | (153,992 | ) | (35,497 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,683 | (233,292 | ) | (185,156 | ) | (48,136 | ) | |||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 1,145 | (25,775 | ) | (26,136 | ) | 361 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 226 | (31,328 | ) | (34,412 | ) | 3,084 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 5 | (693 | ) | (641 | ) | (52 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 139 | (19,268 | ) | (17,700 | ) | (1,568 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 122 | (16,911 | ) | (15,262 | ) | (1,649 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 130 | (18,020 | ) | (10,820 | ) | (7,200 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 169 | (23,426 | ) | (14,365 | ) | (9,061 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 138 | (19,129 | ) | (9,793 | ) | (9,336 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 326 | (45,189 | ) | (31,924 | ) | (13,265 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 471 | (65,289 | ) | (31,273 | ) | (34,016 | ) | |||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 30 | (4,158 | ) | (3,609 | ) | (549 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 130 | (18,020 | ) | (16,813 | ) | (1,207 | ) |
44 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 150 | $ | (20,793 | ) | $ | (19,400 | ) | $ | (1,393 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 217 | (30,080 | ) | (25,476 | ) | (4,604 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 218 | (30,218 | ) | (25,583 | ) | (4,635 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 247 | (34,238 | ) | (27,311 | ) | (6,927 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 464 | (64,318 | ) | (39,172 | ) | (25,146 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 436 | (60,437 | ) | (32,104 | ) | (28,333 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 662 | (91,765 | ) | (47,620 | ) | (44,145 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 714 | (98,972 | ) | (42,063 | ) | (56,909 | ) | |||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 517 | (71,665 | ) | (87,977 | ) | 16,312 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 598 | (82,892 | ) | (94,348 | ) | 11,456 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 371 | (51,427 | ) | (62,237 | ) | 10,810 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 15 | (2,079 | ) | (2,338 | ) | 259 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 322 | (44,634 | ) | (44,978 | ) | 344 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 27 | (3,743 | ) | (3,554 | ) | (189 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 15 | (2,080 | ) | (1,380 | ) | (700 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 30 | (4,158 | ) | (3,041 | ) | (1,117 | ) |
abfunds.com | AB BOND INFLATION STRATEGY | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 30 | $ | (4,158 | ) | $ | (2,810 | ) | $ | (1,348 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 59 | (8,178 | ) | (6,537 | ) | (1,641 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,000 | (138,617 | ) | (135,881 | ) | (2,736 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 166 | (23,010 | ) | (18,152 | ) | (4,858 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 178 | (24,674 | ) | (15,787 | ) | (8,887 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 710 | (98,418 | ) | (83,907 | ) | (14,511 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,300 | (180,201 | ) | (157,601 | ) | (22,600 | ) | |||||||||||||||||
JPMorgan Securities LLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 118 | (16,357 | ) | (15,455 | ) | (902 | ) | |||||||||||||||||
Morgan Stanley & Co. International PLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,100 | (152,478 | ) | (166,852 | ) | 14,374 | ||||||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 191 | (26,476 | ) | (13,824 | ) | (12,652 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (2,961,092 | ) | $ | (2,311,975 | ) | $ | (649,117 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | 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 | 17,640 | 7/15/21 | 1.765 | % | CPI | # | Maturity | $ | 323,463 | ||||||||||||||
Barclays Bank PLC | USD | 20,750 | 7/15/20 | 1.527 | % | CPI | # | Maturity | 409,615 | |||||||||||||||
Barclays Bank PLC | USD | 6,950 | 1/15/21 | 1.490 | % | CPI | # | Maturity | 146,213 | |||||||||||||||
Deutsche Bank AG | USD | 5,190 | 7/15/21 | 2.152 | % | CPI | # | Maturity | 16,296 | |||||||||||||||
|
| |||||||||||||||||||||||
$ | 895,587 | |||||||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
46 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
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 | $ | 48,992 |
VARIANCE SWAPS (see Note D)
Swap Counterparty & | Volatility Strike Rate | 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 | $ | 11,784 | $ | – 0 | – | $ | 11,784 | ||||||||||||
AUD/JPY 3/03/20* | 12.75 | Maturity | AUD | 33 | (7,280 | ) | – 0 | – | (7,280 | ) | ||||||||||||||
Goldman Sachs Bank USA |
| |||||||||||||||||||||||
AUD/JPY 3/10/20* | 12.90 | % | Maturity | AUD | 15 | (3,834 | ) | – 0 | – | (3,834 | ) | |||||||||||||
AUD/JPY 3/11/20* | 12.80 | Maturity | AUD | 18 | (3,956 | ) | – 0 | – | (3,956 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (3,286 | ) | $ | – 0 | – | $ | (3,286 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Interest Rate | Maturity | U.S. $ Value at October 31, 2018 | |||||||||
Bank of America | 2.37 | % | 1/03/19 | $ | 16,738,145 | |||||||
Bank of America | 2.40 | % | 1/08/19 | 37,700,243 | ||||||||
HSBC Bank USA | 2.27 | % | 10/26/19 | 11,074,170 | ||||||||
HSBC Bank USA+ | 2.27 | % | — | 47,911,513 | ||||||||
HSBC Bank USA | 2.45 | % | 1/08/19 | 11,172,953 | ||||||||
JPMorgan Chase Bank | 2.30 | % | 10/25/19 | 12,513,594 | ||||||||
JPMorgan Chase Bank | 2.30 | % | 10/25/20 | 5,987,677 | ||||||||
JPMorgan Chase Bank+ | 2.30 | % | — | 8,388,250 | ||||||||
JPMorgan Chase Bank | 2.42 | % | 1/23/19 | 37,247,972 | ||||||||
|
| |||||||||||
$ | 188,734,517 | |||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on October 31, 2018 |
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 | ||||||||||||||||
Inflation-Linked Securities | $ | 56,299,763 | $ | – 0 | – | $ | – 0 | – | $ | 132,434,754 | $ | 188,734,517 |
abfunds.com | AB BOND INFLATION STRATEGY | 47 |
PORTFOLIO OF INVESTMENTS (continued)
(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 October 31, 2018, the aggregate market value of these securities amounted to $67,872,452 or 11.1% of net assets. |
(d) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(e) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2018. |
(f) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(g) | IO – Interest Only. |
(h) | Illiquid security. |
(i) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.01% of net assets as of October 31, 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 | ||||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | $ | 363,153 | $ | 39,922 | 0.01 | % | |||||||||
Wells Fargo Credit Risk | 9/28/15 | 28,854 | 28,946 | 0.00 | % |
(j) | Inverse interest only security. |
(k) | Non-income producing security. |
(l) | Defaulted matured security. |
(m) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Mt Logan Re Ltd. | 12/30/14 | $ | 260,000 | $ | 260,766 | 0.04 | % |
(n) | Affiliated investments. |
(o) | 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. |
(p) | 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
CNY – Chinese Yuan Renminbi
EUR – Euro
GBP – Great British Pound
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
MXN – Mexican Peso
MYR – Malaysian Ringgit
NOK – Norwegian Krone
NZD – New Zealand Dollar
48 | AB BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
PLN – Polish Zloty
SEK – Swedish Krona
TWD – New Taiwan Dollar
USD – United States Dollar
Glossary:
ABS – Asset-Backed Securities
ARLLMONP – Argentina Blended Policy Rate
BBSW – Bank Bill Swap Reference Rate (Australia)
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CPI – Consumer Price Index
EURIBOR – Euro Interbank Offered Rate
LIBOR – London Interbank Offered Rates
NIBOR – Norwegian Interbank Offered Rate
OSE – Osaka Securities Exchange
REIT – Real Estate Investment Trust
REMICs – Real Estate Mortgage Investment Conduits
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 49 |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2018
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $809,359,122) | $ | 788,821,566 | ||
Affiliated issuers (cost $245,202) | 245,202 | |||
Cash | 197,042 | |||
Cash collateral due from broker | 1,890,988 | |||
Foreign currencies, at value (cost $249) | 26,236 | |||
Receivable for investment securities sold | 12,924,407 | |||
Interest receivable | 2,593,476 | |||
Receivable for capital stock sold | 1,488,226 | |||
Unrealized appreciation on inflation swaps | 895,587 | |||
Unrealized appreciation on forward currency exchange contracts | 532,754 | |||
Market value on credit default swaps (net premiums paid $458,256) | 469,506 | |||
Receivable for variation margin on futures | 265,129 | |||
Unrealized appreciation on interest rate swaps | 48,992 | |||
Market value on variance swaps | 11,784 | |||
Affiliated dividends receivable | 7,052 | |||
Receivable for variation margin on centrally cleared swaps | 2,444 | |||
|
| |||
Total assets | 810,420,391 | |||
|
| |||
Liabilities |
| |||
Payable for reverse repurchase agreements | 188,734,517 | |||
Market value on credit default swaps (net premiums received $2,770,231) | 3,430,598 | |||
Payable for investment securities purchased | 2,742,242 | |||
Unrealized depreciation on forward currency exchange contracts | 737,143 | |||
Payable for capital stock redeemed | 723,415 | |||
Cash collateral due to broker | 410,000 | |||
Advisory fee payable | 145,815 | |||
Distribution fee payable | 45,887 | |||
Administrative fee payable | 22,199 | |||
Market value on variance swaps | 15,070 | |||
Transfer Agent fee payable | 13,345 | |||
Directors’ fees payable | 2,071 | |||
Accrued expenses and other liabilities | 316,402 | |||
|
| |||
Total liabilities | 197,338,704 | |||
|
| |||
Net Assets | $ | 613,081,687 | ||
|
| |||
Composition of Net Assets |
| |||
Capital stock, at par | $ | 59,042 | ||
Additional paid-in capital | 641,780,003 | |||
Accumulated loss | (28,757,358 | ) | ||
|
| |||
$ | 613,081,687 | |||
|
|
See notes to financial statements.
50 | 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 | $ | 52,116,280 | 4,975,601 | $ | 10.47 | * | ||||||
| ||||||||||||
C | $ | 3,390,324 | 331,160 | $ | 10.24 | |||||||
| ||||||||||||
Advisor | $ | 150,010,909 | 14,299,774 | $ | 10.49 | |||||||
| ||||||||||||
R | $ | 6,353,938 | 607,439 | $ | 10.46 | |||||||
| ||||||||||||
K | $ | 12,054,921 | 1,153,074 | $ | 10.45 | |||||||
| ||||||||||||
I | $ | 5,688,116 | 547,892 | $ | 10.38 | |||||||
| ||||||||||||
1 | $ | 306,620,076 | 29,690,266 | $ | 10.33 | |||||||
| ||||||||||||
2 | $ | 50,705,008 | 4,912,331 | $ | 10.32 | |||||||
| ||||||||||||
Z | $ | 26,142,115 | 2,524,771 | $ | 10.35 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.93 which reflects a sales charge of 4.25%. |
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 51 |
STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Interest | $ | 21,935,849 | ||||||
Dividends | ||||||||
Affiliated issuers | 77,482 | |||||||
Unaffiliated issuers | 11,095 | |||||||
Other income | 838 | $ | 22,025,264 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 2,881,910 | |||||||
Distribution fee—Class A | 121,417 | |||||||
Distribution fee—Class C | 35,888 | |||||||
Distribution fee—Class R | 29,560 | |||||||
Distribution fee—Class K | 18,779 | |||||||
Distribution fee—Class 1 | 295,940 | |||||||
Transfer agency—Class A | 63,078 | |||||||
Transfer agency—Class C | 4,821 | |||||||
Transfer agency—Advisor Class | 177,911 | |||||||
Transfer agency—Class R | 13,486 | |||||||
Transfer agency—Class K | 12,340 | |||||||
Transfer agency—Class I | 2,696 | |||||||
Transfer agency—Class 1 | 37,343 | |||||||
Transfer agency—Class 2 | 6,929 | |||||||
Transfer agency—Class Z | 4,373 | |||||||
Custodian | 218,531 | |||||||
Registration fees | 163,967 | |||||||
Audit and tax | 108,752 | |||||||
Printing | 78,495 | |||||||
Administrative | 63,611 | |||||||
Legal | 53,153 | |||||||
Directors’ fees | 25,435 | |||||||
Miscellaneous | 28,589 | |||||||
|
| |||||||
Total expenses before interest expense | 4,447,004 | |||||||
Interest expense | 3,139,181 | |||||||
|
| |||||||
Total expenses | 7,586,185 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (1,072,512 | ) | ||||||
|
| |||||||
Net expenses | 6,513,673 | |||||||
|
| |||||||
Net investment income | 15,511,591 | |||||||
|
|
See notes to financial statements.
52 | 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(a) | $ | (2,881,489 | ) | |||||
Forward currency exchange contracts | 53,935 | |||||||
Futures | 1,745,032 | |||||||
Swaps | 514,151 | |||||||
Swaptions written | 66,176 | |||||||
Foreign currency transactions | 436,889 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments(b) | (23,331,424 | ) | ||||||
Forward currency exchange contracts | (162,409 | ) | ||||||
Futures | 880,304 | |||||||
Swaps | 2,176,916 | |||||||
Foreign currency denominated assets and liabilities | 21,350 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (20,480,569 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (4,968,978 | ) | |||||
|
|
(a) | Net of foreign capital gains taxes of $36,970. |
(b) | Net of increase in accrued foreign capital gains taxes of $3,134. |
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 53 |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 15,511,591 | $ | 9,429,313 | ||||
Net realized gain (loss) on investment and foreign currency transactions | (65,306 | ) | 36,678 | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (20,415,263 | ) | (3,298,144 | ) | ||||
Contributions from Affiliates (see Note B) | – 0 | – | 957 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (4,968,978 | ) | 6,168,804 | |||||
Distributions to Shareholders | ||||||||
Class A | (1,203,796 | ) | (438,322 | ) | ||||
Class C | (65,894 | ) | (42,144 | ) | ||||
Advisor Class | (3,655,256 | ) | (1,782,646 | ) | ||||
Class R | (127,949 | ) | (8,105 | ) | ||||
Class K | (228,768 | ) | (44,541 | ) | ||||
Class I | (88,791 | ) | (10,229 | ) | ||||
Class 1 | (7,965,505 | ) | (5,080,600 | ) | ||||
Class 2 | (1,492,526 | ) | (1,188,735 | ) | ||||
Class Z | (630,748 | ) | (299,386 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 141,207,431 | 168,272,863 | ||||||
|
|
|
| |||||
Total increase | 120,779,220 | 165,546,959 | ||||||
Net Assets | ||||||||
Beginning of period | 492,302,467 | 326,755,508 | ||||||
|
|
|
| |||||
End of period | $ | 613,081,687 | $ | 492,302,467 | ||||
|
|
|
|
See notes to financial statements.
54 | AB BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF CASH FLOWS
For the Year Ended October 31, 2018
Cash flows from operating activities | ||||||||
Net decrease in net assets from operations | $ | (4,968,978 | ) | |||||
Reconciliation of net decrease in net assets from operations to net decrease in cash from operating activities | ||||||||
Purchases of long-term investments | $ | (465,275,801 | ) | |||||
Purchases of short-term investments | (321,628,733 | ) | ||||||
Proceeds from disposition of long-term investments | 274,521,817 | |||||||
Proceeds from disposition of short-term investments | 314,976,187 | |||||||
Net realized loss on investment transactions and foreign currency transactions | 65,306 | |||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 20,415,263 | |||||||
Net accretion of bond discount and amortization of bond premium | 4,894,430 | |||||||
Inflation index adjustment | (13,677,552 | ) | ||||||
Increase in receivable for investments sold | (4,278,132 | ) | ||||||
Increase in interest receivable | (630,465 | ) | ||||||
Increase in affiliated dividends receivable | (5,111 | ) | ||||||
Increase in cash collateral due from broker | (148,432 | ) | ||||||
Increase in payable for investments purchased | 1,722,163 | |||||||
Increase in cash collateral due to broker | 410,000 | |||||||
Increase in advisory fee payable | 45,531 | |||||||
Decrease in administrative fee payable | (683 | ) | ||||||
Decrease in Transfer Agent fee payable | (11,348 | ) | ||||||
Increase in distribution fee payable | 13,037 | |||||||
Decrease in directors’ fee payable | (363 | ) | ||||||
Increase in accrued expenses | 14,051 | |||||||
Proceeds from swaptions written, net | 66,176 | |||||||
Proceeds on swaps, net | 1,774,729 | |||||||
Proceeds for exchange-traded derivatives settlements | 3,972,622 | |||||||
|
| |||||||
Total adjustments | (182,765,308 | ) | ||||||
|
| |||||||
Net cash provided by (used in) from operating activities | (187,734,286 | ) |
See notes to financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 55 |
STATEMENT OF CASH FLOWS (continued)
Cash flows from financing activities | ||||||||
Subscriptions of capital stock, net | $ | 122,035,065 | ||||||
Cash dividends paid (net of dividend reinvestments)† | (2,897,152 | ) | ||||||
Increase in reverse repurchase agreements | 67,105,347 | |||||||
|
| |||||||
Net cash provided by (used in) from financing activities | $ | 186,243,260 | ||||||
Effect of exchange rate on cash | 512,174 | |||||||
|
| |||||||
Net decrease in cash | (978,852 | ) | ||||||
Cash at beginning of year | 1,202,130 | |||||||
|
| |||||||
Cash at end of year | $ | 223,278 | ||||||
|
| |||||||
Supplemental disclosure of cash flow information | ||||||||
† Reinvestment of dividends | $ | 12,562,081 | ||||||
Interest expense paid during the year | $ | 3,016,521 |
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 year.
See notes to financial statements.
56 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
October 31, 2018
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”).
abfunds.com | AB BOND INFLATION STRATEGY | 57 |
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
58 | AB BOND INFLATION STRATEGY | abfunds.com |
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
abfunds.com | AB BOND INFLATION STRATEGY | 59 |
NOTES TO FINANCIAL STATEMENTS (continued)
other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
60 | AB BOND INFLATION STRATEGY | 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 October 31, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
| |||||||||||||||
Inflation-Linked Securities | $ | – 0 | – | $ | 562,749,123 | $ | – 0 | – | $ | 562,749,123 | ||||||
Corporates – Investment Grade | – 0 | – | 82,234,805 | – 0 | – | 82,234,805 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 42,109,633 | 5,198,391 | 47,308,024 | |||||||||||
Asset-Backed Securities | – 0 | – | 19,327,905 | 8,636,549 | 27,964,454 | |||||||||||
Collateralized Mortgage Obligations | – 0 | – | 26,473,871 | 573,680 | 27,047,551 | |||||||||||
Corporates – Non-Investment Grade | – 0 | – | 18,103,895 | – 0 | – | 18,103,895 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 2,167,617 | 39,922 | 2,207,539 | |||||||||||
Quasi-Sovereigns | – 0 | – | 1,339,395 | – 0 | – | 1,339,395 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 614,250 | – 0 | – | 614,250 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 274,555 | – 0 | – | 274,555 | ||||||||||
Common Stocks | – 0 | – | – 0 | – | 260,766 | 260,766 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 251,812 | – 0 | – | 251,812 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Governments – Treasuries | – 0 | – | 18,465,397 | – 0 | – | 18,465,397 | ||||||||||
Investment Companies | 245,202 | – 0 | – | – 0 | – | 245,202 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 245,202 | 774,112,258 | 14,709,308 | 789,066,768 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: |
| |||||||||||||||
Futures | 1,767,450 | – 0 | – | – 0 | – | 1,767,450 | (b) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 532,754 | – 0 | – | 532,754 | ||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 1,842,487 | – 0 | – | 1,842,487 | (b) | |||||||||
Credit Default Swaps | – 0 | – | 469,506 | – 0 | – | 469,506 | ||||||||||
Inflation (CPI) Swaps | – 0 | – | 895,587 | – 0 | – | 895,587 | ||||||||||
Interest Rate Swaps | – 0 | – | 48,992 | – 0 | – | 48,992 | ||||||||||
Variance Swaps | – 0 | – | 11,784 | – 0 | – | 11,784 | ||||||||||
Liabilities: |
| |||||||||||||||
Futures | (433,383 | ) | – 0 | – | – 0 | – | (433,383 | )(b) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (737,143 | ) | – 0 | – | (737,143 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (140,753 | ) | – 0 | – | (140,753 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (575,992 | ) | – 0 | – | (575,992 | )(b) | ||||||||
Credit Default Swaps | – 0 | – | (3,430,598 | ) | – 0 | – | (3,430,598 | ) | ||||||||
Variance Swaps | – 0 | – | (15,070 | ) | – 0 | – | (15,070 | ) | ||||||||
Reverse Repurchase Agreements | (188,734,517 | ) | – 0 | – | – 0 | – | (188,734,517 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | (187,155,248 | ) | $ | 773,013,812 | $ | 14,709,308 | $ | 600,567,872 | |||||||
|
|
|
|
|
|
|
|
(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. |
abfunds.com | AB BOND INFLATION STRATEGY | 61 |
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 | $ | 4,607,155 | $ | 6,237,183 | $ | – 0 | – | |||||
Accrued discounts/(premiums) | 4,867 | 18 | – 0 | – | ||||||||
Realized gain (loss) | (94,773 | ) | 71 | – 0 | – | |||||||
Change in unrealized appreciation/depreciation | 22,666 | (69,935 | ) | – 0 | – | |||||||
Purchases/Payups | 1,755,000 | 5,791,207 | 573,680 | |||||||||
Sales/Paydowns | (1,096,524 | ) | (3,321,995 | ) | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 5,198,391 | $ | 8,636,549 | $ | 573,680 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(a) | $ | (27,823 | ) | $ | (69,200 | ) | $ | – 0 | – | |||
|
|
|
|
|
| |||||||
Common Stocks | Emerging Markets - Corporate Bonds | Total | ||||||||||
Balance as of 10/31/17 | $ | 271,107 | $ | – 0 | – | $ | 11,115,445 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | 4,885 | |||||||
Realized gain (loss) | – 0 | – | – 0 | – | (94,702 | ) | ||||||
Change in unrealized appreciation/depreciation | (10,341 | ) | 6,354 | (51,256 | ) | |||||||
Purchases/Payups | – 0 | – | – 0 | – | 8,119,887 | |||||||
Sales/Paydowns | – 0 | – | – 0 | – | (4,418,519 | ) | ||||||
Transfers in to Level 3 | – 0 | – | 33,568 | 33,568 | (b) | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 260,766 | $ | 39,922 | $ | 14,709,308 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(a) | $ | (10,341 | ) | $ | 6,354 | $ | (101,010 | ) | ||||
|
|
|
|
|
|
(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. |
62 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at October 31, 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 10/31/18 | Valuation Technique | Unobservable Input | Input | |||||||
Common Stocks | $ | 260,766 | Market Approach | NAV Equivalent | $1,002.95 / 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 discount rates, level 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 appraisal value and EBITDA projections/multiples in insolation would be expected to result in a significant higher (lower) fair value measurement.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Fund. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
abfunds.com | AB BOND INFLATION STRATEGY | 63 |
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.
64 | AB BOND INFLATION STRATEGY | abfunds.com |
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 .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 be extended for additional one-year terms. For the year ended October 31, 2018, such reimbursement amounted to $1,063,509.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health
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NOTES TO FINANCIAL STATEMENTS (continued)
insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the November 14, 2018 meeting, shareholders approved the new and future investment advisory agreements.
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NOTES TO FINANCIAL STATEMENTS (continued)
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
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 year ended October 31, 2018, the reimbursement for such services amounted to $63,611.
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 $146,997 for the year ended October 31, 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 $2,263 from the sale of Class A shares and received $25 and $1,265 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended October 31, 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. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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 year ended October 31, 2018, such waiver amounted to $9,003.
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NOTES TO FINANCIAL STATEMENTS (continued)
A summary of the Fund’s transactions in AB mutual funds for the year ended October 31, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | – 0 | – | $ | 253,127 | $ | 252,882 | $ | 245 | $ | 77 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2018 amounted to $27,089, 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 $248,252, $33,907, $34,185 and $1,481,396 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 143,688,478 | $ | 84,095,288 | ||||
U.S. government securities | 321,587,323 | 174,144,894 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 809,753,246 | ||
|
| |||
Gross unrealized appreciation | $ | 6,936,517 | ||
Gross unrealized depreciation | (25,483,452 | ) | ||
|
| |||
Net unrealized depreciation | $ | (18,546,935 | ) | |
|
|
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
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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 year ended October 31, 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 year ended October 31, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on
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NOTES TO FINANCIAL STATEMENTS (continued)
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).
During the year ended October 31, 2018, the Fund held interest rate swaps for hedging and non-hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 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 October 31, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 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 year ended October 31, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended October 31, 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 | $ | 1,767,450 | * | Receivable/Payable for variation margin on futures | $ | 433,383 | * | ||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 17,708 | * | |||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps |
| 1,842,487 | * | Receivable/Payable for variation margin on centrally cleared swaps |
| 575,992 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 532,754 |
| Unrealized depreciation on forward currency exchange contracts |
| 737,143 |
| ||||
Interest rate contracts | Unrealized appreciation on interest rate swaps |
| 48,992 |
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps | $ | 895,587 |
| ||||||||
Credit contracts | Market value on credit default swaps | 469,506 | Market value on credit default swaps | $ | 3,430,598 | |||||||
Equity contracts | Market value on variance swaps | 11,784 | Market value on variance swaps | 15,070 | ||||||||
|
|
|
| |||||||||
Total | $ | 5,586,268 | $ | 5,192,186 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | 1,745,032 | $ | 880,304 | |||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | 53,935 | (162,409 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (103,542 | ) | – 0 | – | |||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 66,176 | – 0 | – | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 154,324 | 2,061,006 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | 359,827 | $ | 119,196 | |||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | – 0 | – | (3,286 | ) | |||||
|
|
|
| |||||||
Total | $ | 2,275,752 | $ | 2,894,811 | ||||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 54,449,178 | ||
Average original value of sale contracts | $ | 171,045,487 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 19,061,014 | ||
Average principal amount of sale contracts | $ | 54,576,846 | ||
Purchased Swaptions: | ||||
Average notional amount | $ | 32,060,000 | (a) | |
Swaptions Written: | ||||
Average notional amount | $ | 77,005,000 | (a) | |
Interest Rate Swaps: | ||||
Average notional amount | $ | 595,000 | ||
Inflation Swaps: | ||||
Average notional amount | $ | 54,222,308 | ||
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 170,499,008 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 11,435,077 | ||
Average notional amount of sale contracts | $ | 15,392,154 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 8,750,000 | (b) | |
Average notional amount of sale contracts | $ | 2,554,000 | (c) | |
Variance Swaps: | ||||
Average notional amount | $ | 1,039,106 | (d) |
(a) | Positions were open for one month during the year. |
(b) | Positions were open for seven months during the year. |
(c) | Positions were open for four months during the year. |
(d) | Positions were open for ten months during the year. |
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 (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 323,463 | $ | – 0 | – | $ | (323,463 | ) | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 556,009 | (99,972 | ) | – 0 | – | (456,037 | ) | – 0 | – | |||||||||||
BNP Paribas SA | 88,455 | – 0 | – | – 0 | – | – 0 | – | 88,455 | ||||||||||||
Citibank, NA | 13,425 | (13,425 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citigroup Global Markets, Inc. | 469,506 | (469,506 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 28,080 | (28,080 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 47,486 | (36,871 | ) | – 0 | – | – 0 | – | 10,615 | ||||||||||||
JPMorgan Chase Bank, NA/ JPMorgan Securities LLC | 210,651 | (81,325 | ) | – 0 | – | – 0 | – | 129,326 | ||||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC/Morgan Stanley Capital Services, Inc. | 48,992 | (48,992 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank | 96,995 | (96,995 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 75,561 | (75,561 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,958,623 | $ | (950,727 | ) | $ | (323,463 | ) | $ | (456,037 | ) | $ | 228,396 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 99,972 | $ | (99,972 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Citibank, NA | 294,966 | (13,425 | ) | – 0 | – | – 0 | – | 281,541 | ||||||||||||
Citigroup Global Markets, Inc. | 1,716,846 | (469,506 | ) | – 0 | – | (1,079,770 | ) | 167,570 | ||||||||||||
Credit Suisse International | 272,328 | – 0 | – | – 0 | – | (237,977 | ) | 34,351 | ||||||||||||
Deutsche Bank AG | 480,531 | (28,080 | ) | – 0 | – | (452,451 | ) | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 767,574 | – 0 | – | – 0 | – | (697,121 | ) | 70,453 |
78 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
HSBC Bank USA | $ | 36,871 | $ | (36,871 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
JPMorgan Chase Bank, NA/ JPMorgan Securities LLC | 81,325 | (81,325 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC/Morgan Stanley Capital Services, Inc. | 214,431 | (48,992 | ) | – 0 | – | – 0 | – | 165,439 | ||||||||||||
Natwest Markets PLC | 5,736 | – 0 | – | – 0 | – | – 0 | – | 5,736 | ||||||||||||
Standard Chartered Bank | 120,222 | (96,995 | ) | – 0 | – | – 0 | – | 23,227 | ||||||||||||
State Street Bank & Trust Co. | 92,009 | (75,561 | ) | – 0 | – | – 0 | – | 16,448 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 4,182,811 | $ | (950,727 | ) | $ | – 0 | – | $ | (2,467,319 | ) | $ | 764,765 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | 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 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”),
abfunds.com | AB BOND INFLATION STRATEGY | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, the average amount of reverse repurchase agreements outstanding was $173,920,812 and the daily weighted average interest rate was 1.88%. At October 31, 2018, the Fund had reverse repurchase agreements outstanding in the amount of $188,734,517 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 October 31, 2018:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged† | Net Amount of RVP Liabilities | |||||||||
Bank of America | $ | 54,438,388 | $ | (54,285,489 | ) | $ | 152,899 | |||||
HSBC Bank USA | 70,158,636 | (69,987,652 | ) | 170,984 | ||||||||
JPMorgan Chase Bank | 64,137,493 | (64,043,566 | ) | 93,927 | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 188,734,517 | $ | (188,316,707 | ) | $ | 417,810 | |||||
|
|
|
|
|
|
† | Including accrued interest. |
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 | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 3,937,249 | 2,481,469 | $ | 42,317,254 | $ | 26,845,725 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 94,816 | 35,592 | 1,013,624 | 385,023 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 4,933 | 49,291 | 53,025 | 535,791 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,621,029 | ) | (1,537,273 | ) | (17,277,656 | ) | (16,618,288 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,415,969 | 1,029,079 | $ | 26,106,247 | $ | 11,148,251 | ||||||||||||||||||
|
80 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 80,988 | 328,784 | $ | 848,738 | $ | 3,470,916 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 5,012 | 3,156 | 52,474 | 33,459 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (5,044 | ) | (50,356 | ) | (53,025 | ) | (535,791 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (91,679 | ) | (173,499 | ) | (961,260 | ) | (1,842,937 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (10,723 | ) | 108,085 | $ | (113,073 | ) | $ | 1,125,647 | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 9,863,291 | 10,938,589 | $ | 105,972,950 | $ | 118,327,539 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 277,838 | 135,408 | 2,975,198 | 1,468,124 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (5,759,401 | ) | (3,825,785 | ) | (61,748,685 | ) | (41,472,690 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 4,381,728 | 7,248,212 | $ | 47,199,463 | $ | 78,322,973 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 258,252 | 481,679 | $ | 2,764,011 | $ | 5,202,527 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 11,974 | 750 | 127,889 | 8,105 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (158,741 | ) | (23,935 | ) | (1,695,348 | ) | (258,683 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 111,485 | 458,494 | $ | 1,196,552 | $ | 4,951,949 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 1,089,667 | 133,650 | $ | 11,674,948 | $ | 1,443,483 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 21,460 | 4,128 | 228,648 | 44,541 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (226,656 | ) | (90,288 | ) | (2,422,983 | ) | (972,679 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 884,471 | 47,490 | $ | 9,480,613 | $ | 515,345 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 711,766 | 80,147 | $ | 7,537,555 | $ | 861,654 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 8,398 | 953 | 88,790 | 10,229 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (232,023 | ) | (53,204 | ) | (2,446,093 | ) | (573,108 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 488,141 | 27,896 | $ | 5,180,252 | $ | 298,775 | ||||||||||||||||||
|
abfunds.com | AB BOND INFLATION STRATEGY | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 8,378,092 | 9,138,261 | $ | 88,717,978 | $ | 97,715,632 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 588,191 | 379,658 | 6,207,060 | 4,056,730 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (4,938,558 | ) | (4,826,214 | ) | (52,179,735 | ) | (51,530,783 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 4,027,725 | 4,691,705 | $ | 42,745,303 | $ | 50,241,579 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||
Shares sold | 1,578,363 | 3,117,939 | $ | 16,764,164 | $ | 33,181,588 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 117,312 | 92,146 | 1,237,650 | 984,648 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,847,929 | ) | (1,593,693 | ) | (19,561,880 | ) | (17,030,914 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (152,254 | ) | 1,616,392 | $ | (1,560,066 | ) | $ | 17,135,322 | ||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 1,555,861 | 667,140 | $ | 16,532,064 | $ | 7,136,819 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 59,669 | 27,950 | 630,748 | 299,386 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | �� | (585,517 | ) | (270,196 | ) | (6,190,672 | ) | (2,903,183 | ) | |||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,030,013 | 424,894 | $ | 10,972,140 | $ | 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 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.
82 | AB BOND INFLATION STRATEGY | abfunds.com |
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, generally 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 maturites. 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 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
abfunds.com | AB BOND INFLATION STRATEGY | 83 |
NOTES TO FINANCIAL STATEMENTS (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 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 $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 15,459,233 | $ | 8,894,708 | ||||
|
|
|
| |||||
Total taxable distributions paid | $ | 15,459,233 | $ | 8,894,708 | ||||
|
|
|
|
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 1,842,583 | ||
Accumulated capital and other losses | (11,729,144 | )(a) | ||
Unrealized appreciation/(depreciation) | (18,548,044 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (28,434,605 | )(c) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $11,729,144. |
84 | AB BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
(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), 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 the tax treatment of defaulted securities and the accrual of foreign capital gains tax. |
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, 2018, the Fund had a net short-term capital loss carryforward of $3,027,006 and a net long-term capital loss carryforward of $8,702,138, which may be carried forward for an indefinite period.
During the current fiscal year, there were no permanent differences that resulted in adjustments to accumulated loss or additional paid-in capital.
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 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 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 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.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
abfunds.com | AB BOND INFLATION STRATEGY | 85 |
NOTES TO FINANCIAL STATEMENTS (continued)
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements 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.
86 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.83 | $ 10.92 | $ 10.44 | $ 10.77 | $ 10.81 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .28 | .21 | .18 | .08 | .17 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.38 | ) | (.11 | ) | .51 | (.31 | ) | (.04 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.10 | ) | .10 | .69 | (.23 | ) | .13 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.26 | ) | (.19 | ) | (.21 | ) | (.10 | ) | (.17 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.47 | $ 10.83 | $ 10.92 | $ 10.44 | $ 10.77 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.99 | )% | .91 | % | 6.63 | % | (2.18 | )% | 1.16 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $52,116 | $27,718 | $16,712 | $13,660 | $15,860 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.31 | % | 1.01 | % | .98 | % | .88 | % | .81 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.56 | % | 1.34 | % | 1.42 | % | 1.36 | % | 1.15 | % | ||||||||||
Net investment income(b) | 2.60 | % | 1.95 | % | 1.71 | % | .75 | % | 1.57 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
abfunds.com | AB BOND INFLATION STRATEGY | 87 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.61 | $ 10.71 | $ 10.27 | $ 10.64 | $ 10.71 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .19 | .13 | .10 | .00 | (c) | .07 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.37 | ) | (.11 | ) | .50 | (.31 | ) | (.01 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.18 | ) | .02 | .60 | (.31 | ) | .06 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.19 | ) | (.12 | ) | (.16 | ) | (.06 | ) | (.13 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.24 | $ 10.61 | $ 10.71 | $ 10.27 | $ 10.64 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.77 | )% | .16 | % | 5.86 | % | (2.93 | )% | .50 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $3,391 | $3,627 | $2,505 | $2,679 | $3,596 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 2.03 | % | 1.76 | % | 1.72 | % | 1.58 | % | 1.51 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 2.29 | % | 2.09 | % | 2.16 | % | 2.07 | % | 1.86 | % | ||||||||||
Net investment income(b) | 1.77 | % | 1.26 | % | .96 | % | .06 | % | .70 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
88 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.84 | $ 10.93 | $ 10.46 | $ 10.79 | $ 10.82 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .30 | .25 | .22 | .13 | .19 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.37 | ) | (.13 | ) | .49 | (.33 | ) | (.03 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.07 | ) | .12 | .71 | (.20 | ) | .16 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.21 | ) | (.24 | ) | (.13 | ) | (.19 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.49 | $ 10.84 | $ 10.93 | $ 10.46 | $ 10.79 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.68 | )% | 1.15 | % | 6.87 | % | (1.90 | )% | 1.50 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $150,011 | $107,545 | $29,186 | $18,343 | $16,144 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.05 | % | .77 | % | .73 | % | .58 | % | .52 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.31 | % | 1.10 | % | 1.16 | % | 1.06 | % | .86 | % | ||||||||||
Net investment income(b) | 2.80 | % | 2.31 | % | 2.04 | % | 1.23 | % | 1.77 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
abfunds.com | AB BOND INFLATION STRATEGY | 89 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.82 | $ 10.89 | $ 10.44 | $ 10.78 | $ 10.81 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (loss)(a)(b) | .24 | .21 | .29 | (.08 | ) | .14 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.37 | ) | (.12 | ) | .37 | (.19 | ) | (.02 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.13 | ) | .09 | .66 | (.27 | ) | .12 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.16 | ) | (.21 | ) | (.07 | ) | (.15 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.46 | $ 10.82 | $ 10.89 | $ 10.44 | $ 10.78 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.15 | )% | .80 | %‡ | 6.41 | % | (2.49 | )% | 1.10 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $6,354 | $5,364 | $408 | $20 | $230 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.54 | % | 1.29 | % | 1.24 | % | 1.06 | % | 1.01 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.90 | % | 1.67 | % | 1.71 | % | 1.50 | % | 1.40 | % | ||||||||||
Net investment income (loss)(b) | 2.24 | % | 2.08 | % | 2.71 | % | (.68 | )% | 1.26 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
90 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.81 | $ 10.89 | $ 10.42 | $ 10.77 | $ 10.80 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .27 | .21 | .20 | .07 | .17 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.38 | ) | (.11 | ) | .49 | (.31 | ) | (.03 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.11 | ) | .10 | .69 | (.24 | ) | .14 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.25 | ) | (.18 | ) | (.22 | ) | (.11 | ) | (.17 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.45 | $ 10.81 | $ 10.89 | $ 10.42 | $ 10.77 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.01 | )% | .96 | % | 6.66 | % | (2.24 | )% | 1.31 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $12,055 | $2,903 | $2,409 | $1,616 | $2,219 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.35 | % | 1.01 | % | .98 | % | .83 | % | .76 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.65 | % | 1.37 | % | 1.36 | % | 1.17 | % | 1.07 | % | ||||||||||
Net investment income(b) | 2.57 | % | 1.95 | % | 1.87 | % | .70 | % | 1.57 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
abfunds.com | AB BOND INFLATION STRATEGY | 91 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.74 | $ 10.84 | $ 10.38 | $ 10.73 | $ 10.77 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (loss)(a)(b) | .28 | .24 | .22 | (.06 | ) | .22 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.36 | ) | (.12 | ) | .50 | (.14 | ) | (.06 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .12 | .72 | (.20 | ) | .16 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.22 | ) | (.26 | ) | (.15 | ) | (.20 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.38 | $ 10.74 | $ 10.84 | $ 10.38 | $ 10.73 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.73 | )% | 1.15 | % | 6.98 | % | (1.88 | )% | 1.52 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $5,688 | $642 | $345 | $265 | $841 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.11 | % | .76 | % | .72 | % | .57 | % | .51 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.34 | % | .99 | % | 1.03 | % | .76 | % | .69 | % | ||||||||||
Net investment income (loss)(b) | 2.67 | % | 2.25 | % | 2.08 | % | (.50 | )% | 2.06 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
92 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 1 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.69 | $ 10.80 | $ 10.35 | $ 10.71 | $ 10.76 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .28 | .22 | .20 | .10 | .19 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.36 | ) | (.11 | ) | .51 | (.32 | ) | (.04 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .11 | .71 | (.22 | ) | .15 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.22 | ) | (.26 | ) | (.14 | ) | (.20 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.33 | $ 10.69 | $ 10.80 | $ 10.35 | $ 10.71 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.77 | )%‡ | 1.01 | % | 6.89 | % | (2.04 | )% | 1.38 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $306,620 | $274,366 | $226,408 | $253,402 | $288,565 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.14 | % | .86 | % | .82 | % | .68 | % | .61 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.28 | % | 1.04 | % | 1.03 | % | .87 | % | .77 | % | ||||||||||
Net investment income(b) | 2.66 | % | 2.10 | % | 1.86 | % | .98 | % | 1.75 | % | ||||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
abfunds.com | AB BOND INFLATION STRATEGY | 93 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class 2 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.69 | $ 10.79 | $ 10.35 | $ 10.71 | $ 10.75 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .29 | .24 | .20 | .11 | .20 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.37 | ) | (.11 | ) | .51 | (.32 | ) | (.03 | ) | |||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .13 | .71 | (.21 | ) | .17 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.29 | ) | (.23 | ) | (.27 | ) | (.15 | ) | (.21 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.32 | $ 10.69 | $ 10.79 | $ 10.35 | $ 10.71 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.77 | )% | 1.21 | % | 6.92 | % | (1.95 | )% | 1.55 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $50,705 | $54,118 | $37,207 | $40,897 | $47,314 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.03 | % | .76 | % | .72 | % | .58 | % | .51 | % | ||||||||||
Expenses, before waivers/reimbursements(e) | 1.17 | % | .94 | % | .93 | % | .77 | % | .67 | % | ||||||||||
Net investment income(b) | 2.78 | % | 2.24 | % | 1.93 | % | 1.09 | % | 1.87 | % | ||||||||||
Portfolio turnover rate**. | 36 | % | 42 | % | 41 | % | 51 | % | 77 | % |
See footnote summary on page 96.
94 | AB BOND INFLATION STRATEGY | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||||||
Year Ended October 31, | December 11, 2014(f) to October 31, 2015 | |||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.72 | $ 10.82 | $ 10.38 | $ 10.62 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(a)(b) | .28 | .24 | .25 | .19 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.36 | ) | (.11 | ) | .46 | (.28 | ) | |||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .13 | .71 | (.09 | ) | ||||||||||
|
| |||||||||||||||
Less: Dividends | ||||||||||||||||
Dividends from net investment income | (.29 | ) | (.23 | ) | (.27 | ) | (.15 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.35 | $ 10.72 | $ 10.82 | $ 10.38 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(d) | (.77 | )% | 1.19 | % | 6.89 | % | (.86 | )% | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $26,142 | $16,019 | $11,576 | $3,821 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(e) | 1.06 | % | .76 | % | .73 | % | .61 | %^ | ||||||||
Expenses, before waivers/reimbursements(e) | 1.21 | % | .94 | % | .95 | % | .84 | %^ | ||||||||
Net investment income(b) | 2.69 | % | 2.22 | % | 2.40 | % | 2.09 | %^ | ||||||||
Portfolio turnover rate** | 36 | % | 42 | % | 41 | % | 51 | % |
See footnote summary on page 96.
abfunds.com | AB BOND INFLATION STRATEGY | 95 |
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) | The expense ratios presented below exclude interest expense: |
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Class A | ||||||||||||||||||||
Net of waivers/reimbursements | .75 | % | .75 | % | .76 | % | .80 | % | .79 | % | ||||||||||
Before waivers/reimbursements | 1.01 | % | 1.07 | % | 1.20 | % | 1.28 | % | 1.13 | % | ||||||||||
Class C | ||||||||||||||||||||
Net of waivers/reimbursements | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.48 | % | ||||||||||
Before waivers/reimbursements | 1.76 | % | 1.82 | % | 1.94 | % | 1.99 | % | 1.84 | % | ||||||||||
Advisor Class | ||||||||||||||||||||
Net of waivers/reimbursements | .50 | % | .50 | % | .50 | % | .50 | % | .49 | % | ||||||||||
Before waivers/reimbursements | .76 | % | .83 | % | .93 | % | .98 | % | .84 | % | ||||||||||
Class R | ||||||||||||||||||||
Net of waivers/reimbursements | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | .99 | % | ||||||||||
Before waivers/reimbursements | 1.36 | % | 1.38 | % | 1.47 | % | 1.44 | % | 1.38 | % | ||||||||||
Class K | ||||||||||||||||||||
Net of waivers/reimbursements | .75 | % | .75 | % | .75 | % | .75 | % | .74 | % | ||||||||||
Before waivers/reimbursements | 1.05 | % | 1.10 | % | 1.13 | % | 1.09 | % | 1.05 | % | ||||||||||
Class I | ||||||||||||||||||||
Net of waivers/reimbursements | .50 | % | .50 | % | .50 | % | .50 | % | .49 | % | ||||||||||
Before waivers/reimbursements | .73 | % | .72 | % | .81 | % | .69 | % | .67 | % | ||||||||||
Class 1 | ||||||||||||||||||||
Net of waivers/reimbursements | .60 | % | .60 | % | .60 | % | .60 | % | .59 | % | ||||||||||
Before waivers/reimbursements | .74 | % | .77 | % | .81 | % | .79 | % | .74 | % | ||||||||||
Class 2 | ||||||||||||||||||||
Net of waivers/reimbursements | .50 | % | .50 | % | .50 | % | .50 | % | .49 | % | ||||||||||
Before waivers/reimbursements | .64 | % | .67 | % | .71 | % | .69 | % | .64 | % | ||||||||||
Class Z(g) | ||||||||||||||||||||
Net of waivers/reimbursements | .50 | % | .50 | % | .50 | % | .50 | %^ | N/A | |||||||||||
Before waivers/reimbursements | .65 | % | .68 | % | .72 | % | .73 | %^ | N/A |
(f) | Commencement of distributions. |
(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.
96 | AB BOND INFLATION STRATEGY | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of AB Bond Inflation Strategy Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, of AB Bond Inflation Strategy Portfolio (the “Fund”), (one of the portfolios constituting AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of October 31, 2018, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Bond Fund, Inc.) at October 31, 2018, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 28, 2018
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2018 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during the taxable year ended October 31, 2018. For foreign shareholders, 97.22% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2019.
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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 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 | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company 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. |
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MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER DIRECTOR | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## (2005) | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
William H. Foulk, Jr.,##,^ | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Carol C. McMullen,## 63 | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Garry L. Moody,## (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention Legal and Compliance Department — Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund as defined in the “40 Act”, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Michael Canter 49 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Shawn E. Keegan 47 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Greg J. Wilensky 51 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Janaki Rao 48 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since March 2013. Previously, he was a Vice President with Morgan Stanley from 2005 to March 2013. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2013. | ||
Phyllis J. Clarke 57 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-800-227-4618, or visit www.abfunds.com, for a free prospectus or SAI.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB Bond Inflation Strategy (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature
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and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of
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the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed Agreements with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is
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affected by numerous factors. The Directors focused on the profitability of the Adviser’s relationship with each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider
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(the “15(c) provider”) concerning management fee rates payable 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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund
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and sub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current 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
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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 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
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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 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
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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.
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 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 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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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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AB BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
BIS-0151-1018
OCT 10.31.18
ANNUAL REPORT
AB FLEXFEETM HIGH YIELD PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
ANNUAL REPORT
December 14, 2018
This report provides management’s discussion of fund performance for AB FlexFee High Yield Portfolio (formerly AB High Yield Portfolio) for the annual reporting period ended October 31, 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 OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB FLEXFEE HIGH YIELD PORTFOLIO1 | ||||||||
Advisor Class Shares | 0.64% | 1.32% | ||||||
Primary Benchmark:2 Markit iBoxx USD Liquid High Yield Index | 1.46% | 0.97% | ||||||
Bloomberg Barclays US Corporate HY 2% Issuer Capped Index | 1.14% | 0.98% |
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 October 31, 2018, by 0.03% and 0.03%, respectively. Also includes the impact of a reimbursement from the Adviser for trading losses incurred due to a trade entry error, which enhanced the performance of all share classes of the Fund for the six- and 12-month periods ended October 31, 2018, by 0.00% and 0.01%, respectively. |
2 | Effective February 26, 2018, the broad-based index used for comparison with the Fund’s performance 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 benchmark, the Markit iBoxx USD Liquid High Yield Index, for the six- and 12-month periods ended October 31, 2018. The table also includes the Bloomberg Barclays US Corporate High Yield (“HY”) 2% Issuer Capped Index.
The Fund outperformed the benchmark for the 12-month period and underperformed for the six-month period. The Fund’s new advisory fee, which is performance-based, was being accrued at its minimum 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.)
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During the 12-month period, the Fund delivered positive absolute returns. Sector/security selection contributed in absolute terms, primarily within high-yield corporates, as well as bank loans and commercial mortgage-backed securities, while a position in emerging-market corporate bonds offset some of these gains. Overall currency allocation was a modest contributor. The Fund’s duration exposure in the US detracted, as rates rose across the board.
During the six-month period, the Fund posted positive absolute returns. Sector/security selection drove the positive performance, helped most by holdings within high-yield corporates and, to a lesser extent, bank loans. A position in emerging-market corporates detracted. The Fund’s US duration position also detracted as yields moved higher in the period.
During both periods, the Fund utilized derivatives in the form of futures and interest rate swaps to hedge duration risk. Currency forwards were used to hedge foreign currency exposure and to take active currency risk. 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. Total return swaps were used to create synthetic high-yield exposure. Purchased equity options were used to take active exposure. Currency options, both written and purchased, were used to hedge foreign currency exposure. Written and purchased swaptions were used to manage and/or take active yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets had mixed performance over the 12-month period, as volatility spiked in the latter part of the period on tighter monetary policy and the onset of a global trade war. Developed-market treasuries rallied, outperforming the positive returns of emerging-market local-currency government bonds, while global high yield and investment-grade securities ended the period in negative territory. A stronger US dollar, slowing Chinese growth, the global trade war and a hawkish US Federal Reserve (the “Fed”) weighed on emerging markets.
The Fed raised interest rates four times in the period, while the European Central Bank started to scale back asset purchases but updated forward guidance to say that it would not change its policy rate until summer 2019 at the earliest. The Bank of Japan tweaked its monetary policy, holding rates and yields steady, but widening the band around 10-year yields, potentially allowing them to move higher.
Midway through the period, US yields began to raise dramatically, with the 10- and 30-year Treasury yields eventually soaring to multiyear highs, on the back of higher inflation forecasts, the Fed’s expected rate hike path and a robust US labor market. The US administration announced tariffs on imports from China, the European Union, Mexico and Canada, all of which reciprocated with tariffs on the US, triggering a global trade war. An
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 3 |
upsurge in geopolitical uncertainty, including governmental turmoil in Italy, sparked a flight to higher quality bonds.
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 provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Fund’s exposure. The Fund may, for example, use credit default and interest rate swaps to gain exposure to the fixed-income markets or particular fixed-income securities and, as noted above, may use currency-related derivatives. The Adviser may use derivatives to effectively leverage the Fund by creating aggregate market exposure substantially in excess of the Fund’s net assets.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The 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 USD high-yield bond issues with more than $400 million outstanding, selected to provide a balanced representation of the broad USD high-yield liquid 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.
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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, generally 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, among other things, structural changes, additional regulatory requirements and capital and
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DISCLOSURES AND RISKS (continued)
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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 7 |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
10/31/2008 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB FlexFee High Yield Portfolio Advisor Class shares (from 10/31/2008 to 10/31/2018) as compared to the performance of the Fund’s benchmarks.
8 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
ADVISOR CLASS SHARES2 | 2.92% | |||||||||||
1 Year | 1.32% | 1.32% | ||||||||||
5 Years | 4.40% | 4.40% | ||||||||||
10 Years | 11.75% | 11.75% |
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable | ||||
ADVISOR CLASS SHARES | ||||
1 Year | 3.66% | |||
5 Years | 5.32% | |||
10 Years | 10.18% |
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 section since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 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 |
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 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 1,006.40 | $ | 1.47 | 0.29 | % | $ | 1.57 | 0.31 | % | ||||||||||||
Hypothetical** | $ | 1,000 | $ | 1,023.74 | $ | 1.48 | 0.29 | % | $ | 1.58 | 0.31 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 184/365 (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 184/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
10 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $34.0
1 | All data are as of October 31, 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 0.1% or less in the following security types: Investment Companies, Options Purchased–Calls, Rights and Warrants. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 11 |
PORTFOLIO OF INVESTMENTS
October 31, 2018
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – 75.3% | ||||||||||||
Industrial – 66.3% |
| |||||||||||
Basic – 5.4% |
| |||||||||||
AK Steel Corp. | U.S.$ | 30 | $ | 30,462 | ||||||||
7.625%, 10/01/21 | 13 | 12,775 | ||||||||||
Berry Global, Inc. | 8 | 7,960 | ||||||||||
CF Industries, Inc. | 10 | 8,525 | ||||||||||
5.375%, 3/15/44 | 57 | 50,658 | ||||||||||
7.125%, 5/01/20 | 14 | 14,574 | ||||||||||
Cleveland-Cliffs, Inc. | 28 | 26,466 | ||||||||||
Commercial Metals Co. | 50 | 48,746 | ||||||||||
Crown Americas LLC/Crown Americas Capital Corp. VI | 41 | 38,822 | ||||||||||
Eldorado Gold Corp. | 12 | 11,235 | ||||||||||
ERP Iron Ore, LLC | 7 | 7,003 | ||||||||||
Flex Acquisition Co., Inc. | 7 | 6,544 | ||||||||||
FMG Resources (August 2006) Pty Ltd. | 41 | 39,731 | ||||||||||
5.125%, 3/15/23-5/15/24(a) | 111 | 105,681 | ||||||||||
Freeport-McMoRan, Inc. | 28 | 27,592 | ||||||||||
3.55%, 3/01/22 | 183 | 173,540 | ||||||||||
3.875%, 3/15/23 | 31 | 29,057 | ||||||||||
5.45%, 3/15/43 | 25 | 21,183 | ||||||||||
Graphic Packaging International LLC | 26 | 26,000 | ||||||||||
Grinding Media, Inc./Moly-Cop AltaSteel Ltd. | 29 | 30,189 | ||||||||||
Hexion, Inc. | 145 | 128,276 | ||||||||||
Huntsman International LLC | 40 | 40,267 | ||||||||||
Joseph T Ryerson & Son, Inc. | 151 | 161,718 | ||||||||||
Lecta SA | EUR | 105 | 122,477 |
12 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Magnetation LLC/Mag Finance Corp. | U.S.$ | 60 | $ | 1 | ||||||||
Momentive Performance Materials, Inc. | 43 | 46,019 | ||||||||||
8.875%, 10/15/20(b)(c)(f)(j) | 33 | – 0 | – | |||||||||
New Gold, Inc. | 9 | 7,828 | ||||||||||
Novelis Corp. | 8 | 7,539 | ||||||||||
6.25%, 8/15/24(a) | 35 | 34,489 | ||||||||||
Nufarm Australia Ltd./Nufarm Americas, Inc. | 20 | 18,691 | ||||||||||
Pactiv LLC | 35 | 36,347 | ||||||||||
Peabody Energy Corp. | 45 | 45,204 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu | 105 | 102,559 | ||||||||||
Sealed Air Corp. | 33 | 32,693 | ||||||||||
6.875%, 7/15/33(a) | 70 | 72,029 | ||||||||||
SPCM SA | 58 | 53,871 | ||||||||||
Teck Resources Ltd. | 36 | 32,069 | ||||||||||
5.40%, 2/01/43 | 32 | 29,466 | ||||||||||
8.50%, 6/01/24(a) | 4 | 4,428 | ||||||||||
United States Steel Corp. | 30 | 28,254 | ||||||||||
6.875%, 8/15/25 | 52 | 50,962 | ||||||||||
Valvoline, Inc. | 7 | 6,950 | ||||||||||
W.R. Grace & Co.-Conn | 18 | 18,130 | ||||||||||
5.625%, 10/01/24(a) | 24 | 24,849 | ||||||||||
|
| |||||||||||
1,821,859 | ||||||||||||
|
| |||||||||||
Capital Goods – 3.6% | ||||||||||||
A123 Systems, Inc. | 21 | 1,448 | ||||||||||
Arconic, Inc. | 4 | 3,980 | ||||||||||
Ardagh Packaging Finance PLC/Ardagh Holdings USA, Inc. | EUR | 100 | 112,713 | |||||||||
4.25%, 9/15/22(a) | U.S.$ | 79 | 76,127 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
4.625%, 5/15/23(a) | U.S.$ | 17 | $ | 17,040 | ||||||||
7.25%, 5/15/24(a) | 3 | 2,933 | ||||||||||
Ball Corp. | 27 | 27,166 | ||||||||||
5.00%, 3/15/22 | 50 | 50,281 | ||||||||||
BBA US Holdings, Inc. | 11 | 10,879 | ||||||||||
Bombardier, Inc. | 183 | 180,897 | ||||||||||
6.00%, 10/15/22(a) | 35 | 34,421 | ||||||||||
6.125%, 1/15/23(a) | 5 | 4,946 | ||||||||||
7.50%, 12/01/24(a) | 50 | 50,763 | ||||||||||
BWAY Holding Co. | EUR | 105 | 119,847 | |||||||||
7.25%, 4/15/25(a) | U.S.$ | 4 | 3,797 | |||||||||
Clean Harbors, Inc. | 52 | 51,541 | ||||||||||
Cleaver-Brooks, Inc. | 14 | 14,127 | ||||||||||
Crown Cork & Seal Co., Inc. | 20 | 21,421 | ||||||||||
Gates Global LLC/Gates Global Co. | 5 | 4,750 | ||||||||||
GFL Environmental, Inc. | 56 | 51,376 | ||||||||||
Hulk Finance Corp. | 25 | 23,137 | ||||||||||
JELD-WEN, Inc. | 6 | 5,376 | ||||||||||
4.875%, 12/15/27(a) | 8 | 6,958 | ||||||||||
Mueller Water Products, Inc. | 44 | 43,563 | ||||||||||
Owens-Brockway Glass Container, Inc. | 20 | 19,350 | ||||||||||
RBS Global, Inc./Rexnord LLC | 57 | 53,561 | ||||||||||
Stevens Holding Co., Inc. | 20 | 19,909 | ||||||||||
Summit Materials LLC/Summit Materials Finance Corp. | 20 | 19,486 | ||||||||||
TransDigm, Inc. | 132 | 132,663 | ||||||||||
Triumph Group, Inc. | 8 | 7,366 | ||||||||||
Waste Pro USA, Inc. | 42 | 40,151 | ||||||||||
|
| |||||||||||
1,211,973 | ||||||||||||
|
|
14 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Communications - Media – 8.1% | ||||||||||||
Altice Financing SA | U.S.$ | 67 | $ | 65,991 | ||||||||
Altice France SA/France | 185 | 177,643 | ||||||||||
Cablevision Systems Corp. | 85 | 85,439 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 52 | 49,494 | ||||||||||
5.00%, 2/01/28(a) | 189 | 176,118 | ||||||||||
5.125%, 2/15/23 | 29 | 28,399 | ||||||||||
5.125%, 5/01/27(a) | 290 | 273,350 | ||||||||||
5.25%, 9/30/22 | 6 | 6,164 | ||||||||||
5.375%, 5/01/25(a) | 12 | 12,014 | ||||||||||
5.75%, 2/15/26(a) | 11 | 10,900 | ||||||||||
5.875%, 5/01/27(a) | 23 | 22,428 | ||||||||||
Cequel Communications Holdings I LLC/Cequel Capital Corp. | 200 | 211,324 | ||||||||||
Clear Channel Worldwide Holdings, Inc. | 16 | 15,665 | ||||||||||
Series B | 89 | 90,543 | ||||||||||
7.625%, 3/15/20 | 59 | 59,023 | ||||||||||
CSC Holdings LLC | 200 | 188,490 | ||||||||||
6.625%, 10/15/25(a) | 3 | 2,744 | ||||||||||
DISH DBS Corp. | 16 | 13,709 | ||||||||||
5.875%, 7/15/22 | 149 | 140,817 | ||||||||||
6.75%, 6/01/21 | 242 | 244,602 | ||||||||||
iHeartCommunications, Inc. | 50 | 10,819 | ||||||||||
9.00%, 12/15/19(c)(d) | 75 | 54,026 | ||||||||||
11.25%, 3/01/21(a)(c)(d) | 10 | 6,772 | ||||||||||
Meredith Corp. | 57 | 56,986 | ||||||||||
Netflix, Inc. | 33 | 30,275 | ||||||||||
5.875%, 11/15/28(a) | 69 | 67,790 | ||||||||||
Outfront Media Capital LLC/Outfront Media Capital Corp. | 8 | 8,029 | ||||||||||
Radiate Holdco LLC/Radiate Finance, Inc. | 17 | 16,324 | ||||||||||
6.875%, 2/15/23(a) | 17 | 16,320 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
RR Donnelley & Sons Co. | U.S.$ | 29 | $ | 30,026 | ||||||||
Sinclair Television Group, Inc. | 9 | 8,127 | ||||||||||
5.625%, 8/01/24(a) | 40 | 38,344 | ||||||||||
6.125%, 10/01/22 | 17 | 17,199 | ||||||||||
Sirius XM Radio, Inc. | 14 | 13,502 | ||||||||||
4.625%, 5/15/23(a) | 6 | 5,829 | ||||||||||
5.00%, 8/01/27(a) | 94 | 88,347 | ||||||||||
5.375%, 7/15/26(a) | 35 | 34,180 | ||||||||||
6.00%, 7/15/24(a) | 125 | 127,644 | ||||||||||
TEGNA, Inc. | 25 | 25,449 | ||||||||||
6.375%, 10/15/23 | 68 | 69,604 | ||||||||||
Urban One, Inc. | 37 | 36,211 | ||||||||||
Ziggo Bond Co. BV | 18 | 16,639 | ||||||||||
Ziggo BV | 110 | 101,061 | ||||||||||
|
| |||||||||||
2,754,360 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 7.2% | ||||||||||||
CenturyLink, Inc. | 65 | 61,101 | ||||||||||
Series S | 36 | 37,286 | ||||||||||
Series T | 133 | 133,323 | ||||||||||
Embarq Corp. | 100 | 94,979 | ||||||||||
Frontier Communications Corp. | 144 | 96,109 | ||||||||||
7.625%, 4/15/24 | 55 | 32,938 | ||||||||||
7.875%, 1/15/27 | 13 | 7,020 | ||||||||||
8.75%, 4/15/22 | 101 | 78,668 | ||||||||||
10.50%, 9/15/22 | 55 | 45,880 | ||||||||||
11.00%, 9/15/25 | 37 | 27,057 | ||||||||||
GTT Communications, Inc. | 6 | 5,653 | ||||||||||
Hughes Satellite Systems Corp. | 29 | 29,532 | ||||||||||
6.625%, 8/01/26 | 30 | 28,567 | ||||||||||
7.625%, 6/15/21 | 19 | 20,437 |
16 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Intelsat Jackson Holdings SA | U.S.$ | 88 | $ | 79,136 | ||||||||
8.00%, 2/15/24(a) | 10 | 10,685 | ||||||||||
8.50%, 10/15/24(a) | 35 | 34,691 | ||||||||||
9.50%, 9/30/22(a) | 53 | 61,510 | ||||||||||
9.75%, 7/15/25(a) | 56 | 58,639 | ||||||||||
Level 3 Financing, Inc. | 60 | 59,643 | ||||||||||
5.25%, 3/15/26 | 66 | 62,993 | ||||||||||
5.375%, 1/15/24 | 50 | 49,500 | ||||||||||
Level 3 Parent LLC | 54 | 53,521 | ||||||||||
Qwest Corp. | 78 | 82,187 | ||||||||||
6.875%, 9/15/33 | 11 | 10,707 | ||||||||||
7.25%, 9/15/25 | 55 | 58,792 | ||||||||||
Sable International Finance Ltd. | 42 | 43,902 | ||||||||||
Sprint Capital Corp. | 31 | 30,470 | ||||||||||
8.75%, 3/15/32 | 102 | 111,469 | ||||||||||
Sprint Communications, Inc. | 298 | 309,328 | ||||||||||
Sprint Corp. | 44 | 45,734 | ||||||||||
7.875%, 9/15/23 | 22 | 23,477 | ||||||||||
T-Mobile USA, Inc. | 192 | 179,883 | ||||||||||
4.75%, 2/01/28 | 4 | 3,700 | ||||||||||
6.375%, 3/01/25 | 27 | 27,846 | ||||||||||
6.50%, 1/15/24-1/15/26 | 136 | 142,145 | ||||||||||
Telecom Italia Capital SA | 56 | 51,565 | ||||||||||
7.20%, 7/18/36 | 33 | 31,773 | ||||||||||
7.721%, 6/04/38 | 76 | 76,953 | ||||||||||
Uniti Group LP/Uniti Group Finance, Inc./CSL Capital LLC | 29 | 27,857 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc. | 28 | 27,330 | ||||||||||
|
| |||||||||||
2,453,986 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 1.6% | ||||||||||||
American Axle & Manufacturing, Inc. | 45 | 42,978 | ||||||||||
BCD Acquisition, Inc. | 69 | 73,157 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Cooper-Standard Automotive, Inc. | U.S.$ | 5 | $ | 4,722 | ||||||||
Dana Financing Luxembourg SARL | 12 | 11,610 | ||||||||||
Exide Technologies | 97 | 61,123 | ||||||||||
11.00%, 4/30/22(b)(g)(i) | 46 | 40,668 | ||||||||||
IHO Verwaltungs GmbH | 58 | 56,533 | ||||||||||
Meritor, Inc. | 30 | 29,533 | ||||||||||
Navistar International Corp. | 43 | 43,848 | ||||||||||
Tenneco, Inc. | 64 | 53,119 | ||||||||||
Tesla, Inc. | 84 | 74,931 | ||||||||||
Titan International, Inc. | 47 | 44,122 | ||||||||||
|
| |||||||||||
536,344 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.5% | ||||||||||||
AMC Entertainment Holdings, Inc. | 7 | 6,043 | ||||||||||
5.875%, 11/15/26 | 6 | 5,493 | ||||||||||
Cinemark USA, Inc. | 25 | 24,407 | ||||||||||
National CineMedia LLC | 21 | 19,612 | ||||||||||
NCL Corp., Ltd. | 12 | 12,036 | ||||||||||
Silversea Cruise Finance Ltd. | 34 | 36,725 | ||||||||||
Six Flags Entertainment Corp. | 20 | 18,913 | ||||||||||
VOC Escrow Ltd. | 52 | 48,874 | ||||||||||
|
| |||||||||||
172,103 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 5.4% | ||||||||||||
Beazer Homes USA, Inc. | 16 | 12,920 | ||||||||||
6.75%, 3/15/25 | 34 | 30,122 | ||||||||||
8.75%, 3/15/22 | 18 | 17,827 | ||||||||||
Caesars Entertainment Corp. | 11 | 15,487 |
18 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Diamond Resorts International, Inc. | U.S.$ | 24 | $ | 24,329 | ||||||
10.75%, 9/01/24(a) | 22 | 21,624 | ||||||||
Five Point Operating Co. LP/Five Point Capital Corp. | 55 | 54,506 | ||||||||
Hilton Domestic Operating Co., Inc. | 95 | 91,158 | ||||||||
5.125%, 5/01/26(a) | 30 | 29,323 | ||||||||
K. Hovnanian Enterprises, Inc. | 43 | 35,924 | ||||||||
10.00%, 7/15/22(a) | 22 | 21,185 | ||||||||
10.50%, 7/15/24(a) | 7 | 6,407 | ||||||||
KB Home | 22 | 23,072 | ||||||||
7.50%, 9/15/22 | 10 | 10,759 | ||||||||
8.00%, 3/15/20 | 6 | 6,108 | ||||||||
Lennar Corp. | 103 | 101,452 | ||||||||
4.50%, 11/15/19-4/30/24 | 103 | 101,127 | ||||||||
4.75%, 11/29/27 | 55 | 51,425 | ||||||||
6.25%, 12/15/21(a) | 1 | 755 | ||||||||
6.25%, 12/15/21 | 22 | 22,798 | ||||||||
8.375%, 1/15/21 | 20 | 21,450 | ||||||||
Marriott Ownership Resorts, Inc./ILG LLC | 72 | 72,581 | ||||||||
MDC Holdings, Inc. | 36 | 35,038 | ||||||||
5.625%, 2/01/20 | 23 | 23,688 | ||||||||
6.00%, 1/15/43 | 91 | 72,713 | ||||||||
Meritage Homes Corp. | 29 | 30,537 | ||||||||
MGM Resorts International | 35 | 31,661 | ||||||||
5.75%, 6/15/25 | 4 | 3,900 | ||||||||
6.75%, 10/01/20 | 25 | 25,975 | ||||||||
7.75%, 3/15/22 | 16 | 17,176 | ||||||||
8.625%, 2/01/19 | 45 | 45,608 | ||||||||
PulteGroup, Inc. | 163 | 150,989 | ||||||||
5.50%, 3/01/26 | 4 | 3,920 | ||||||||
6.00%, 2/15/35 | 57 | 52,081 | ||||||||
7.875%, 6/15/32 | 17 | 18,465 | ||||||||
Scientific Games International, Inc. | 8 | 8,380 | ||||||||
Shea Homes LP/Shea Homes Funding Corp. | 23 | 22,014 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
6.125%, 4/01/25(a) | U.S.$ | 60 | $ | 55,990 | ||||||||
Standard Industries, Inc./NJ | 24 | 21,453 | ||||||||||
5.375%, 11/15/24(a) | 68 | 65,351 | ||||||||||
5.50%, 2/15/23(a) | 26 | 25,484 | ||||||||||
6.00%, 10/15/25(a) | 39 | 37,970 | ||||||||||
Stars Group Holdings BV/Stars Group US Co-Borrower LLC | 33 | 33,495 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 16 | 15,144 | ||||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 17 | 17,024 | ||||||||||
5.875%, 4/15/23(a) | 8 | 7,880 | ||||||||||
Toll Brothers Finance Corp. | 93 | 85,890 | ||||||||||
5.875%, 2/15/22 | 35 | 36,182 | ||||||||||
Wyndham Hotels & Resorts, Inc. | 25 | 24,282 | ||||||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | 4 | 3,621 | ||||||||||
5.50%, 3/01/25(a) | 90 | 85,582 | ||||||||||
|
| |||||||||||
1,829,832 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.3% | ||||||||||||
Golden Nugget, Inc. | 14 | 14,378 | ||||||||||
IRB Holding Corp. | 92 | 88,098 | ||||||||||
|
| |||||||||||
102,476 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 1.3% | ||||||||||||
FirstCash, Inc. | 7 | 6,923 | ||||||||||
Group 1 Automotive, Inc. | 79 | 75,460 | ||||||||||
Hanesbrands, Inc. | 50 | 48,077 | ||||||||||
JC Penney Corp., Inc. | 15 | 5,806 | ||||||||||
L Brands, Inc. | 19 | 16,219 | ||||||||||
5.625%, 2/15/22-10/15/23 | 38 | 38,050 | ||||||||||
6.875%, 11/01/35 | 73 | 62,306 | ||||||||||
7.00%, 5/01/20 | 44 | 45,609 |
20 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Neiman Marcus Group Ltd. LLC | U.S.$ | 30 | $ | 18,119 | ||||||||
Penske Automotive Group, Inc. | 14 | 13,861 | ||||||||||
5.75%, 10/01/22 | 14 | 14,201 | ||||||||||
PetSmart, Inc. | 60 | 41,860 | ||||||||||
Sonic Automotive, Inc. | 32 | 30,082 | ||||||||||
6.125%, 3/15/27 | 20 | 17,775 | ||||||||||
|
| |||||||||||
434,348 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 10.5% | ||||||||||||
Air Medical Group Holdings, Inc. | 49 | 44,468 | ||||||||||
Albertsons Cos. LLC/Safeway, Inc./New Albertsons LP/Albertson’s LLC | 145 | 128,836 | ||||||||||
6.625%, 6/15/24 | 22 | 20,891 | ||||||||||
Avantor, Inc. | 154 | 155,470 | ||||||||||
Aveta, Inc. | 297 | – 0 | – | |||||||||
Avon Products, Inc. | 12 | 11,960 | ||||||||||
Bausch Health Cos., Inc. | 102 | 96,279 | ||||||||||
5.625%, 12/01/21(a) | 156 | 153,660 | ||||||||||
5.875%, 5/15/23(a) | 155 | 148,120 | ||||||||||
Bausch Health Cos., Inc./US | 120 | 122,665 | ||||||||||
Charles River Laboratories International, Inc. | 5 | 4,988 | ||||||||||
CHS/Community Health Systems, Inc. | 79 | 75,016 | ||||||||||
6.25%, 3/31/23 | 28 | 25,749 | ||||||||||
8.125%, 6/30/24(a) | 63 | 49,408 | ||||||||||
DaVita, Inc. | 88 | 83,204 | ||||||||||
5.125%, 7/15/24 | 85 | 81,039 | ||||||||||
5.75%, 8/15/22 | 14 | 14,172 | ||||||||||
Dean Foods Co. | 7 | 6,450 | ||||||||||
Eagle Holding Co. II LLC | 99 | 99,633 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Encompass Health Corp. | U.S.$ | 30 | $ | 29,835 | ||||||
Endo Finance LLC | 87 | 79,450 | ||||||||
Endo Finance LLC/Endo Finco, Inc. | 81 | 69,178 | ||||||||
Envision Healthcare Corp. | 5 | 4,851 | ||||||||
First Quality Finance Co., Inc. | 83 | 81,588 | ||||||||
Hadrian Merger Sub, Inc. | 40 | 38,316 | ||||||||
HCA, Inc. | 142 | 143,067 | ||||||||
4.50%, 2/15/27 | 105 | 101,882 | ||||||||
4.75%, 5/01/23 | 108 | 108,761 | ||||||||
5.00%, 3/15/24 | 32 | 32,416 | ||||||||
5.375%, 9/01/26 | 33 | 32,732 | ||||||||
5.625%, 9/01/28 | 35 | 34,648 | ||||||||
5.875%, 2/15/26 | 54 | 55,217 | ||||||||
6.50%, 2/15/20 | 157 | 162,238 | ||||||||
7.05%, 12/01/27 | 95 | 100,345 | ||||||||
Immucor, Inc. | 20 | 20,566 | ||||||||
Kinetic Concepts, Inc./KCI USA, Inc. | 146 | 148,951 | ||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 25 | 20,509 | ||||||||
5.625%, 10/15/23(a) | 32 | 27,547 | ||||||||
5.75%, 8/01/22(a) | 99 | 88,967 | ||||||||
MEDNAX, Inc. | 107 | 106,840 | ||||||||
Ortho-Clinical Diagnostics, Inc./Ortho-Clinical Diagnostics SA | 14 | 13,453 | ||||||||
Post Holdings, Inc. | 54 | 50,768 | ||||||||
RegionalCare Hospital Partners Holdings, Inc. | 82 | 86,838 | ||||||||
Spectrum Brands, Inc. | 51 | 51,948 | ||||||||
Tenet Healthcare Corp. | 25 | 24,699 | ||||||||
4.50%, 4/01/21 | 48 | 47,252 | ||||||||
6.00%, 10/01/20 | 85 | 87,129 | ||||||||
6.75%, 6/15/23 | 98 | 97,491 |
22 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
7.00%, 8/01/25 | U.S.$ | 4 | $ | 3,927 | ||||||||
7.50%, 1/01/22(a) | 19 | 19,323 | ||||||||||
8.125%, 4/01/22 | 162 | 169,262 | ||||||||||
Vizient, Inc. | 117 | 127,235 | ||||||||||
|
| |||||||||||
3,589,237 | ||||||||||||
|
| |||||||||||
Energy – 14.6% | ||||||||||||
Alta Mesa Holdings LP/Alta Mesa Finance Services Corp. | 76 | 67,842 | ||||||||||
Antero Resources Corp. | 30 | 29,140 | ||||||||||
5.125%, 12/01/22 | 99 | 98,550 | ||||||||||
5.625%, 6/01/23 | 55 | 54,930 | ||||||||||
Berry Petroleum Co. LLC | 56 | – 0 | – | |||||||||
7.00%, 2/15/26(a) | 25 | 24,845 | ||||||||||
Bristow Group, Inc. | 39 | 37,077 | ||||||||||
Bruin E&P Partners LLC | 67 | 66,063 | ||||||||||
California Resources Corp. | 19 | 16,576 | ||||||||||
8.00%, 12/15/22(a) | 148 | 131,626 | ||||||||||
Carrizo Oil & Gas, Inc. | 107 | 105,134 | ||||||||||
8.25%, 7/15/25 | 8 | 8,344 | ||||||||||
Cheniere Corpus Christi Holdings LLC | 74 | 75,753 | ||||||||||
Cheniere Energy Partners LP | 68 | 66,859 | ||||||||||
Chesapeake Energy Corp. | 37 | 35,205 | ||||||||||
5.75%, 3/15/23 | 20 | 19,025 | ||||||||||
6.125%, 2/15/21 | 68 | 68,680 | ||||||||||
6.875%, 11/15/20 | 1 | 605 | ||||||||||
8.00%, 12/15/22(a) | 21 | 21,891 | ||||||||||
8.00%, 1/15/25-6/15/27 | 134 | 133,964 | ||||||||||
Covey Park Energy LLC/Covey Park Finance Corp. | 176 | 172,920 | ||||||||||
DCP Midstream Operating LP | 35 | 35,207 | ||||||||||
Denbury Resources, Inc. | 39 | 38,218 | ||||||||||
9.00%, 5/15/21(a) | 20 | 20,864 | ||||||||||
9.25%, 3/31/22(a) | 72 | 75,043 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Diamond Offshore Drilling, Inc. | U.S.$ | 68 | $ | 47,402 | ||||||
7.875%, 8/15/25 | 62 | 61,103 | ||||||||
Energy Transfer LP | 87 | 86,218 | ||||||||
7.50%, 10/15/20 | 18 | 18,698 | ||||||||
Ensco PLC | 7 | 5,453 | ||||||||
5.20%, 3/15/25 | 136 | 111,793 | ||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 78 | 54,364 | ||||||||
9.375%, 5/01/24(a) | 131 | 99,537 | ||||||||
Genesis Energy LP/Genesis Energy Finance Corp. | 45 | 41,058 | ||||||||
6.25%, 5/15/26 | 98 | 88,935 | ||||||||
6.50%, 10/01/25 | 47 | 43,540 | ||||||||
6.75%, 8/01/22 | 12 | 12,093 | ||||||||
Gulfport Energy Corp. | 125 | 117,350 | ||||||||
6.375%, 5/15/25-1/15/26 | 79 | 73,959 | ||||||||
Hess Infrastructure Partners LP/Hess Infrastructure Partners Finance Corp. | 128 | 128,179 | ||||||||
HighPoint Operating Corp. | 87 | 85,553 | ||||||||
8.75%, 6/15/25 | 38 | 38,635 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co. | 7 | 6,629 | ||||||||
5.75%, 10/01/25(a) | 127 | 123,982 | ||||||||
Indigo Natural Resources LLC | 142 | 134,194 | ||||||||
Laredo Petroleum, Inc. | 22 | 21,671 | ||||||||
Murphy Oil Corp. | 26 | 25,091 | ||||||||
5.875%, 12/01/42 | 21 | 18,638 | ||||||||
Murphy Oil USA, Inc. | 2 | 2,283 | ||||||||
Nabors Industries, Inc. | 34 | 32,810 | ||||||||
5.00%, 9/15/20 | 9 | 8,930 | ||||||||
5.50%, 1/15/23 | 104 | 97,739 | ||||||||
5.75%, 2/01/25 | 35 | 32,260 | ||||||||
Nine Energy Service, Inc. | 41 | 41,573 |
24 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Noble Holding International Ltd. | U.S.$ | 77 | $ | 71,977 | ||||||
7.95%, 4/01/25 | 20 | 17,982 | ||||||||
Oasis Petroleum, Inc. | 9 | 9,081 | ||||||||
Parkland Fuel Corp. | 67 | 65,645 | ||||||||
PBF Holding Co. LLC/PBF Finance Corp. | 13 | 13,397 | ||||||||
PDC Energy, Inc. | 111 | 101,854 | ||||||||
Precision Drilling Corp. | 48 | 47,687 | ||||||||
QEP Resources, Inc. | 100 | 95,809 | ||||||||
5.375%, 10/01/22 | 34 | 32,855 | ||||||||
Range Resources Corp. | 42 | 38,630 | ||||||||
5.00%, 8/15/22-3/15/23 | 166 | 161,624 | ||||||||
5.875%, 7/01/22 | 2 | 2,015 | ||||||||
Rowan Cos., Inc. | 10 | 8,608 | ||||||||
5.85%, 1/15/44 | 35 | 26,124 | ||||||||
Sable Permian Resources Land LLC/AEPB Finance Corp. | 13 | 7,875 | ||||||||
Sanchez Energy Corp. | 45 | 16,751 | ||||||||
7.25%, 2/15/23(a) | 45 | 41,208 | ||||||||
7.75%, 6/15/21 | 20 | 10,368 | ||||||||
SandRidge Energy, Inc. | 29 | – 0 | – | |||||||
8.125%, 10/15/22(b)(c)(e)(f) | 47 | – 0 | – | |||||||
SemGroup Corp. | 16 | 15,464 | ||||||||
7.25%, 3/15/26 | 24 | 23,286 | ||||||||
SemGroup Corp./Rose Rock Finance Corp. | 65 | 61,451 | ||||||||
SM Energy Co. | 25 | 23,812 | ||||||||
5.625%, 6/01/25 | 35 | 33,671 | ||||||||
6.125%, 11/15/22 | 24 | 24,331 | ||||||||
6.625%, 1/15/27 | 39 | 39,166 | ||||||||
Southern Star Central Corp. | 35 | 34,552 | ||||||||
SRC Energy, Inc. | 23 | 21,410 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sunoco LP/Sunoco Finance Corp. | U.S.$ | 40 | $ | 38,637 | ||||||||
5.50%, 2/15/26(a) | 109 | 104,177 | ||||||||||
5.875%, 3/15/28(a) | 67 | 62,434 | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 36 | 36,000 | ||||||||||
4.25%, 11/15/23 | 19 | 17,919 | ||||||||||
Transocean Phoenix 2 Ltd. | 41 | 42,224 | ||||||||||
Transocean, Inc. | 102 | 82,241 | ||||||||||
7.50%, 1/15/26(a) | 18 | 17,662 | ||||||||||
9.00%, 7/15/23(a) | 24 | 25,679 | ||||||||||
Vantage Drilling International | 46 | – 0 | – | |||||||||
10.00%, 12/31/20(b)(e) | 1 | 1,131 | ||||||||||
10.00%, 12/31/20(b)(i) | 1 | 857 | ||||||||||
Vine Oil & Gas LP/Vine Oil & Gas Finance Corp. | 61 | 56,425 | ||||||||||
Weatherford International LLC | 31 | 24,323 | ||||||||||
Weatherford International Ltd. | 10 | 7,390 | ||||||||||
5.875%, 7/01/21(k) | 35 | 27,041 | ||||||||||
7.75%, 6/15/21 | 66 | 54,862 | ||||||||||
9.875%, 2/15/24 | 73 | 57,052 | ||||||||||
Whiting Petroleum Corp. | 28 | 26,543 | ||||||||||
5.75%, 3/15/21 | 105 | 105,873 | ||||||||||
6.25%, 4/01/23 | 9 | 9,030 | ||||||||||
6.625%, 1/15/26 | 42 | 41,978 | ||||||||||
WPX Energy, Inc. | 27 | 26,927 | ||||||||||
|
| |||||||||||
4,977,069 | ||||||||||||
|
| |||||||||||
Other Industrial – 1.1% | ||||||||||||
American Builders & Contractors Supply Co., Inc. | 25 | 24,753 | ||||||||||
American Tire Distributors, Inc. | 112 | 19,372 | ||||||||||
Global Partners LP/GLP Finance Corp. | 105 | 103,393 | ||||||||||
7.00%, 6/15/23 | 40 | 39,549 |
26 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Laureate Education, Inc. | U.S.$ | 61 | $ | 65,593 | ||||||||
Spectrum Brands Holdings, Inc. | 133 | 136,189 | ||||||||||
|
| |||||||||||
388,849 | ||||||||||||
|
| |||||||||||
Services – 2.6% | ||||||||||||
ADT Security Corp. (The) | 107 | 99,832 | ||||||||||
4.125%, 6/15/23 | 49 | 45,435 | ||||||||||
4.875%, 7/15/32(a) | 108 | 85,198 | ||||||||||
Aptim Corp. | 25 | 20,948 | ||||||||||
APX Group, Inc. | 109 | 109,599 | ||||||||||
8.75%, 12/01/20 | 29 | 28,876 | ||||||||||
Aramark Services, Inc. | 26 | 25,213 | ||||||||||
5.125%, 1/15/24 | 7 | 6,666 | ||||||||||
Carriage Services, Inc. | 30 | 30,068 | ||||||||||
GEO Group, Inc. (The) | 18 | 16,746 | ||||||||||
5.875%, 1/15/22-10/15/24 | 42 | 41,397 | ||||||||||
6.00%, 4/15/26 | 8 | 7,353 | ||||||||||
Monitronics International, Inc. | 14 | 10,464 | ||||||||||
Nielsen Co. Luxembourg SARL (The) | 28 | 28,118 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co. | 30 | 29,236 | ||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | 73 | 77,392 | ||||||||||
Refinitiv US Holdings, Inc. | 20 | 19,867 | ||||||||||
8.25%, 11/15/26(a) | 15 | 14,582 | ||||||||||
Ritchie Bros Auctioneers, Inc. | 12 | 11,822 | ||||||||||
Sabre GLBL, Inc. | 79 | 78,319 | ||||||||||
Team Health Holdings, Inc. | 81 | 69,393 | ||||||||||
Verscend Escrow Corp. | 34 | 34,035 | ||||||||||
|
| |||||||||||
890,559 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Technology – 2.3% | ||||||||||||
Amkor Technology, Inc. | U.S.$ | 20 | $ | 20,135 | ||||||||
Banff Merger Sub, Inc. | 111 | 107,521 | ||||||||||
CDK Global, Inc. | 50 | 50,382 | ||||||||||
Conduent Finance, Inc./Conduent Business Services LLC | 0 | ** | 167 | |||||||||
Dell International LLC/EMC Corp. | 59 | 59,958 | ||||||||||
Dell, Inc. | 53 | 56,337 | ||||||||||
First Data Corp. | 81 | 81,659 | ||||||||||
5.75%, 1/15/24(a) | 35 | 35,220 | ||||||||||
7.00%, 12/01/23(a) | 10 | 10,255 | ||||||||||
Genesys Telecommunications Laboratories, Inc./Greeneden Lux 3 SARL/Greeneden US Ho | 7 | 7,617 | ||||||||||
Goodman Networks, Inc. | 20 | 9,822 | ||||||||||
Harland Clarke Holdings Corp. | 18 | 15,882 | ||||||||||
Infor Software Parent LLC/Infor Software Parent, Inc. | 4 | 4,010 | ||||||||||
Infor US, Inc. | 78 | 77,816 | ||||||||||
IQVIA, Inc. | 27 | 26,767 | ||||||||||
Iron Mountain, Inc. | 20 | 20,298 | ||||||||||
Nokia Oyj | 16 | 15,303 | ||||||||||
6.625%, 5/15/39 | 64 | 66,830 | ||||||||||
Rackspace Hosting, Inc. | 17 | 15,973 | ||||||||||
Sanmina Corp. | 8 | 8,432 | ||||||||||
Solera LLC/Solera Finance, Inc. | 32 | 35,047 | ||||||||||
West Corp. | 19 | 17,230 |
28 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Western Digital Corp. | U.S.$ | 38 | $ | 35,141 | ||||||||
|
| |||||||||||
777,802 | ||||||||||||
|
| |||||||||||
Transportation - Services – 1.8% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 77 | 75,049 | ||||||||||
EC Finance PLC | EUR | 100 | 112,314 | |||||||||
Herc Rentals, Inc. | U.S.$ | 8 | 8,881 | |||||||||
Hertz Corp. (The) | 29 | 22,392 | ||||||||||
5.875%, 10/15/20 | 11 | 10,756 | ||||||||||
7.375%, 1/15/21 | 120 | 117,612 | ||||||||||
7.625%, 6/01/22(a) | 39 | 37,340 | ||||||||||
Park Aerospace Holdings Ltd. | 15 | 14,304 | ||||||||||
5.25%, 8/15/22(a) | 30 | 29,762 | ||||||||||
United Rentals North America, Inc. | 20 | 19,855 | ||||||||||
5.75%, 11/15/24 | 48 | 47,963 | ||||||||||
6.50%, 12/15/26 | 54 | 54,633 | ||||||||||
XPO Logistics, Inc. | 48 | 49,391 | ||||||||||
|
| |||||||||||
600,252 | ||||||||||||
|
| |||||||||||
22,541,049 | ||||||||||||
|
| |||||||||||
Financial Institutions – 6.9% | ||||||||||||
Banking – 2.4% | ||||||||||||
Ally Financial, Inc. | 19 | 19,246 | ||||||||||
8.00%, 11/01/31 | 151 | 182,032 | ||||||||||
Barclays Bank PLC | 15 | 15,594 | ||||||||||
Barclays PLC | 200 | 206,196 | ||||||||||
CIT Group, Inc. | 65 | 65,349 | ||||||||||
5.25%, 3/07/25 | 32 | 32,245 | ||||||||||
6.125%, 3/09/28 | 19 | 19,727 | ||||||||||
Goldman Sachs Group, Inc. (The) | 44 | 40,570 | ||||||||||
Royal Bank of Scotland Group PLC | EUR | 50 | 54,517 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
8.625%, 8/15/21(l) | U.S.$ | 117 | $ | 122,717 | ||||||||
Societe Generale SA | 31 | 31,982 | ||||||||||
SunTrust Banks, Inc. | 13 | 11,938 | ||||||||||
|
| |||||||||||
802,113 | ||||||||||||
|
| |||||||||||
Brokerage – 0.2% | ||||||||||||
Lehman Brothers Holdings, Inc. | 423 | 8,298 | ||||||||||
LPL Holdings, Inc. | 58 | 56,444 | ||||||||||
|
| |||||||||||
64,742 | ||||||||||||
|
| |||||||||||
Finance – 1.8% | ||||||||||||
Compass Group Diversified Holdings LLC | 45 | 45,905 | ||||||||||
Curo Group Holdings Corp. | 48 | 43,288 | ||||||||||
Enova International, Inc. | 94 | 89,108 | ||||||||||
goeasy Ltd. | 13 | 13,454 | ||||||||||
Navient Corp. | 47 | 47,209 | ||||||||||
5.50%, 1/25/23 | 79 | 77,501 | ||||||||||
5.875%, 3/25/21 | 1 | 590 | ||||||||||
6.50%, 6/15/22 | 125 | 127,745 | ||||||||||
7.25%, 1/25/22-9/25/23 | 32 | 33,117 | ||||||||||
8.00%, 3/25/20 | 51 | 52,849 | ||||||||||
SLM Corp. | 21 | 20,411 | ||||||||||
Springleaf Finance Corp. | 48 | 45,918 | ||||||||||
TMX Finance LLC/TitleMax Finance Corp. | 23 | 21,619 | ||||||||||
|
| |||||||||||
618,714 | ||||||||||||
|
| |||||||||||
Insurance – 1.0% | ||||||||||||
Ambac Assurance Corp. | 2 | 2,729 | ||||||||||
Genworth Holdings, Inc. | 30 | 30,511 | ||||||||||
7.625%, 9/24/21 | 35 | 35,649 | ||||||||||
Liberty Mutual Group, Inc. | 61 | 69,786 | ||||||||||
Polaris Intermediate Corp. | 138 | 141,263 |
30 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
USIS Merger Sub, Inc. | U.S.$ | 7 | $ | 6,867 | ||||||||
WellCare Health Plans, Inc. | 65 | 64,923 | ||||||||||
|
| |||||||||||
351,728 | ||||||||||||
|
| |||||||||||
Other Finance – 0.6% | ||||||||||||
LHC3 PLC | EUR | 100 | 112,476 | |||||||||
NVA Holdings, Inc./United States | U.S.$ | 26 | 25,770 | |||||||||
Tempo Acquisition LLC/Tempo Acquisition Finance Corp. | 27 | 25,650 | ||||||||||
Travelport Corporate Finance PLC | 25 | 25,042 | ||||||||||
|
| |||||||||||
188,938 | ||||||||||||
|
| |||||||||||
REITS – 0.9% | ||||||||||||
Iron Mountain, Inc. | 85 | 75,809 | ||||||||||
5.25%, 3/15/28(a) | 55 | 49,426 | ||||||||||
MGM Growth Properties Operating Partnership LP/MGP Finance Co-Issuer, Inc. | 35 | 35,052 | ||||||||||
MPT Operating Partnership LP/MPT Finance Corp. | 56 | 52,596 | ||||||||||
5.25%, 8/01/26 | 40 | 38,144 | ||||||||||
5.50%, 5/01/24 | 26 | 26,289 | ||||||||||
SBA Communications Corp. | 15 | 14,402 | ||||||||||
4.875%, 9/01/24 | 8 | 7,667 | ||||||||||
|
| |||||||||||
299,385 | ||||||||||||
|
| |||||||||||
2,325,620 | ||||||||||||
|
| |||||||||||
Utility – 2.1% | ||||||||||||
Electric – 1.8% | ||||||||||||
AES Corp./VA | 54 | 53,491 | ||||||||||
Calpine Corp. | 39 | 36,960 | ||||||||||
5.50%, 2/01/24 | 96 | 87,544 | ||||||||||
5.75%, 1/15/25 | 174 | 155,999 | ||||||||||
Talen Energy Supply LLC | 49 | 46,085 | ||||||||||
6.50%, 6/01/25 | 77 | 57,296 | ||||||||||
10.50%, 1/15/26(a) | 36 | 31,616 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Texas Competitive/TCEH | U.S.$ | 59 | $ | – 0 | – | |||||||
Vistra Energy Corp. | 8 | 7,693 | ||||||||||
7.375%, 11/01/22 | 115 | 119,065 | ||||||||||
7.625%, 11/01/24 | 7 | 7,111 | ||||||||||
|
| |||||||||||
602,860 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.3% | ||||||||||||
NGL Energy Partners LP/NGL Energy | 125 | 123,172 | ||||||||||
|
| |||||||||||
726,032 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 25,592,701 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 10.2% | ||||||||||||
Financial Institutions – 5.3% | ||||||||||||
Banking – 1.7% | ||||||||||||
Bank of America Corp. | 27 | 26,950 | ||||||||||
Series B | 46 | 56,499 | ||||||||||
Series DD | 22 | 23,170 | ||||||||||
Series Z | 2 | 2,115 | ||||||||||
BNP Paribas SA | 58 | 60,578 | ||||||||||
BPCE SA | 82 | 85,174 | ||||||||||
Credit Agricole SA | EUR | 100 | 122,202 | |||||||||
Goldman Sachs Group, Inc. (The) | 57 | 67,318 | ||||||||||
Morgan Stanley | U.S.$ | 39 | 39,879 | |||||||||
Santander Holdings USA, Inc. | 28 | 26,146 | ||||||||||
Standard Chartered PLC | 58 | 56,809 | ||||||||||
US Bancorp | 17 | 17,117 | ||||||||||
Zions Bancorp NA | 14 | 13,972 | ||||||||||
|
| |||||||||||
597,929 | ||||||||||||
|
|
32 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Insurance – 1.6% | ||||||||||||
ACE Capital Trust II | U.S.$ | 20 | $ | 27,820 | ||||||||
Allstate Corp. (The) | 10 | 11,432 | ||||||||||
American International Group, Inc. | 40 | 37,966 | ||||||||||
Aviva PLC | EUR | 100 | 112,951 | |||||||||
Berkshire Hathaway, Inc. | 100 | 114,159 | ||||||||||
CNP Assurances | 100 | 117,826 | ||||||||||
Nationwide Mutual Insurance Co. | U.S.$ | 31 | 46,585 | |||||||||
Prudential Financial, Inc. | 70 | 71,138 | ||||||||||
|
| |||||||||||
539,877 | ||||||||||||
|
| |||||||||||
REITS – 2.0% | ||||||||||||
American Tower Corp. | 62 | 57,105 | ||||||||||
EPR Properties | 55 | 56,415 | ||||||||||
GLP Capital LP/GLP Financing II, Inc. | 6 | 5,836 | ||||||||||
4.875%, 11/01/20 | 8 | 7,659 | ||||||||||
5.25%, 6/01/25 | 30 | 30,030 | ||||||||||
5.375%, 11/01/23-4/15/26 | 62 | 62,141 | ||||||||||
5.75%, 6/01/28 | 19 | 19,233 | ||||||||||
HCP, Inc. | 50 | 48,684 | ||||||||||
4.20%, 3/01/24 | 9 | 8,925 | ||||||||||
National Retail Properties, Inc. | 60 | 56,709 | ||||||||||
4.30%, 10/15/28 | 55 | 54,049 | ||||||||||
Omega Healthcare Investors, Inc. | 47 | 46,502 | ||||||||||
Regency Centers LP | 55 | 53,774 | ||||||||||
Sabra Health Care LP | 59 | 56,669 | ||||||||||
Sabra Health Care LP/Sabra Capital Corp. | 31 | 31,350 | ||||||||||
Senior Housing Properties Trust | 9 | 9,258 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Spirit Realty LP | U.S.$ | 14 | $ | 13,300 | ||||||||
Ventas Realty LP | 47 | 43,001 | ||||||||||
4.125%, 1/15/26 | 15 | 14,617 | ||||||||||
|
| |||||||||||
675,257 | ||||||||||||
|
| |||||||||||
1,813,063 | ||||||||||||
|
| |||||||||||
Industrial – 4.8% | ||||||||||||
Basic – 0.6% | ||||||||||||
ArcelorMittal | 22 | 22,754 | ||||||||||
7.00%, 10/15/39 | 74 | 81,385 | ||||||||||
Glencore Finance Canada Ltd. | 5 | 4,638 | ||||||||||
Glencore Funding LLC | 5 | 4,740 | ||||||||||
4.125%, 5/30/23(a) | 45 | 44,613 | ||||||||||
LYB International Finance II BV | 61 | 55,629 | ||||||||||
|
| |||||||||||
213,759 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.5% | ||||||||||||
CNH Industrial Capital LLC | 26 | 25,624 | ||||||||||
4.375%, 4/05/22 | 33 | 33,409 | ||||||||||
General Electric Co. | 40 | 37,217 | ||||||||||
Masco Corp. | 13 | 14,329 | ||||||||||
7.125%, 3/15/20 | 1 | 774 | ||||||||||
United Technologies Corp. | 42 | 41,578 | ||||||||||
|
| |||||||||||
152,931 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.5% | ||||||||||||
CBS Corp. | 61 | 54,931 | ||||||||||
Omnicom Group, Inc./Omnicom Capital, Inc. | 59 | 55,405 | ||||||||||
Warner Media LLC | 63 | 56,006 | ||||||||||
|
| |||||||||||
166,342 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.0% | ||||||||||||
CB T-Mobile USA, Inc. | 152 | – 0 | – |
34 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
6.375%, 3/01/25(b)(c) | U.S.$ | 27 | $ | – 0 | – | |||||||
6.50%, 1/15/24(b)(c) | 91 | – 0 | – | |||||||||
6.50%, 1/15/26(b)(c) | 45 | – 0 | – | |||||||||
|
| |||||||||||
– 0 | – | |||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.3% | ||||||||||||
General Motors Financial Co., Inc. | EUR | 100 | 110,383 | |||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||||
DR Horton, Inc. | U.S.$ | 44 | 44,433 | |||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.6% | ||||||||||||
Anheuser-Busch InBev Finance, Inc. | 28 | 27,047 | ||||||||||
Bayer US Finance II LLC | 56 | 53,223 | ||||||||||
CVS Health Corp. | 18 | 17,774 | ||||||||||
4.30%, 3/25/28 | 55 | 53,596 | ||||||||||
Kraft Heinz Foods Co. | 58 | 56,555 | ||||||||||
|
| |||||||||||
208,195 | ||||||||||||
|
| |||||||||||
Energy – 1.5% | ||||||||||||
Andeavor Logistics LP/Tesoro Logistics Finance Corp. | 8 | 8,243 | ||||||||||
Boardwalk Pipelines LP | 32 | 30,069 | ||||||||||
Cenovus Energy, Inc. | 10 | 9,566 | ||||||||||
3.80%, 9/15/23 | 39 | 38,105 | ||||||||||
4.25%, 4/15/27 | 9 | 8,477 | ||||||||||
4.45%, 9/15/42 | 31 | 25,453 | ||||||||||
6.75%, 11/15/39 | 1 | 1,558 | ||||||||||
Ecopetrol SA | 15 | 14,357 | ||||||||||
Enable Midstream Partners LP | 36 | 34,658 | ||||||||||
Energy Transfer Operating LP | 32 | 30,207 | ||||||||||
EQM Midstream Partners LP | 30 | 29,970 | ||||||||||
Hess Corp. | 42 | 39,569 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Kinder Morgan, Inc./DE | U.S.$ | 11 | $ | 14,010 | ||||||||
Marathon Oil Corp. | 34 | 39,394 | ||||||||||
MPLX LP | 31 | 29,567 | ||||||||||
Noble Energy, Inc. | 33 | 30,334 | ||||||||||
ONEOK, Inc. | 30 | 29,386 | ||||||||||
Phillips 66 Partners LP | 32 | 29,694 | ||||||||||
Sabine Pass Liquefaction LLC | 32 | 30,467 | ||||||||||
Sunoco Logistics Partners Operations LP | 30 | 27,853 | ||||||||||
|
| |||||||||||
500,937 | ||||||||||||
|
| |||||||||||
Services – 0.1% | ||||||||||||
Expedia Group, Inc. | 30 | 27,131 | ||||||||||
|
| |||||||||||
Technology – 0.6% | ||||||||||||
Agilent Technologies, Inc. | 42 | 41,896 | ||||||||||
Broadcom Corp./Broadcom Cayman | 63 | 57,819 | ||||||||||
Dell International LLC/EMC Corp. | 50 | 51,726 | ||||||||||
Micron Technology, Inc. | 15 | 15,244 | ||||||||||
Seagate HDD Cayman | 28 | 25,591 | ||||||||||
4.875%, 6/01/27 | 5 | 4,051 | ||||||||||
Xerox Corp. | 18 | 16,480 | ||||||||||
|
| |||||||||||
212,807 | ||||||||||||
|
| |||||||||||
1,636,918 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
DPL, Inc. | 13 | 13,361 | ||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 3,463,342 | |||||||||||
|
|
36 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BANK LOANS – 3.4% | ||||||||||||
Industrial – 3.4% | ||||||||||||
Basic – 0.1% | ||||||||||||
Foresight Energy LLC | U.S.$ | 12 | $ | 12,120 | ||||||||
Starfruit Finco B.V. (Starfruit US Holdco LLC) (fka AkzoNobel) | 10 | 9,962 | ||||||||||
Unifrax I LLC | 11 | 11,105 | ||||||||||
|
| |||||||||||
33,187 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.4% | ||||||||||||
Accudyne Industries Borrower S.C.A. / Accudyne Industries, LLC (fka Silver II | 18 | 18,049 | ||||||||||
Apex Tool Group, LLC | 61 | 59,627 | ||||||||||
Brookfield WEC Holdings Inc. (fka Westinghouse Electric Company LLC) | 29 | 29,404 | ||||||||||
9.052% (LIBOR 1 Month + 6.75%), 8/03/26(n) | 10 | 10,135 | ||||||||||
Gardner Denver, Inc. | 15 | 15,123 | ||||||||||
Honeywell Technologies SARL | 8 | 8,474 | ||||||||||
|
| |||||||||||
140,812 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
Intelsat Jackson Holdings S.A. | 6 | 6,441 | ||||||||||
6.795% (LIBOR 1 Month + 4.50%), 1/02/24(b)(n) | 4 | 3,881 | ||||||||||
West Corporation | 0 | ** | 74 | |||||||||
6.526% (LIBOR 3 Month + 4.00%), 10/10/24(n) | 30 | 29,397 | ||||||||||
|
| |||||||||||
39,793 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Navistar, Inc. | U.S.$ | 10 | $ | 9,674 | ||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.1% | ||||||||||||
Seaworld Parks & Entertainment, Inc. (fka | 25 | 24,720 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.2% | ||||||||||||
Caesars Resort Collection, LLC (fka Caesars Growth Properties Holdings, LLC) | 39 | 38,530 | ||||||||||
Stars Group Holdings B.V. | 10 | 10,211 | ||||||||||
|
| |||||||||||
48,741 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.0% | ||||||||||||
IRB Holding Corp. (fka Arby’s / Buffalo Wild Wings) | 6 | 6,201 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.3% | ||||||||||||
Serta Simmons Bedding, LLC | 49 | 37,687 | ||||||||||
Specialty Building Products Holdings, LLC | 43 | 42,361 | ||||||||||
|
| |||||||||||
80,048 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.8% | ||||||||||||
Air Medical Group Holdings, Inc. | 21 | 20,739 | ||||||||||
6.53% (LIBOR 1 Month + 4.25%), 3/14/25(n) | 16 | 15,852 | ||||||||||
Alphabet Holding Company, Inc. (fka | 54 | 47,902 | ||||||||||
Avantor, Inc. | 23 | 23,054 |
38 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BI-LO, LLC | U.S.$ | 34 | $ | 33,221 | ||||||||
10.34% (LIBOR 3 Month + 8.00%), 5/31/24(n) | 32 | 31,936 | ||||||||||
10.445% (LIBOR 3 Month + 8.00%), 5/31/24(n) | 34 | 33,221 | ||||||||||
Envision Healthcare Corporation | 29 | 27,956 | ||||||||||
Owens & Minor, Inc. | 34 | 31,089 | ||||||||||
Post Holdings, Inc. | 7 | 7,418 | ||||||||||
Vizient, Inc. | 1 | 651 | ||||||||||
|
| |||||||||||
273,039 | ||||||||||||
|
| |||||||||||
Energy – 0.4% | ||||||||||||
California Resources Corporation | 46 | 51,497 | ||||||||||
Triton Solar US Acquisition Co. | 89 | 83,400 | ||||||||||
|
| |||||||||||
134,897 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
American Tire Distributors, Inc. | 15 | 13,545 | ||||||||||
HD Supply Waterworks, LTD. | 3 | 2,621 | ||||||||||
5.322% (LIBOR 3 Month + 3.00%), 8/01/24(b)(n) | 2 | 2,323 | ||||||||||
Travelport Finance (Luxembourg) SARL | 23 | 22,675 | ||||||||||
|
| |||||||||||
41,164 | ||||||||||||
|
| |||||||||||
Services – 0.6% | ||||||||||||
Financial & Risk US Holdings, Inc. (fka Refinitiv) | 15 | 14,837 | ||||||||||
Monitronics International, Inc. | 69 | 67,949 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Pi Lux Finco SARL | U.S.$ | 100 | $ | 98,250 | ||||||||
Verscend Holding Corp. | 27 | 27,043 | ||||||||||
|
| |||||||||||
208,079 | ||||||||||||
|
| |||||||||||
Technology – 0.3% | ||||||||||||
Boxer Parent Company Inc. (fka BMC Software) | 30 | 30,072 | ||||||||||
MTS Systems Corporation | 23 | 23,096 | ||||||||||
Solera, LLC (Solera Finance, Inc.) | 59 | 59,285 | ||||||||||
|
| |||||||||||
112,453 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 1,152,808 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 1.9% | ||||||||||||
Energy – 0.9% | ||||||||||||
Energy Equipment & Services – 0.4% | ||||||||||||
Tervita Corp.(c)(e) | 25,589 | 145,589 | ||||||||||
Weatherford International PLC(c) | 2,097 | 2,831 | ||||||||||
|
| |||||||||||
148,420 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels – 0.5% | ||||||||||||
Berry Petroleum Corp. | 3,917 | 54,838 | ||||||||||
Carrizo Oil & Gas, Inc.(c) | 405 | 7,375 | ||||||||||
CHC Group LLC(c)(j) | 1,219 | 9,447 | ||||||||||
Chesapeake Energy Corp.(c) | 1,523 | 5,346 | ||||||||||
Denbury Resources, Inc.(c) | 2,999 | 10,347 | ||||||||||
EP Energy Corp. – Class A(c) | 2,501 | 4,502 | ||||||||||
Halcon Resources Corp.(c) | 276 | 916 | ||||||||||
K201640219 (South Africa) Ltd. | 191,574 | – 0 | – | |||||||||
K201640219 (South Africa) Ltd. | 30,276 | – 0 | – | |||||||||
Oasis Petroleum, Inc.(c) | 972 | 9,778 | ||||||||||
Paragon Offshore Ltd. – Class A(b)(c)(e) | 267 | 222 | ||||||||||
Paragon Offshore Ltd. – Class B(b)(c)(e) | 401 | 15,037 | ||||||||||
Peabody Energy Corp. | 533 | 18,895 | ||||||||||
Riviera Resources, Inc./Linn(c) | 87 | 1,855 |
40 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Roan Resources, Inc.(c) | 55 | $ | 895 | |||||||||
Triangle Petroleum Corp.(c) | 3,047 | 55 | ||||||||||
Vantage Drilling International(b)(c)(e) | 82 | 25,065 | ||||||||||
Whiting Petroleum Corp.(c) | 205 | 7,647 | ||||||||||
|
| |||||||||||
172,220 | ||||||||||||
|
| |||||||||||
320,640 | ||||||||||||
|
| |||||||||||
Consumer Discretionary – 0.5% |
| |||||||||||
Auto Components – 0.0% | ||||||||||||
Exide Technologies(b)(c)(f)(j) | 1,793 | 753 | ||||||||||
|
| |||||||||||
Diversified Consumer Services – 0.0% |
| |||||||||||
Ascent Capital Group, Inc. – Class A(c) | 539 | 518 | ||||||||||
Laureate Education, Inc. – Class A(c) | 980 | 14,592 | ||||||||||
|
| |||||||||||
15,110 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure – 0.2% | ||||||||||||
Caesars Entertainment Corp.(c) | 1,258 | 10,806 | ||||||||||
eDreams ODIGEO SA(c) | 12,845 | 52,303 | ||||||||||
|
| |||||||||||
63,109 | ||||||||||||
|
| |||||||||||
Household Durables – 0.2% | ||||||||||||
Hovnanian Enterprises, Inc. – Class A(c) | 3,276 | 4,783 | ||||||||||
M/I Homes, Inc.(c) | 728 | 17,596 | ||||||||||
MDC Holdings, Inc. | 614 | 17,253 | ||||||||||
Meritage Homes Corp.(c) | 469 | 17,470 | ||||||||||
Taylor Morrison Home Corp. – Class A(c) | 1,098 | 18,161 | ||||||||||
|
| |||||||||||
75,263 | ||||||||||||
|
| |||||||||||
Internet & Direct Marketing Retail – 0.0% | ||||||||||||
Travelport Worldwide Ltd. | 110 | 1,646 | ||||||||||
|
| |||||||||||
Media – 0.1% |
| |||||||||||
Clear Channel Outdoor Holdings, Inc. – Class A | 3,060 | 17,809 | ||||||||||
|
| |||||||||||
173,690 | ||||||||||||
|
| |||||||||||
Materials – 0.2% |
| |||||||||||
Containers & Packaging – 0.0% |
| |||||||||||
WestRock Co. | 6 | 258 | ||||||||||
|
| |||||||||||
Metals & Mining – 0.2% |
| |||||||||||
BIS Industries Holdings Ltd.(b)(c)(e)(f) | 21,027 | 400 | ||||||||||
Constellium NV – Class A(c) | 3,216 | 29,137 | ||||||||||
Eldorado Gold Corp.(c) | 34,605 | 23,132 | ||||||||||
Neenah Enterprises, Inc.(b)(c)(e)(f) | 4,481 | 3,226 | ||||||||||
|
| |||||||||||
55,895 | ||||||||||||
|
| |||||||||||
56,153 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Information Technology – 0.1% | ||||||||||||
IT Services – 0.0% | ||||||||||||
Goodman Networks, Inc.(b)(c)(e)(f) | 1,236 | $ | – 0 | – | ||||||||
|
| |||||||||||
Software – 0.1% | ||||||||||||
Avaya Holdings Corp.(c) | 1,880 | 30,870 | ||||||||||
|
| |||||||||||
30,870 | ||||||||||||
|
| |||||||||||
Consumer Staples – 0.1% |
| |||||||||||
Food & Staples Retailing – 0.1% |
| |||||||||||
Southeastern Grocers, Inc. Npv(b)(c)(e)(f) | 828 | 30,843 | ||||||||||
|
| |||||||||||
Industrials – 0.1% | ||||||||||||
Construction & Engineering – 0.0% | ||||||||||||
Willscot Corp.(c)(e)(f) | 508 | 7,539 | ||||||||||
|
| |||||||||||
Machinery – 0.1% | ||||||||||||
Titan International, Inc. | 1,778 | 12,553 | ||||||||||
|
| |||||||||||
Trading Companies & Distributors – 0.0% | ||||||||||||
Emeco Holdings Ltd.(c) | 6,026 | 1,225 | ||||||||||
|
| |||||||||||
21,317 | ||||||||||||
|
| |||||||||||
Health Care – 0.0% | ||||||||||||
Pharmaceuticals – 0.0% | ||||||||||||
Endo International PLC(c) | 614 | 10,401 | ||||||||||
Horizon Pharma PLC(c) | 196 | 3,569 | ||||||||||
|
| |||||||||||
13,970 | ||||||||||||
|
| |||||||||||
Communication Services – 0.0% | ||||||||||||
Media – 0.0% | ||||||||||||
DISH Network Corp. – Class A(c) | 100 | 3,074 | ||||||||||
|
| |||||||||||
Wireless Telecommunication Services – 0.0% | ||||||||||||
T-Mobile US, Inc.(c) | 150 | 10,283 | ||||||||||
|
| |||||||||||
13,357 | ||||||||||||
|
| |||||||||||
Total Common Stocks | 660,840 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
GOVERNMENTS – TREASURIES – 1.3% | ||||||||||||
Mexico – 0.2% | ||||||||||||
Mexican Bonos | MXN | 1,202 | 49,832 | |||||||||
Series M 20 | 480 | 25,145 | ||||||||||
|
| |||||||||||
74,977 | ||||||||||||
|
|
42 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Russia – 0.2% | ||||||||||||
Russian Federal Bond – OFZ | RUB | 3,986 | $ | 59,638 | ||||||||
|
| |||||||||||
United States – 0.9% | ||||||||||||
U.S. Treasury Notes | U.S.$ | 300 | 297,141 | |||||||||
|
| |||||||||||
Total Governments – Treasuries | 431,756 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 1.1% | ||||||||||||
Industrial – 1.0% | ||||||||||||
Basic – 0.2% | ||||||||||||
First Quantum Minerals Ltd. | 13 | 13,097 | ||||||||||
7.25%, 4/01/23(a) | 58 | 53,758 | ||||||||||
Lundin Mining Corp. | 10 | 10,619 | ||||||||||
|
| |||||||||||
77,474 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
Digicel Ltd. | 36 | 29,231 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||||
Edcon Ltd. | EUR | 1 | – 0 | – | ||||||||
K2016470219 South Africa Ltd. | U.S.$ | 15 | 301 | |||||||||
K2016470260 South Africa Ltd. | 5 | 1,358 | ||||||||||
|
| |||||||||||
1,659 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 38 | 37,864 | ||||||||||
2.80%, 7/21/23 | 9 | 7,901 | ||||||||||
3.15%, 10/01/26 | 63 | 51,109 | ||||||||||
Tonon Luxembourg SA | 6 | 136 | ||||||||||
Virgolino de Oliveira Finance SA | 96 | 5,861 | ||||||||||
|
| |||||||||||
102,871 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Energy – 0.4% | ||||||||||||
CHC Group LLC/CHC Finance Ltd. | U.S.$ | 65 | $ | 61,911 | ||||||||
Petrobras Global Finance BV | 27 | 25,658 | ||||||||||
6.25%, 3/17/24 | 35 | 35,359 | ||||||||||
|
| |||||||||||
122,928 | ||||||||||||
|
| |||||||||||
Transportation - Airlines – 0.0% | ||||||||||||
Guanay Finance Ltd. | 5 | 4,904 | ||||||||||
|
| |||||||||||
339,067 | ||||||||||||
|
| |||||||||||
Utility – 0.1% |
| |||||||||||
Electric – 0.1% |
| |||||||||||
Terraform Global Operating LLC | 12 | 11,209 | ||||||||||
|
| |||||||||||
Financial Institutions – 0.0% |
| |||||||||||
Insurance – 0.0% |
| |||||||||||
Ambac LSNI LLC | 9 | 8,948 | ||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 359,224 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 0.8% | ||||||||||||
Other ABS - Fixed Rate – 0.5% | ||||||||||||
DB Master Finance LLC | 58 | 55,762 | ||||||||||
Taco Bell Funding LLC | 16 | 16,086 | ||||||||||
Series 2016-1A, Class A2I | 29 | 28,676 | ||||||||||
Wendy’s Funding LLC | 70 | 67,650 | ||||||||||
|
| |||||||||||
168,174 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.3% | ||||||||||||
CWABS Asset-Backed Certificates Trust | 57 | 56,548 |
44 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GSAA Home Equity Trust | U.S.$ | 75 | $ | 36,592 | ||||||||
Lehman XS Trust | 23 | 22,526 | ||||||||||
|
| |||||||||||
115,666 | ||||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 283,840 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 0.7% | ||||||||||||
Risk Share Floating Rate – 0.7% | ||||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 15 | 17,304 | ||||||||||
Series 2013-DN2, Class M2 | 48 | 53,209 | ||||||||||
Series 2014-DN1, Class M3 | 36 | 41,808 | ||||||||||
Series 2014-HQ2, Class M3 | 54 | 61,726 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 15 | 16,683 | ||||||||||
Series 2014-C01, Class M2 | 27 | 30,531 | ||||||||||
Series 2015-C03, Class 1M2 | 5 | 6,003 | ||||||||||
Series 2015-C03, Class 2M2 | 2 | 2,312 | ||||||||||
|
| |||||||||||
229,576 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.0% | ||||||||||||
Alternative Loan Trust | 6 | 4,555 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CSMC Mortgage-Backed Trust | U.S.$ | 7 | $ | 5,755 | ||||||||
|
| |||||||||||
10,310 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 239,886 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 0.5% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentina POM Politica Monetaria | ARS | 748 | 23,603 | |||||||||
Argentine Bonos del Tesoro | 717 | 17,644 | ||||||||||
|
| |||||||||||
41,247 | ||||||||||||
|
| |||||||||||
Brazil – 0.3% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 349 | 97,034 | |||||||||
|
| |||||||||||
South Africa – 0.1% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 283 | 18,531 | |||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 156,812 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.3% | ||||||||||||
United States – 0.3% | ||||||||||||
State of California | U.S.$ | 25 | 35,757 | |||||||||
7.95%, 3/01/36 | 55 | 58,268 | ||||||||||
|
| |||||||||||
Total Local Governments – US Municipal Bonds | 94,025 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 0.2% | ||||||||||||
Utility – 0.2% | ||||||||||||
Electric – 0.2% | ||||||||||||
SCE Trust III | 423 | 10,630 |
46 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Vistra Energy Corp. | 600 | $ | 55,050 | |||||||||
|
| |||||||||||
65,680 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.0% | ||||||||||||
Banking – 0.0% | ||||||||||||
GMAC Capital Trust I | 357 | 9,375 | ||||||||||
|
| |||||||||||
Industrial – 0.0% | ||||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. | 490 | 2,205 | ||||||||||
|
| |||||||||||
Energy – 0.0% | ||||||||||||
Sanchez Energy Corp. | 962 | 4,088 | ||||||||||
Series B | 300 | 1,389 | ||||||||||
|
| |||||||||||
5,477 | ||||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
Goodman Networks, Inc. | 1,470 | – 0 | – | |||||||||
|
| |||||||||||
7,682 | ||||||||||||
|
| |||||||||||
Total Preferred Stocks | 82,737 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
COLLATERALIZED LOAN OBLIGATIONS – 0.2% | ||||||||||||
CLO - Floating Rate – 0.2% | ||||||||||||
CIFC Funding Ltd. | U.S.$ | 73 | 72,871 | |||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.2% | ||||||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||||||
Citigroup Commercial Mortgage Trust | 15 | 13,064 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GS Mortgage Securities Trust | U.S.$ | 29 | $ | 26,334 | ||||||||
JPMBB Commercial Mortgage Securities Trust | 29 | 28,464 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 67,862 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 0.1% | ||||||||||||
Funds and Investment Trusts – 0.1% | ||||||||||||
iShares MSCI Global Metals & Mining Producers ETF(p) | 805 | 23,764 | ||||||||||
|
| |||||||||||
WARRANTS – 0.0% | ||||||||||||
Avaya Holdings Corp., | 1,210 | 5,445 | ||||||||||
Midstates Petroleum Co., Inc., | 860 | 129 | ||||||||||
SandRidge Energy, Inc., A-CW22, | 1,975 | 197 | ||||||||||
SandRidge Energy, Inc., B-CW22, | 830 | 42 | ||||||||||
Willscot Corp., | 787 | 2,998 | ||||||||||
|
| |||||||||||
Total Warrants | 8,811 | |||||||||||
|
| |||||||||||
RIGHTS – 0.0% | ||||||||||||
Vistra Energy Corp., | 3,442 | 2,695 | ||||||||||
|
| |||||||||||
Notional Amount | ||||||||||||
OPTIONS PURCHASED – CALLS – 0.0% | ||||||||||||
Swaptions – 0.0% | ||||||||||||
CDX-NAHY Series 31, 5 Year Index | USD | 345,000 | 1,668 | |||||||||
|
|
48 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Notional Amount | U.S. $ Value | |||||||||||
| ||||||||||||
Options on Equities – 0.0% | ||||||||||||
Delphi Technologies PLC | USD | 13,000 | $ | 650 | ||||||||
|
| |||||||||||
Total Options Purchased – Calls | 2,318 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
SHORT-TERM INVESTMENTS – 3.0% | ||||||||||||
Investment Companies – 3.0% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 2.08%(p)(q)(r) | 1,014,873 | 1,014,873 | ||||||||||
|
| |||||||||||
Total Investments – 99.2% | 33,711,165 | |||||||||||
Other assets less liabilities – 0.8% | 278,963 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 33,990,128 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at October 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||
E-Mini Russell 2000 Index Futures | 1 | December 2018 | USD | 0 | *** | $ | 82,917 | $ | 75,595 | $ | (7,322 | ) | ||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 16 | December 2018 | USD | 1,600 | 1,919,188 | 1,895,000 | (24,188 | ) | ||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||
Euro-BOBL Futures | 5 | December 2018 | EUR | 500 | 745,340 | 744,377 | 963 | |||||||||||||||||
Euro-OAT Futures | 2 | December 2018 | EUR | 200 | 345,322 | 344,235 | 1,087 | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | (29,460 | ) | ||||||||||||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 49 |
PORTFOLIO OF INVESTMENTS (continued)
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Bank of America, NA | BRL | 380 | USD | 102 | 11/05/18 | $ | 147 | |||||||||
Bank of America, NA | USD | 103 | BRL | 380 | 11/05/18 | (1,335 | ) | |||||||||
Bank of America, NA | RUB | 4,120 | USD | 62 | 11/14/18 | (249 | ) | |||||||||
Bank of America, NA | BRL | 380 | USD | 103 | 12/04/18 | 1,363 | ||||||||||
Barclays Bank PLC | BRL | 123 | USD | 33 | 11/05/18 | 48 | ||||||||||
Barclays Bank PLC | USD | 31 | BRL | 123 | 11/05/18 | 2,366 | ||||||||||
Brown Brothers Harriman & Co. | CAD | 361 | USD | 280 | 11/16/18 | 5,850 | ||||||||||
Brown Brothers Harriman & Co. | USD | 47 | CAD | 61 | 11/16/18 | (507 | ) | |||||||||
Brown Brothers Harriman & Co. | ZAR | 246 | USD | 17 | 11/29/18 | (117 | ) | |||||||||
Brown Brothers Harriman & Co. | MXN | 1,599 | USD | 84 | 12/05/18 | 6,138 | ||||||||||
Brown Brothers Harriman & Co. | AUD | 88 | USD | 62 | 12/07/18 | (191 | ) | |||||||||
Brown Brothers Harriman & Co. | NZD | 197 | USD | 127 | 12/07/18 | (1,841 | ) | |||||||||
Brown Brothers Harriman & Co. | GBP | 70 | USD | 92 | 12/14/18 | 3,039 | ||||||||||
Brown Brothers Harriman & Co. | EUR | 1,220 | USD | 1,411 | 1/09/19 | 20,560 | ||||||||||
Citibank, NA | ARS | 786 | USD | 19 | 11/05/18 | (2,732 | ) | |||||||||
Citibank, NA | USD | 66 | INR | 4,579 | 12/13/18 | (4,118 | ) | |||||||||
JPMorgan Chase Bank, NA | ARS | 786 | USD | 20 | 11/13/18 | (1,509 | ) | |||||||||
Morgan Stanley Capital Services LLC | BRL | 503 | USD | 122 | 11/05/18 | (13,336 | ) | |||||||||
Morgan Stanley Capital Services LLC | USD | 135 | BRL | 503 | 11/05/18 | (194 | ) | |||||||||
Standard Chartered Bank | TWD | 2,031 | USD | 66 | 12/11/18 | 575 | ||||||||||
|
| |||||||||||||||
$ | 13,957 | |||||||||||||||
|
|
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 | | Credit Suisse International | | Sell | 1.00 | % | Jan 2019 | USD 345 | $ | 1,511 | $ | (1,273 | ) |
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
CDX-NAHY Series 31, 5 Year Index, 12/20/23* | (5.00 | )% | Quarterly | 3.74 | % | USD | 676 | $ | (39,871 | ) | $ | (48,204 | ) | $ | 8,333 |
50 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 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 | 2.21 | % | EUR | 0 | *** | $ | (3 | ) | $ | (9 | ) | $ | 6 | ||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 6/20/21* | (5.00 | ) | Quarterly | 2.13 | EUR | 14 | (1,251 | ) | (533 | ) | (718 | ) | ||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 6/20/21* | 5.00 | Quarterly | 2.13 | EUR | 14 | 1,251 | 1,501 | (250 | ) | |||||||||||||||||||
iTraxx Europe Crossover Series 28, 5 Year Index, 12/20/22* | 5.00 | Quarterly | 2.73 | EUR | 283 | 29,641 | 29,922 | (281 | ) | |||||||||||||||||||
iTraxx Europe Crossover Series 30, 5 Year Index, 12/20/23* | 5.00 | Quarterly | 2.98 | EUR | 129 | 14,348 | 14,109 | 239 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 4,115 | $ | (3,214 | ) | $ | 7,329 | ||||||||||||||||||||||
|
|
|
|
|
|
* | 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 | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||
USD | 1,770 | 3/06/23 | 3 Month LIBOR | 2.714% | Quarterly/ Semi-Annual | $ | (29,132 | ) | $ | — | $ | (29,132 | ) | |||||||||||
USD | 2,835 | 9/02/25 | 2.248% | 3 Month LIBOR | Semi-Annual/ Quarterly | 163,098 | (8,311 | ) | 171,409 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 51 |
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 | 961 | 1/15/26 | 1.978% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | $ | 70,550 | $ | 5,398 | $ | 65,152 | |||||||||||||||
USD | 651 | 2/16/26 | 1.625% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | 67,659 | 7,434 | 60,225 | ||||||||||||||||||
USD | 150 | 3/31/26 | 1.693% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | 14,994 | — | 14,994 | ||||||||||||||||||
USD | 100 | 5/03/26 | 1.770% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | 9,262 | — | 9,262 | ||||||||||||||||||
USD | 800 | 6/01/26 | 1.714% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | 77,488 | 32,362 | 45,126 | ||||||||||||||||||
USD | 4,650 | 4/28/27 | | 3 Month LIBOR | | 2.330% | Quarterly/ Semi-Annual | (307,889 | ) | 16,658 | (324,547 | ) | ||||||||||||||||
USD | 350 | 5/03/27 | 2.285% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | 22,539 | 112 | 22,427 | ||||||||||||||||||
USD | 940 | 3/06/28 | 2.876% | | 3 Month LIBOR | | Semi-Annual/ Quarterly | 26,691 | — | 26,691 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 115,260 | $ | 53,653 | $ | 61,607 | |||||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 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 | 4.29 | % | USD | 60 | $ | (811 | ) | $ | 866 | $ | (1,677 | ) | |||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | (5.00 | ) | Monthly | 13.65 | USD | 180 | 43,889 | 22,882 | 21,007 | |||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
British Telecommunications PLC, 5.750%, 12/07/28, 6/20/20* | (1.00 | ) | Quarterly | 0.20 | EUR | 170 | (2,675 | ) | (2,162 | ) | (513 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | (3.00 | ) | Monthly | 7.42 | USD | 192 | 26,614 | 20,575 | 6,039 |
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 October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||||||
Altice Luxembourg SA, 7.250%, 5/15/22, 6/20/22* | 5.00 | % | Quarterly | 5.79 | % | EUR | 60 | $ | (1,510 | ) | $ | 6,690 | $ | (8,200 | ) | |||||||||||||
New Albertsons LP, 8.000%, 5/01/31, 12/20/22* | 5.00 | Quarterly | 5.78 | USD | 30 | (654 | ) | (1,935 | ) | 1,281 | ||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||
Altice France SA, 5.375%, 5/15/22, 6/20/23* | 5.00 | Quarterly | 3.26 | EUR | 100 | 8,872 | 8,127 | 745 | ||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 3/15/25, 6/20/22* | 5.00 | Quarterly | 2.56 | USD | 50 | 4,066 | 2,420 | 1,646 | ||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 13.65 | USD | 29 | (7,071 | ) | (3,632 | ) | (3,439 | ) | |||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 13.65 | USD | 69 | (16,824 | ) | (8,019 | ) | (8,805 | ) | |||||||||||||||||
International Game Technology PLC, 4.750%, 2/15/23, 6/20/22* | 5.00 | Quarterly | 1.72 | EUR | 100 | 13,592 | 8,268 | 5,324 | ||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 75 | (10,409 | ) | (5,112 | ) | (5,297 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 252 | (34,973 | ) | (17,634 | ) | (17,339 | ) | |||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 3/15/25, 6/20/22* | 5.00 | Quarterly | 2.65 | USD | 13 | 1,017 | 636 | 381 | ||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 13.65 | USD | 163 | (39,721 | ) | (29,799 | ) | (9,922 | ) |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 53 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
New Albertsons LP, 8.000%, 5/01/31, 12/20/22* | 5.00 | % | Quarterly | 5.78 | % | USD | 60 | $ | (1,308 | ) | $ | (3,447 | ) | $ | 2,139 | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (17,906 | ) | $ | (1,276 | ) | $ | (16,630 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note D)
Counterparty & Obligation | # of Shares or Units | Rate Paid/ | 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 | 1,286 | LIBOR | Quarterly | USD | 352 | 12/20/18 | $ | (3,787 | ) | |||||||||||||||||||
iBoxx $ Liquid High Yield Index | 2,390 | LIBOR | Quarterly | USD | 654 | 12/20/18 | (6,953 | ) | ||||||||||||||||||||
BNP Paribas SA | ||||||||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 1,667 | LIBOR | Quarterly | USD | 456 | 12/20/18 | (4,848 | ) | ||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 2,695 | LIBOR | Quarterly | USD | 738 | 12/20/18 | (8,379 | ) | ||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
Markit iBoxx $ Contingent Convertible Liquid Developed Market AT1 | 4,303 | LIBOR | Quarterly | USD | 580 | 12/20/18 | (1,294 | ) | ||||||||||||||||||||
Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 | 1,738 | EURIBOR | Quarterly | EUR | 240 | 12/20/18 | (1,008 | ) | ||||||||||||||||||||
Pay Total Return on Reference Obligation |
| |||||||||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 8,065 | LIBOR | Quarterly | USD | 2,200 | 12/20/18 | 17,010 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (9,259 | ) | ||||||||||||||||||||||||||
|
|
** | Principal amount less than 500. |
*** | 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 October 31, 2018, the aggregate market value of these securities amounted to $13,156,815 or 38.7% of net assets. |
54 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(b) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(c) | Non-income producing security. |
(d) | Defaulted. |
(e) | Illiquid security. |
(f) | Fair valued by the Adviser. |
(g) | Pay-In-Kind Payments (PIK). The issuer may pay cash interest and/or interest in additional debt securities. Rates shown are the rates in effect at October 31, 2018. |
(h) | Defaulted matured security. |
(i) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.32% of net assets as of October 31, 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 | % | |||||||
Exide Technologies | 11/10/16 | 90,678 | 61,123 | 0.18 | % | |||||||||||
Exide Technologies | 5/23/17 | 40,695 | 40,668 | 0.12 | % | |||||||||||
K2016470219 South Africa Ltd. | 3/13/15 | 17,245 | 301 | 0.00 | % | |||||||||||
K2016470260 South Africa Ltd. | 12/22/16 | 4,452 | 1,358 | 0.00 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | 2/19/15 | 36,767 | 1 | 0.00 | % | |||||||||||
Texas Competitive/TCEH | 10/03/16 | – 0 | – | – 0 | – | 0.00 | % | |||||||||
Tonon Luxembourg SA | 1/16/13 | 5,510 | 136 | 0.00 | % | |||||||||||
Vantage Drilling International | 6/17/16 | 859 | 857 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 2/13/13 | 96,161 | 5,861 | 0.02 | % |
(j) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
CHC Group LLC | 3/10/17 | $ | 62,260 | $ | 9,447 | 0.03 | % | |||||||||
CHC Group LLC/CHC | 3/10/17 | 50,368 | 61,911 | 0.18 | % | |||||||||||
Exide Technologies | 4/30/15 | 2,889 | 753 | 0.00 | % | |||||||||||
Momentive Performance Materials, Inc. | 10/24/14 | – 0 | – | – 0 | – | 0.00 | % |
(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) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2018. |
(n) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at October 31, 2018. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 55 |
PORTFOLIO OF INVESTMENTS (continued)
(o) | 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. |
(p) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
(q) | Affiliated investments. |
(r) | The rate shown represents the 7-day yield as of period end. |
(s) | One contract relates to 1 share. |
Currency | Abbreviations: |
ARS – Argentine Peso
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
INR – Indian Rupee
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
ARLLMONP – Argentina Blended Policy Rate
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
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
October 31, 2018
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $33,782,680) | $ | 32,696,292 | ||
Affiliated issuers (cost $1,014,873) | 1,014,873 | |||
Cash | 4,485 | |||
Cash collateral due from broker | 87,787 | |||
Foreign currencies, at value (cost $10,374) | 10,781 | |||
Unaffiliated dividends and interest receivable | 509,365 | |||
Market value of credit default swaps (net premiums paid $62,908) | 98,050 | |||
Receivable from Adviser | 84,492 | |||
Receivable for investment securities sold | 58,170 | |||
Unrealized appreciation on forward currency exchange contracts | 40,086 | |||
Unrealized appreciation on total return swaps | 17,010 | |||
Receivable for capital stock sold | 14,030 | |||
Affiliated dividends receivable | 5,757 | |||
Receivable for variation margin on centrally cleared swaps | 2,952 | |||
|
| |||
Total assets | 34,644,130 | |||
|
| |||
Liabilities | ||||
Swaptions written, at value (premiums received $1,511) | 1,273 | |||
Payable for investment securities purchased | 145,882 | |||
Audit and tax fee payable | 121,521 | |||
Market value of credit default swaps (net premiums received $64,184) | 115,956 | |||
Dividends payable | 96,573 | |||
Unrealized depreciation on total return swaps | 26,269 | |||
Unrealized depreciation on forward currency exchange contracts | 26,129 | |||
Payable for variation margin on futures | 4,885 | |||
Transfer Agent fee payable | 3,000 | |||
Directors’ fee payable | 2,071 | |||
Payable for variation margin on centrally cleared swaps | 915 | |||
Payable for capital stock redeemed | 234 | |||
Accrued expenses and other liabilities | 109,294 | |||
|
| |||
Total liabilities | 654,002 | |||
|
| |||
Net Assets | $ | 33,990,128 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 3,630 | ||
Additional paid-in capital | 44,319,774 | |||
Accumulated loss | (10,333,276 | ) | ||
|
| |||
$ | 33,990,128 | |||
|
|
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
Advisor | $ | 33,990,128 | 3,630,336 | $ | 9.36 | |||||||
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 57 |
STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $178) | $ | 1,713,066 | ||||||
Dividends | ||||||||
Affiliated issuers | 34,820 | |||||||
Other income | 2,500 | $ | 1,750,386 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 94,551 | |||||||
Transfer agency—Class A | 3,629 | |||||||
Transfer agency—Class C | 873 | |||||||
Transfer agency—Advisor Class | 23,919 | |||||||
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 | |||||||
Legal | 167,272 | |||||||
Audit and tax | 142,673 | |||||||
Custodian | 117,859 | |||||||
Administrative | 77,405 | |||||||
Registration fees | 67,212 | |||||||
Printing | 44,504 | |||||||
Directors’ fees | 25,383 | |||||||
Miscellaneous | 59,752 | |||||||
|
| |||||||
Total expenses before interest expense | 833,022 | |||||||
Interest expense | 3,183 | |||||||
|
| |||||||
Total expenses | 836,205 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (698,658 | ) | ||||||
|
| |||||||
Net expenses | 137,547 | |||||||
|
| |||||||
Net investment income | 1,612,839 | |||||||
|
|
See notes to financial statements.
58 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | $ | 143,706 | (a) | |||||
Forward currency exchange contracts | 29,762 | |||||||
Futures | (10,816 | ) | ||||||
Options written | 16,707 | |||||||
Swaps | 33,650 | |||||||
Swaptions written | 8,774 | |||||||
Foreign currency transactions | 116,081 | |||||||
Net change in unrealized appreciation/depreciation on: | ||||||||
Investments | (1,509,353 | ) | ||||||
Forward currency exchange contracts | (41,610 | ) | ||||||
Futures | (22,939 | ) | ||||||
Options written | (2,112 | ) | ||||||
Swaps | 52,361 | |||||||
Swaptions written | (1,374 | ) | ||||||
Foreign currency denominated assets and liabilities | 1,364 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (1,185,799 | ) | ||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 2,881 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 429,921 | ||||||
|
|
(a) | Net of foreign capital gains taxes of $20,271. |
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 59 |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 1,612,839 | $ | 2,894,940 | ||||
Net realized gain on investment and foreign currency transactions | 337,864 | 505,769 | ||||||
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | (1,523,663 | ) | 1,588,796 | |||||
Contributions from Affiliates (see Note B) | 2,881 | 92 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 429,921 | 4,989,597 | ||||||
Distributions to Shareholders | ||||||||
Class A | (68,765 | ) | (162,805 | ) | ||||
Class C | (13,824 | ) | (21,960 | ) | ||||
Advisor Class | (1,180,041 | ) | (164,064 | ) | ||||
Class R | (606 | ) | (1,990 | ) | ||||
Class K | (137 | ) | (415 | ) | ||||
Class I | (292,713 | ) | (785,002 | ) | ||||
Class Z | (9,658 | ) | (1,422,780 | ) | ||||
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) | 6,740,423 | (60,218,108 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | 5,604,600 | (58,054,615 | ) | |||||
Net Assets | ||||||||
Beginning of period | 28,385,528 | 86,440,143 | ||||||
|
|
|
| |||||
End of period | $ | 33,990,128 | $ | 28,385,528 | ||||
|
|
|
|
See notes to financial statements.
60 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
October 31, 2018
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 October 31, 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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 61 |
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 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.
62 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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) |
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
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 63 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
64 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 October 31, 2018:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Non-Investment Grade | $ | – 0 | – | $ | 25,433,315 | $ | 159,386 | # | $ | 25,592,701 | ||||||
Corporates – Investment Grade | – 0 | – | 3,463,342 | 0 | # | 3,463,342 | ||||||||||
Bank Loans | – 0 | – | 922,770 | 230,038 | 1,152,808 | |||||||||||
Common Stocks | 584,069 | 1,225 | 75,546 | # | 660,840 | |||||||||||
Governments – Treasuries | – 0 | – | 431,756 | – 0 | – | 431,756 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 342,620 | 16,604 | # | 359,224 | ||||||||||
Asset-Backed Securities | – 0 | – | – 0 | – | 283,840 | 283,840 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 239,886 | – 0 | – | 239,886 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 156,812 | – 0 | – | 156,812 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 94,025 | – 0 | – | 94,025 | ||||||||||
Preferred Stocks | 77,260 | 5,477 | 0 | # | 82,737 | |||||||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 72,871 | 72,871 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | – 0 | – | 67,862 | 67,862 | ||||||||||
Investment Companies | 23,764 | – 0 | – | – 0 | – | 23,764 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 65 |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Warrants | $ | 5,813 | $ | – 0 | – | $ | 2,998 | $ | 8,811 | |||||||
Rights | – 0 | – | – 0 | – | 2,695 | 2,695 | ||||||||||
Options Purchased – Calls | – 0 | – | 2,318 | – 0 | – | 2,318 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 1,014,873 | – 0 | – | – 0 | – | 1,014,873 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 1,705,779 | 31,093,546 | 911,840 | 33,711,165 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets | ||||||||||||||||
Futures | 2,050 | – 0 | – | – 0 | – | 2,050 | † | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 40,086 | – 0 | – | 40,086 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 45,240 | – 0 | – | 45,240 | † | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 452,281 | – 0 | – | 452,281 | † | |||||||||
Credit Default Swaps | – 0 | – | 98,050 | – 0 | – | 98,050 | ||||||||||
Total Return Swaps | – 0 | – | 17,010 | – 0 | – | 17,010 | ||||||||||
Liabilities | ||||||||||||||||
Futures | (31,510 | ) | – 0 | – | – 0 | – | (31,510 | )† | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (26,129 | ) | – 0 | – | (26,129 | ) | ||||||||
Credit Default Swaptions Written | – 0 | – | (1,273 | ) | – 0 | – | (1,273 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (41,125 | ) | – 0 | – | (41,125 | )† | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (337,021 | ) | – 0 | – | (337,021 | )† | ||||||||
Credit Default Swaps | – 0 | – | (115,956 | ) | – 0 | – | (115,956 | ) | ||||||||
Total Return Swaps | – 0 | – | (26,269 | ) | – 0 | – | (26,269 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total^ | $ | 1,676,319 | $ | 31,198,440 | $ | 911,840 | $ | 33,786,599 | ||||||||
|
|
|
|
|
|
|
|
# | 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.
66 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
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.
Corporates - Non-Investment Grade# | Corporates - Investment Grade# | Bank Loans | Common Stocks# | |||||||||||||
Balance as of 10/31/17 | $ | 267,823 | $ | – 0 | – | $ | 114,007 | $ | 84,172 | |||||||
Accrued discounts/ (premiums) | (9,600 | ) | – 0 | – | 104 | – 0 | – | |||||||||
Realized gain (loss) | (24,685 | ) | – 0 | – | (42 | ) | 15,832 | |||||||||
Change in unrealized appreciation/ depreciation | (7,635 | ) | – 0 | – | (3,105 | ) | (1,620 | ) | ||||||||
Purchases/Payups | 97,120 | – 0 | – | 228,186 | 43,504 | |||||||||||
Sales/Paydowns | (130,244 | ) | – 0 | – | (31,825 | ) | (59,187 | ) | ||||||||
Reclassification | (58,308 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||
Transfers into level 3 | 24,915 | – 0 | – | – 0 | – | 15,170 | ||||||||||
Transfers out of level 3 | – 0 | – | – 0 | – | (77,287 | ) | (22,325 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 10/31/18 | $ | 159,386 | $ | – 0 | – | $ | 230,038 | $ | 75,546 | |||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18** | $ | (56,242 | ) | $ | – 0 | – | $ | (3,105 | ) | $ | (130 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Emerging Markets - Corporate Bonds# | Asset- Backed Securities | Preferred Stocks# | Collateralized Loan Obligations | |||||||||||||
Balance as of 10/31/17 | $ | 4,820 | $ | 197,922 | $ | 247,929 | $ | 72,080 | ||||||||
Accrued discounts/ (premiums) | 451 | 2,765 | – 0 | – | 224 | |||||||||||
Realized gain (loss) | 658 | 6,324 | 9,058 | – 0 | – | |||||||||||
Change in unrealized appreciation/ depreciation | 4,632 | (23,226 | ) | (14,434 | ) | 567 | ||||||||||
Purchases/Payups | 1,950 | 88,870 | – 0 | – | – 0 | – | ||||||||||
Sales/Paydowns | (835 | ) | (47,123 | ) | (63,368 | ) | – 0 | – | ||||||||
Reclassification | – 0 | – | 58,308 | – 0 | – | – 0 | – | |||||||||
Transfers into level 3 | 4,928 | – 0 | – | – 0 | – | – 0 | – | |||||||||
Transfers out of level 3 | – 0 | – | – 0 | – | (179,185 | ) | – 0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 10/31/18 | $ | 16,604 | $ | 283,840 | $ | – 0 | – | $ | 72,871 | |||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18** | $ | 4,632 | $ | (23,226 | ) | $ | (5,880 | ) | $ | 567 | ||||||
|
|
|
|
|
|
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 67 |
NOTES TO FINANCIAL STATEMENTS (continued)
Commercial Mortgage- Backed Securities | Warrants | Rights | Total | |||||||||||||
Balance as of 10/31/17 | $ | 65,186 | $ | 517 | $ | – 0 | – | $ | 1,054,456 | |||||||
Accrued discounts/ (premiums) | 68 | – 0 | – | – 0 | – | (5,988 | ) | |||||||||
Realized gain (loss) | – 0 | – | (6,199 | ) | – 0 | – | 946 | |||||||||
Change in unrealized appreciation/ depreciation | 2,608 | 5,091 | 2,695 | (34,427 | ) | |||||||||||
Purchases/Payups | – 0 | – | 3,589 | – 0 | – | 463,219 | ||||||||||
Sales/Paydowns | – 0 | – | – 0 | – | – 0 | – | (332,582 | ) | ||||||||
Reclassification | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||
Transfers into level 3 | – 0 | – | – 0 | – | – 0 | – | 45,013 | |||||||||
Transfers out of level 3 | – 0 | – | – 0 | – | – 0 | – | (278,797 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 10/31/18 | $ | 67,862 | $ | 2,998 | $ | 2,695 | $ | 911,840 | + | |||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18** | $ | 2,608 | $ | (590 | ) | $ | 2,695 | $ | (78,671 | ) | ||||||
|
|
|
|
|
|
|
|
# | 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. |
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at October 31, 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 10/31/18 | Valuation | Unobservable | Range/ | |||||||
Corporates – Non-Investment Grade | $ | 7,003 | Recovery Analysis | Collateral Value | $100.00 / N/A | |||||
Common Stocks | $ | 3,226 | Market Approach | EBITDA* Projection | $43.3mm / N/A | |||||
EBITDA* Multiples | 2.6X-4.6X / 3.6X | |||||||||
$ | 753 | Market Approach | EBITDA* Projection | $172.0mm / N/A | ||||||
EBITDA* Multiples | 3.6X-5.6X / 4.6X | |||||||||
$ | 400 | Market Approach | EBITDA* Projection | $75mm / N/A | ||||||
EBITDA* Multiples | 3.8X / N/A | |||||||||
$ | – 0 | – | Qualitative Assessment | $0.00 / N/A | ||||||
|
| |||||||||
$ | 4,379 | |||||||||
|
|
68 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Fair Value at 10/31/18 | Valuation | Unobservable | Range/ | |||||||
Warrants | $ | 2,998 | Option Pricing Model | Exercise Price | $3.81 / 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. A significant increase (decrease) in Collateral Value, Exercise Price, 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. 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).
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 69 |
NOTES TO FINANCIAL STATEMENTS (continued)
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at 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 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.
70 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 71 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, the Fund accrued advisory fees of $45,301, as a portion reflected in the statement of operations, at an annual effective rate (excluding the impact from any expense waivers in effect) of .20% of the Fund’s average net assets, which reflected a (.20)% Performance Adjustment of $(45,313). 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. 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”). 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”). For the year ended October 31, 2018, such reimbursements/waivers amounted to $618,156. 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 after February 26, 2018 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 $450,749 for the period ended October 31, 2018. 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
72 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
fees waived or expenses borne prior to February 26, 2018, the Old Expense Caps.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 73 |
NOTES TO FINANCIAL STATEMENTS (continued)
group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
During the year ended October 31, 2018 and the year ended October 31, 2017, the Adviser reimbursed the Fund $2,881 and $92, respectively, 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 year ended October 31, 2018, the Adviser voluntarily agreed to waive such fees in the amount of $77,405.
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 $17,230 for the year ended October 31, 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 year ended October 31, 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. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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
74 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended October 31, 2018, such waiver amounted to $3,097.
A summary of the Fund’s transactions in AB mutual funds for the year ended October 31, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | – 0 | – | $ | 41,026 | $ | 40,011 | $ | 1,015 | $ | 35 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2018 amounted to $1,265, 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, .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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 75 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2018, were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 25,420,443 | $ | 19,011,801 | ||||
U.S. government securities | 2,929,657 | 2,835,684 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 34,801,516 | ||
|
| |||
Gross unrealized appreciation | $ | 1,054,309 | ||
Gross unrealized depreciation | (2,085,101 | ) | ||
|
| |||
Net unrealized depreciation | $ | (1,030,792 | ) | |
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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.
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NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended October 31, 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 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 year ended October 31, 2018, the Fund held futures for hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
• | 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.
The Fund may also invest in options on swaps, also called “swaptions”. A swaption is an option that gives the buyer the right,
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NOTES TO FINANCIAL STATEMENTS (continued)
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. The fund’s maximum payment for written put swaptions equates to the notional amount of the underlying swap. 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 year ended October 31, 2018, the Fund held purchased options for non-hedging purposes.
During the year ended October 31, 2018, the Fund held written options for hedging purposes.
During the year ended October 31, 2018, the Fund held purchased swaptions for non-hedging purposes.
During the year ended October 31, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust 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 year ended October 31, 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 obligation with the same counterparty. As of October 31, 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 $98,000.
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 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 year ended October 31, 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended October 31, 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 derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
During the year ended October 31, 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 | $ | 2,050 | * |
Receivable/Payable for variation margin on futures | $ | 24,188 | * | ||||
Interest rate contracts |
Receivable/Payable for variation margin on centrally cleared swaps | | 415,286 | * |
Receivable/Payable for variation margin on centrally cleared swaps | | 353,679 | * | ||||
Foreign currency contracts |
Unrealized appreciation on forward currency exchange contracts | | 40,086 |
|
Unrealized depreciation on forward currency exchange contracts | | 26,129 |
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Credit contracts | Market value of credit default swaps | $ | 98,050 | Market value of credit default swaps | $ | 115,956 | ||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 8,578 | * | Receivable/Payable for variation margin on centrally cleared swaps | 1,249 | * | ||||||
Credit contracts | Investment in securities, at value | 1,668 | ||||||||||
Credit contracts | Swaptions written, at value | 1,273 | ||||||||||
Equity contracts | Unrealized appreciation on total return swaps | 17,010 | Unrealized depreciation on total return swaps | 26,269 | ||||||||
Equity contracts | Receivable/Payable for variation margin on futures | 7,322 | * | |||||||||
Equity contracts | Investment in securities, at value | 650 | ||||||||||
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Total | $ | 583,378 | $ | 556,065 | ||||||||
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* | 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 | 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 | $ | 9,279 | $ | 29,939 | |||||
Interest rate contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/ depreciation on futures | (27,702 | ) | (15,617 | ) | |||||
Foreign currency contracts | Net realized gain/(loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation on forward currency exchange contracts | 29,762 | (41,610 | ) |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Credit contracts | Net realized gain/(loss) on investment transactions; Net change in unrealized appreciation/depreciation on investments | $ | (6,777 | ) | $ | 236 | ||||
Credit contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/ depreciation on swaps | (3,547 | ) | 40,656 | ||||||
Credit contracts | Net realized gain/(loss) on swaptions written; Net change in unrealized appreciation/depreciation on swaptions written | 8,774 | (1,374 | ) | ||||||
Equity contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/depreciation on futures | 16,886 | (7,322 | ) | ||||||
Equity contracts | Net realized gain/(loss) on investment transactions; Net change in unrealized appreciation/depreciation on investments | (26,380 | ) | 2,142 | ||||||
Equity contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/ depreciation on swaps | 27,918 | (18,234 | ) | ||||||
Equity contracts | Net realized gain/(loss) on options written; Net change in unrealized appreciation/depreciation on options written | 16,707 | (2,112 | ) | ||||||
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Total | $ | 44,920 | $ | (13,296 | ) | |||||
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The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018.
Centrally Cleared Credit Default Swaps: | ||||
Average original value of buy contracts | $ | 1,368,945 | ||
Average original value of sale contracts | $ | 1,754,380 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount of contracts | $ | 12,133,923 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 695,353 | ||
Average notional amount of sale contracts | $ | 1,152,993 | ||
Futures: | ||||
Average original value of buy contracts | $ | 2,272,110 | (a) | |
Average original value of sale contracts | $ | 1,167,575 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 757,275 | (b) | |
Average principal amount of sale contracts | $ | 2,893,657 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 3,903,281 | ||
Purchased Options: | ||||
Average notional amount | $ | 7,194 | (c) | |
Purchased Swaptions: | ||||
Average notional amount | $ | 1,626,735 | (c) | |
Options Written: | ||||
Average notional amount | $ | 3,012 | (d) | |
Swaptions Written: | ||||
Average notional amount | $ | 1,119,286 | (c) |
(a) | Positions were open for ten months during the reporting period. |
(b) | Positions were open for eleven months during the reporting period. |
(c) | Positions were open for six months during the reporting period. |
(d) | Positions were open for four 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 (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 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 | $ | 1,510 | $ | (1,510 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 2,414 | (2,414 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Brown Brothers Harriman & Co. | 35,587 | (2,656 | ) | – 0 | – | – 0 | – | 32,931 | ||||||||||||
Citibank, NA | 12,938 | (6,850 | ) | – 0 | – | – 0 | – | 6,088 | ||||||||||||
Credit Suisse International | 76,159 | (33,547 | ) | – 0 | – | – 0 | – | 42,612 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Goldman Sachs Bank USA/ Goldman Sachs International | $ | 27,631 | $ | (27,631 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Standard Chartered Bank | 575 | – 0 | – | – 0 | – | – 0 | – | 575 | ||||||||||||
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Total | $ | 156,814 | $ | (74,608 | ) | $ | – 0 | – | $ | – 0 | – | $ | 82,206 | ^ | ||||||
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Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 12,324 | $ | (1,510 | ) | $ | – 0 | – | $ | – 0 | – | $ | 10,814 | |||||||
Barclays Bank PLC | 2,975 | (2,414 | ) | – 0 | – | – 0 | – | 561 | ||||||||||||
BNP Paribas SA | 4,848 | – 0 | – | – 0 | – | – 0 | – | 4,848 | ||||||||||||
Brown Brothers Harriman & Co. | 2,656 | (2,656 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 6,850 | (6,850 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 33,547 | (33,547 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 45,382 | – 0 | – | – 0 | – | – 0 | – | 45,382 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 46,006 | (27,631 | ) | – 0 | – | – 0 | – | 18,375 | ||||||||||||
JPMorgan Chase Bank, NA | 1,509 | – 0 | – | – 0 | – | – 0 | – | 1,509 | ||||||||||||
Morgan Stanley & Co. International PLC/ Morgan Stanley Capital Services LLC | 13,530 | – 0 | – | – 0 | – | – 0 | – | 13,530 | ||||||||||||
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Total | $ | 169,627 | $ | (74,608 | ) | $ | – 0 | – | $ | – 0 | – | $ | 95,019 | ^ | ||||||
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* | 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. |
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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, the average amount of reverse repurchase agreements outstanding was $172,014 and the daily weighted average interest rate was (0.59)%. At October 31, 2018, the Fund had no reverse repurchase agreements outstanding.
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
88 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 October 31, 2018, the Fund had no unfunded loan commitments outstanding.
As of October 31, 2018, the Fund had no bridge loan commitments outstanding.
During the year ended October 31, 2018, the Fund received commitment fees in amount of $2,500.
During the year ended October 31, 2018, the Fund received no additional funding fees.
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 | |||||||||||||||||||||||
Year Ended 2018 | Year Ended 2017 | Year Ended 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A* | ||||||||||||||||||||||||
Shares sold | 80,300 | 620,290 | $ | 773,372 | $ | 5,947,158 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 4,572 | 15,431 | 44,190 | 149,397 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (327,609 | ) | – 0 | – | (3,130,897 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (287,805 | ) | (230,551 | ) | (2,784,633 | ) | (2,216,354 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (530,542 | ) | 405,170 | $ | (5,097,968 | ) | $ | 3,880,201 | ||||||||||||||||
| ||||||||||||||||||||||||
Class C* | ||||||||||||||||||||||||
Shares sold | 8,025 | 72,483 | $ | 77,391 | $ | 701,341 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 134 | 1,866 | 1,301 | 18,024 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (101,817 | ) | – 0 | – | (973,623 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (10,994 | ) | (8,568 | ) | (105,962 | ) | (82,849 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (104,652 | ) | 65,781 | $ | (1,000,893 | ) | $ | 636,516 | ||||||||||||||||
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 89 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended 2018 | Year Ended 2017 | Year Ended 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 2,150,314 | 416,754 | $ | 20,535,226 | $ | 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 | 37,893 | 14,028 | 360,732 | 135,720 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,266,839 | ) | (288,688 | ) | (12,085,551 | ) | (2,762,280 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 3,199,350 | 142,094 | $ | 30,595,670 | $ | 1,383,787 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class R* | ||||||||||||||||||||||||
Shares sold | 689 | 3,868 | $ | 6,677 | $ | 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 | $ | (33,059 | ) | $ | 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 | $ | 174,977 | $ | 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 | ) | (176,546 | ) | (16,315 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (1,801,360 | ) | 11,029 | $ | (17,223,856 | ) | $ | 106,059 | ||||||||||||||||
|
90 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended 2018 | Year Ended 2017 | Year Ended 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class Z* | ||||||||||||||||||||||||
Shares sold | 23,116 | 53,745 | $ | 223,599 | $ | 520,610 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 737 | 143,778 | 7,117 | 1,376,188 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Advisor Class | (43,670 | ) | – 0 | – | (417,196 | ) | – 0 | – | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (31,611 | ) | (7,041,947 | ) | (303,465 | ) | (68,123,442 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (51,428 | ) | (6,844,424 | ) | $ | (489,945 | ) | $ | (66,226,644 | ) | ||||||||||||||
|
* | Converted to Advisor Class on February 26, 2018. |
At October 31, 2018, the Adviser owned 49% of the Fund’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Fund’s performance.
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,
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 91 |
NOTES TO FINANCIAL STATEMENTS (continued)
generally 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 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
92 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (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.
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 $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 1,565,744 | $ | 2,559,016 | ||||
|
|
|
| |||||
Total taxable distributions paid | 1,565,744 | 2,559,016 | ||||||
Return of capital | – 0 | – | 267,088 | |||||
|
|
|
| |||||
Total distributions paid | $ | 1,565,744 | $ | 2,826,104 | ||||
|
|
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 93 |
NOTES TO FINANCIAL STATEMENTS (continued)
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 237,250 | ||
Accumulated capital and other losses | (9,350,765 | )(a) | ||
Unrealized appreciation/(depreciation) | (1,030,163 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (10,143,678 | )(c) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $9,349,210. During the fiscal year, the Fund utilized $149,981 of capital loss carry forwards to offset current year net realized gains. As of October 31, 2018, the cumulative deferred loss on straddles was $1,555. |
(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 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, the tax treatment of defaulted securities, and the accrual of foreign capital gains tax. |
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, 2018, the Fund had a net short-term capital loss carryforward of $5,694,760 and a net long-term capital loss carryforward of $3,654,450, which may be carried forward for an indefinite period.
During the current fiscal year, permanent differences primarily due to return of capital distributions received from underlying securities and contributions from Adviser resulted in a net decrease in accumulated loss and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I
Merger and Reorganization
At a meeting held May 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
94 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 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.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 95 |
NOTES TO FINANCIAL STATEMENTS (continued)
period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements on the financial statements.
NOTE K
Subsequent Events
The Fund will change its fiscal year end from October 31 to December 31.
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 other material events that would require disclosure in the Fund’s financial statements through this date.
96 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||
Year Ended October 31, | September 1, 2016 to October 31, 2016(a) | July 26, 2016(b) to August 31, 2016 | ||||||||||||||
2018 | 2017 | |||||||||||||||
|
|
|
|
|
| |||||||||||
Net asset value, beginning of period | $ 9.71 | $ 9.46 | $ 9.44 | $ 9.36 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(c)(d) | .50 | .49 | .08 | # | .05 | |||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.37 | ) | .24 | .01 | .08 | † | ||||||||||
Contributions from Affiliates | .00 | (e) | .00 | (e) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Net increase in net asset value from operations | .13 | .73 | .09 | .13 | ||||||||||||
|
| |||||||||||||||
Less: Dividends | ||||||||||||||||
Dividends from net investment income | (.48 | ) | (.43 | ) | (.07 | ) | (.05 | ) | ||||||||
Return of capital | – 0 | – | (.05 | ) | – 0 | – | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.48 | ) | (.48 | ) | (.07 | ) | (.05 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 9.36 | $ 9.71 | $ 9.46 | $ 9.44 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(f)* | 1.32 | %** | 7.89 | %+ | .94 | %+# | 1.35 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $33,990 | $4,185 | $2,733 | $2,063 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(g)(h)† | .33 | % | .71 | % | .78 | %^ | .81 | %^ | ||||||||
Expenses, before waivers/reimbursements(g)(h)† | 2.56 | % | 2.49 | % | 3.18 | %^ | 2.41 | %^ | ||||||||
Net investment income(d) | 5.20 | % | 5.11 | % | 4.90 | %^# | 5.30 | %^ | ||||||||
Portfolio turnover rate | 75 | % | 65 | % | 9 | % | 44 | % | ||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||
portfolios | .01 | % | .01 | % | .02 | % | .00 | % |
See footnote summary on page 98.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 97 |
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: |
Year Ended October 31, | September 1, 2016 to October 31, 2016(a) | Year Ended August 31, 2016 | ||||||||||||||
2018 | 2017 | |||||||||||||||
Advisor Class | ||||||||||||||||
Net of waivers/reimbursements | .31 | % | .70 | % | N/A | .80 | % | |||||||||
Before waivers/reimbursements | 2.54 | % | 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 years ended October 31, 2018, October 31, 2017 and October 31, 2016, such waiver amounted to .01%, .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 Fund’s performance for the years ended October 31, 2018, October 31, 2017 and August 31, 2016 by .03%, .07% and .02%, respectively. |
** | Includes the impact of reimbursements from the Adviser which enhanced the Fund’s performance for the year ended October 31, 2018 by .01%. |
+ | 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.
98 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of AB Flex Fee High Yield Portfolio, formerly known as AB High Yield Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB FlexFee High Yield Portfolio, formerly known as AB High Yield Portfolio (the “Fund”), (one of the funds constituting the AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of October 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the two years in the period then ended, the period from September 1, 2016 to October 31, 2016 and the period from July 26, 2016 to August 31, 2016, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the AB Bond Fund, Inc.) at October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the two years in the period then ended, the period from September 1, 2016 to October 31, 2016 and the period from July 26, 2016 to August 31, 2016, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 28, 2018
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2018 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during the taxable year ended October 31, 2018. For foreign shareholders, 50.47% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2019.
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RESULTS OF STOCKHOLDER MEETING
(unaudited)
A Special Meeting of Stockholders of the AB Bond Fund, Inc. (the “Company”)—AB FlexFee High Yield Portfolio (the “Fund”) was held on January 18, 2018. A description of the proposal and number of shares voted at the Meeting are as follows:
To approve an amendment to the investment advisory agreement between AllianceBernstein L.P., the Fund’s investment adviser, and the Company with respect to the Fund to change the Fund’s advisory fee to a performance-based, or “fulcrum,” fee.
Voted For: | Voted Against: | Abstain: | Broker Non-Votes: | |||
1,672,095 | 73,097 | 284,089 | 0 |
A Special Meeting of Stockholders of the Company was held on October 11, 2018. A description of the proposals and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. | To approve and vote upon the election of Directors for the Company, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies. |
Director: | Voted For: | Authority Withheld: | ||
Michael J. Downey | 568,159,897 | 6,636,404 | ||
William H. Foulk, Jr. | 567,840,093 | 6,956,208 | ||
Nancy P. Jacklin | 568,944,215 | 5,852,087 | ||
Robert M. Keith | 569,042,667 | 5,753,635 | ||
Carol C. McMullin | 569,162,511 | 5,633,791 | ||
Gary L. Moody | 568,383,443 | 6,412,859 | ||
Marshall C. Turner, Jr. | 568,160,864 | 6,635,437 | ||
Earl D. Weiner | 567,806,291 | 6,990,010 |
2. | To vote upon the approval of new advisory agreements for the Fund with AllianceBernstein L.P. |
Voted For: | Voted Against: | Abstain: | Broker Non-Votes: | |||
2,710,289 | 2,695 | 630 | 964,479 |
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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 Michael B. Reyes, Senior Analyst 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. |
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MANAGEMENT OF THE FUND
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,+ 1345 Avenue of the Americas New York, NY 10105 58 (2014) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.# Chairman of the Board 77 (2014) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi- conductors) since 2007 | |||||
Michael J. Downey,# 74 (2014) | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
William H. Foulk, Jr.,#^ 86 (2014) | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,# 70 (2014) | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Carol C. McMullen,# 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014 and private investor; and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 to 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and nonprofit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody,# 66 (2014) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995) where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,# 79 (2014) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Dept.—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
+ | Mr. Keith is an “interested person” of the Portfolio as defined in the Investment Company Act of 1940, due to his position as a Senior Vice President of the Adviser. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below.
NAME, ADDRESS*, AND AGE | POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Gershon M. Distenfeld 43 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Co-Head of Fixed-Income. | ||
Ivan Rudolph-Shabinsky 54 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. | ||
William Smith 31 | Vice President | Vice President of the Adviser**, with which he has been associated since prior to 2013. He is a member of the High Yield Credit portfolio-management team, focusing on US and global multi-sector portfolios as well as a member of the High Income portfolio-management team. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of ABIS**, with which he has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2012. | ||
Stephen M. Woetzel 47 | Controller | Senior Vice President of ABIS**, with which he has been associated since prior to 2013. |
* | The address for each of the Fund’s officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB 1-(800)227-4618, or visit www.abfunds.com for a free prospectus or SAI.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB FlexFeeTM High Yield Portfolio (formerly AB High Yield Portfolio) (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at a meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds,
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actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of the investment research capabilities of the Adviser and the other resources
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it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed Agreements 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
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the Adviser’s relationship with each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by
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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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional,
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offshore fund and sub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current Advisory Agreement
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
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(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 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
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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 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.
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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 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
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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 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.
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Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 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.
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.
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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 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.
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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 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
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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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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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AB FLEXFEE HIGH YIELD PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
FFHY-0151-1018
OCT 10.31.18
ANNUAL REPORT
AB INCOME FUND
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
ANNUAL REPORT
December 14, 2018
This report provides management’s discussion of fund performance for AB Income Fund for the annual reporting period ended October 31, 2018.
The investment objective of the Fund is to seek high current income consistent with preservation of capital.
NAV RETURNS AS OF OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB INCOME FUND | ||||||||
Class A Shares | -1.09% | -2.71% | ||||||
Class C Shares | -1.46% | -3.43% | ||||||
Advisor Class Shares1 | -0.83% | -2.46% | ||||||
Bloomberg Barclays US Aggregate Bond Index | -0.19% | -2.05% |
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 October 31, 2018.
During the 12-month period, all share classes underperformed the benchmark, before sales charges. The Fund’s yield-curve positioning detracted from relative performance, particularly an overweight to intermediate maturities; however, a shorter-than-benchmark duration exposure offset some of these losses as interest rates rose during the period. Currency selection was also negative because of positions in the Argentine peso, Indian rupee, Japanese yen and South African rand. A position in the British pound was positive. Sector allocation added to returns due to beneficial off-benchmark exposures to non-agency mortgages and high-yield corporates. Security decisions were positive as well, primarily within commercial mortgage-backed securities. Country allocation did not have a significant impact on overall performance.
During the six-month period, all share classes underperformed the benchmark, before sales charges. Country positioning detracted from performance, mainly the result of modest exposures to Argentina and Mexico, though an allocation to the eurozone was positive. Security decisions also
2 | AB INCOME FUND | abfunds.com |
detracted, particularly within high-yield corporates, as did currency investments. Gains from the Fund’s position in the Mexican peso were more than offset by losses from long positions in the Argentine peso and Indian rupee. Yield-curve positioning and the Fund’s shorter-than-benchmark duration contributed, as interest rates rose across the curve. Sector selection did not meaningfully affect overall returns.
During both periods, the Fund utilized derivatives in the form of futures and interest rate swaptions 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 had mixed performance over the 12-month period, as volatility spiked in the latter part of the period on tighter monetary policy and the onset of a global trade war. Developed-market treasuries rallied, outperforming the positive returns of emerging-market local-currency government bonds, while global high yield and investment-grade securities ended the period in negative territory. A stronger US dollar, slowing Chinese growth, the global trade war and a hawkish US Federal Reserve (the “Fed”) weighed on emerging markets. Developed-market yield curves moved in different directions (bond yields move inversely to price).
The Fed raised interest rates four times in the period, while the European Central Bank started to scale back asset purchases but updated forward guidance to say that it would not change its policy rate until summer 2019 at the earliest. The Bank of Japan tweaked its monetary policy, holding rates and yields steady, but widening the band around 10-year yields, potentially allowing them to move higher.
US yields rose dramatically, with the 10- and 30-year Treasury yields soaring to multiyear highs, on the back of higher inflation forecasts, the Fed’s expected rate hike path and a robust US labor market. The US administration announced tariffs on imports from China, the European Union,
abfunds.com | AB INCOME FUND | 3 |
Mexico and Canada, all of which reciprocated with tariffs on the US, triggering a global trade war. An upsurge in geopolitical uncertainty, including governmental turmoil in Italy, sparked a flight to quality.
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 securities. Derivatives may provide a more efficient and economical
4 | AB INCOME FUND | abfunds.com |
(continued on next page)
exposure to market segments than direct investments, and may also be a more efficient way to alter the Fund’s exposure. The Fund may also enter into transactions such as reverse repurchase agreements that are similar to borrowings for investment purposes. The Fund’s use of derivatives and these borrowing transactions may create aggregate exposure that is substantially in excess of its net assets, effectively leveraging the Fund.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Aggregate Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. The index is not leveraged, whereas the Fund utilizes leverage. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (often referred to as “junk bonds”) are subject to higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and less secondary market liquidity. These securities are often able to be “called” or repurchased by the issuer prior to their maturity date, forcing the Fund to reinvest the proceeds, possibly at a lower rate of return.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Fund may be subject to a heightened risk due to rising rates as the current period of historically low interest rates may be ending. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
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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 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, generally 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
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
10/31/2008 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB Income Fund Advisor Class shares (from 10/31/2008 to 10/31/2018) as compared to the performance of the Fund’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
1 | 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. |
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HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS A SHARES | 3.87% | |||||||||||
1 Year | -2.71% | -6.86% | ||||||||||
Since Inception2 | 2.15% | 0.44% | ||||||||||
CLASS C SHARES | 3.29% | |||||||||||
1 Year | -3.43% | -4.36% | ||||||||||
Since Inception2 | 1.43% | 1.43% | ||||||||||
ADVISOR CLASS SHARES3 | 4.29% | |||||||||||
1 Year | -2.46% | -2.46% | ||||||||||
5 Years | 3.51% | 3.51% | ||||||||||
10 Years | 7.38% | 7.38% |
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 October 31, 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
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
1 Year | -6.37% | |||
Since Inception1 | 0.80% | |||
CLASS C SHARES | ||||
1 Year | -3.89% | |||
Since Inception1 | 1.86% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | -1.98% | |||
5 Years | 4.03% | |||
10 Years | 6.45% |
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. |
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EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 989.10 | $ | 5.77 | 1.15 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,019.41 | $ | 5.85 | 1.15 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 985.40 | $ | 9.46 | 1.89 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,015.68 | $ | 9.60 | 1.89 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.70 | $ | 4.47 | 0.89 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.72 | $ | 4.53 | 0.89 | % |
* | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB INCOME FUND | 13 |
PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $2,537.2
1 | All data are as of October 31, 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 0.8% or less in the following types: Bank Loans, Common Stocks, Governments–Sovereign Bonds, Inflation-Linked Securities, Investment Companies, Local Governments–Regional Bonds, Local Governments–US Municipal Bonds, Options Purchased–Calls, Options Purchased–Puts, Preferred Stocks, Quasi-Sovereigns, Warrants and Whole Loan Trusts. |
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PORTFOLIO SUMMARY (continued)
October 31, 2018 (unaudited)
1 | All data are as of October 31, 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 0.4% or less in the following countries: Angola, Australia, Bahrain, Belgium, China, Colombia, Costa Rica, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador, Germany, Ghana, Guatemala, Honduras, India, Indonesia, Ireland, Israel, Ivory Coast, Jamaica, Jersey (Channel Islands), Kazakhstan, Kenya, Lebanon, Nigeria, Norway, Peru, Qatar, Russia, Senegal, South Africa, Sri Lanka, Sweden, Switzerland, Trinidad & Tobago, Turkey, Uruguay and Zambia. |
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PORTFOLIO OF INVESTMENTS
October 31, 2018
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
GOVERNMENTS – TREASURIES – 49.1% |
| |||||||||||
Malaysia – 0.8% | ||||||||||||
Malaysia Government Bond | MYR | 55,010 | $ | 13,367,831 | ||||||||
Series 414 | 15,620 | 3,739,976 | ||||||||||
Series 515 | 12,880 | 3,083,037 | ||||||||||
|
| |||||||||||
20,190,844 | ||||||||||||
|
| |||||||||||
Mexico – 1.2% | ||||||||||||
Mexican Bonos | MXN | 178,767 | 8,580,499 | |||||||||
Series M 20 | 522,115 | 23,780,320 | ||||||||||
|
| |||||||||||
32,360,819 | ||||||||||||
|
| |||||||||||
Russia – 0.4% | ||||||||||||
Russian Federal Bond - OFZ | RUB | 670,156 | 10,026,843 | |||||||||
|
| |||||||||||
United States – 46.6% | ||||||||||||
U.S. Treasury Bonds | U.S.$ | 15,356 | 14,624,191 | |||||||||
5.50%, 8/15/28 | 144,400 | 172,603,125 | ||||||||||
U.S. Treasury Notes | 311,286 | 295,406,543 | ||||||||||
1.75%, 11/30/21(b) | 155,061 | 149,657,997 | ||||||||||
1.75%, 5/15/22 | 44,639 | 42,825,732 | ||||||||||
2.00%, 1/15/21-11/15/21 | 249,785 | 244,468,517 | ||||||||||
2.125%, 7/31/24(b) | 147,044 | 140,036,720 | ||||||||||
2.25%, 11/15/25(c) | 16,500 | 15,631,172 | ||||||||||
2.25%, 11/15/27 | 5,000 | 4,648,438 | ||||||||||
2.75%, 9/15/21 | 37,500 | 37,312,500 | ||||||||||
2.875%, 9/30/23 | 65,000 | 64,664,844 | ||||||||||
|
| |||||||||||
1,181,879,779 | ||||||||||||
|
| |||||||||||
Uruguay – 0.1% | ||||||||||||
Uruguay Government International Bond | UYU | 37,222 | 955,647 | |||||||||
9.875%, 6/20/22(d) | 20,752 | 621,652 | ||||||||||
|
| |||||||||||
1,577,299 | ||||||||||||
|
| |||||||||||
Total Governments – Treasuries | 1,246,035,584 | |||||||||||
|
| |||||||||||
16 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
MORTGAGE PASS-THROUGHS – 20.6% |
| |||||||||||
Agency Fixed Rate 30-Year – 20.6% | ||||||||||||
Federal National Mortgage Association | U.S.$ | 9 | $ | 9,975 | ||||||||
Series 1999 | 14 | 15,853 | ||||||||||
Series 2018 | 92,100 | 92,092,807 | ||||||||||
4.50%, 11/01/48, TBA | 208,000 | 212,923,755 | ||||||||||
5.00%, 11/01/48, TBA | 209,550 | 218,635,962 | ||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 523,678,352 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 16.4% | ||||||||||||
Industrial – 12.4% | ||||||||||||
Basic – 1.5% | ||||||||||||
Alcoa Nederland Holding BV | 510 | 508,342 | ||||||||||
Constellium NV | EUR | 2,060 | 2,282,115 | |||||||||
5.75%, 5/15/24(d) | U.S.$ | 3,680 | 3,517,454 | |||||||||
Eldorado Gold Corp. | 1,192 | 1,116,058 | ||||||||||
ERP Iron Ore, LLC | 166 | 165,779 | ||||||||||
Freeport-McMoRan, Inc. | 1,908 | 1,616,687 | ||||||||||
INEOS Group Holdings SA | EUR | 3,215 | 3,732,508 | |||||||||
Joseph T Ryerson & Son, Inc. | U.S.$ | 2,275 | 2,441,393 | |||||||||
Kronos International, Inc. | EUR | 7,595 | 7,919,270 | |||||||||
Magnetation LLC/Mag Finance Corp. | U.S.$ | 1,407 | 14 | |||||||||
New Gold, Inc. | 743 | 646,239 | ||||||||||
Nufarm Australia Ltd./Nufarm Americas, Inc. | 1,223 | 1,143,334 | ||||||||||
Nyrstar Netherlands Holdings B | EUR | 258 | 216,365 | |||||||||
OCI NV | U.S.$ | 2,100 | 2,155,671 | |||||||||
Peabody Energy Corp. | 2,305 | 2,302,925 |
abfunds.com | AB INCOME FUND | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Plastipak Holdings, Inc. | U.S.$ | 987 | $ | 903,214 | ||||||||
Sealed Air Corp. | 2,246 | 2,313,268 | ||||||||||
SPCM SA | 913 | 842,635 | ||||||||||
Starfruit Finco BV/Starfruit US Holdco LLC | EUR | 2,080 | 2,301,703 | |||||||||
8.00%, 10/01/26(d) | U.S.$ | 665 | 644,930 | |||||||||
United States Steel Corp. | 715 | 673,380 | ||||||||||
6.875%, 8/15/25 | 915 | 896,737 | ||||||||||
|
| |||||||||||
38,340,021 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.7% | ||||||||||||
Bombardier, Inc. | 3,124 | 3,088,105 | ||||||||||
BWAY Holding Co. | EUR | 3,475 | 3,966,345 | |||||||||
Cleaver-Brooks, Inc. | U.S.$ | 1,066 | 1,075,637 | |||||||||
Crown European Holdings SA | EUR | 1,075 | 1,191,250 | |||||||||
GFL Environmental, Inc. | U.S.$ | 118 | 108,256 | |||||||||
Hulk Finance Corp. | 720 | 666,360 | ||||||||||
OI European Group BV | EUR | 3,140 | 3,609,585 | |||||||||
Stevens Holding Co., Inc. | U.S.$ | 362 | 360,353 | |||||||||
TransDigm, Inc. | 847 | 830,060 | ||||||||||
6.50%, 7/15/24 | 1,989 | 2,012,371 | ||||||||||
|
| |||||||||||
16,908,322 | ||||||||||||
|
| |||||||||||
Communications - Media – 1.0% | ||||||||||||
Altice Financing SA | 2,600 | 2,458,118 | ||||||||||
Altice France SA/France | 766 | 735,605 | ||||||||||
7.375%, 5/01/26(d) | 1,500 | 1,437,105 | ||||||||||
Altice Luxembourg SA | 2,047 | 1,905,163 | ||||||||||
Cequel Communications Holdings I LLC/Cequel Capital Corp. | 1,631 | 1,688,379 |
18 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Clear Channel Worldwide Holdings, Inc. | U.S.$ | 2,266 | $ | 2,289,544 | ||||||||
CSC Holdings LLC | 709 | 818,044 | ||||||||||
iHeartCommunications, Inc. | 1,347 | 967,644 | ||||||||||
Meredith Corp. | 798 | 797,809 | ||||||||||
Radiate Holdco LLC/Radiate Finance, Inc. | 1,031 | 989,770 | ||||||||||
TEGNA, Inc. | 1,495 | 1,530,252 | ||||||||||
Virgin Media Finance PLC | 1,528 | 1,510,978 | ||||||||||
6.00%, 10/15/24(d) | 503 | 491,421 | ||||||||||
Virgin Media Receivables Financing Notes I DAC | GBP | 3,770 | 4,794,914 | |||||||||
Ziggo Bond Co. BV | U.S.$ | 3,000 | 2,673,510 | |||||||||
|
| |||||||||||
25,088,256 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.6% | ||||||||||||
C&W Senior Financing DAC | 1,247 | 1,194,239 | ||||||||||
7.50%, 10/15/26(d) | 1,108 | 1,112,133 | ||||||||||
DKT Finance ApS | EUR | 2,647 | 3,219,237 | |||||||||
Embarq Corp. | U.S.$ | 2,342 | 2,231,177 | |||||||||
Frontier Communications Corp. | 448 | 298,485 | ||||||||||
8.75%, 4/15/22 | 919 | 714,201 | ||||||||||
Hughes Satellite Systems Corp. | 810 | 771,306 | ||||||||||
Intelsat Jackson Holdings SA | 1,000 | 993,780 | ||||||||||
9.50%, 9/30/22(d) | 700 | 812,000 | ||||||||||
Qwest Corp. | 1,275 | 1,232,912 | ||||||||||
Sprint Capital Corp. | 890 | 874,799 | ||||||||||
Windstream Services LLC/Windstream Finance Corp. | 996 | 722,638 | ||||||||||
|
| |||||||||||
14,176,907 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Automotive – 0.3% |
| |||||||||||
BCD Acquisition, Inc. | U.S.$ | 1,714 | $ | 1,809,418 | ||||||||
Exide Technologies | 2,978 | 1,875,978 | ||||||||||
11.00%, 4/30/22(e)(j)(l) | 3,324 | 2,924,944 | ||||||||||
Tenneco, Inc. | 2,680 | 2,224,373 | ||||||||||
|
| |||||||||||
8,834,713 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.4% |
| |||||||||||
CPUK Finance Ltd. | GBP | 7,385 | 9,399,297 | |||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.6% | ||||||||||||
Beazer Homes USA, Inc. | U.S.$ | 1,121 | 905,230 | |||||||||
Cooperativa Muratori & Cementisti-CMC di Ravenna SC | EUR | 201 | 68,517 | |||||||||
International Game Technology PLC | U.S.$ | 735 | 723,975 | |||||||||
K. Hovnanian Enterprises, Inc. | 3,649 | 3,513,805 | ||||||||||
10.50%, 7/15/24(d) | 649 | 594,062 | ||||||||||
LHMC Finco SARL | EUR | 671 | 785,605 | |||||||||
Marriott Ownership Resorts, Inc./ILG LLC | U.S.$ | 2,036 | 2,052,431 | |||||||||
Shea Homes LP/Shea Homes Funding Corp. | 1,901 | 1,773,101 | ||||||||||
Stars Group Holdings BV/Stars Group US Co-Borrower LLC | 2,638 | 2,675,591 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 688 | 651,206 | ||||||||||
Wyndham Hotels & Resorts, Inc. | 1,335 | 1,296,659 | ||||||||||
|
| |||||||||||
15,040,182 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.3% |
| |||||||||||
IRB Holding Corp. | 1,031 | 987,275 | ||||||||||
Stonegate Pub Co. Financing PLC | GBP | 4,556 | 5,736,129 | |||||||||
|
| |||||||||||
6,723,404 | ||||||||||||
|
|
20 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Retailers – 0.2% |
| |||||||||||
FirstCash, Inc. | U.S.$ | 271 | $ | 268,003 | ||||||||
L Brands, Inc. | 866 | 739,252 | ||||||||||
6.875%, 11/01/35 | 2,540 | 2,159,051 | ||||||||||
Neiman Marcus Group Ltd. LLC | 852 | 511,413 | ||||||||||
PetSmart, Inc. | 1,842 | 1,288,810 | ||||||||||
PVH Corp. | EUR | 1,075 | 1,191,031 | |||||||||
|
| |||||||||||
6,157,560 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.1% | ||||||||||||
Air Medical Group Holdings, Inc. | U.S.$ | 1,414 | 1,272,699 | |||||||||
Aveta, Inc. | 1,985 | – 0 | – | |||||||||
10.50%, 3/01/21(e)(g)(i)(l) | 720 | – 0 | – | |||||||||
Bausch Health Cos, Inc. | EUR | 1,800 | 1,975,854 | |||||||||
6.125%, 4/15/25(d) | U.S.$ | 892 | 820,595 | |||||||||
Charles River Laboratories International, Inc. | 605 | 603,603 | ||||||||||
CHS/Community Health Systems, Inc. | 1,444 | 1,327,888 | ||||||||||
8.125%, 6/30/24(d) | 162 | 127,050 | ||||||||||
Endo Dac/Endo Finance LLC/Endo Finco, Inc. | 1,521 | 1,309,824 | ||||||||||
Endo Finance LLC/Endo Finco, Inc. | 1,170 | 999,239 | ||||||||||
Grifols SA | EUR | 5,083 | 5,791,575 | |||||||||
Hadrian Merger Sub, Inc. | U.S.$ | 1,966 | 1,883,212 | |||||||||
HCA, Inc. | 548 | 558,478 | ||||||||||
5.625%, 9/01/28 | 535 | 529,623 | ||||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 1,033 | 831,524 | ||||||||||
5.625%, 10/15/23(d) | 118 | 101,386 | ||||||||||
5.75%, 8/01/22(d) | 1,334 | 1,194,170 | ||||||||||
Spectrum Brands, Inc. | 2,476 | 2,406,944 |
abfunds.com | AB INCOME FUND | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sunshine Mid BV | EUR | 2,077 | $ | 2,270,247 | ||||||||
Tenet Healthcare Corp. | U.S.$ | 1,359 | 1,416,554 | |||||||||
Vizient, Inc. | 1,355 | 1,476,787 | ||||||||||
|
| |||||||||||
26,897,252 | ||||||||||||
|
| |||||||||||
Energy – 3.3% | ||||||||||||
Antero Resources Corp. | 2,648 | 2,634,177 | ||||||||||
Berry Petroleum Co. LLC | 1,904 | – 0 | – | |||||||||
Bristow Group, Inc. | 636 | 604,639 | ||||||||||
Bruin E&P Partners LLC | 2,730 | 2,691,835 | ||||||||||
California Resources Corp. | 2,860 | 2,545,715 | ||||||||||
Carrizo Oil & Gas, Inc. | 2,570 | 2,525,179 | ||||||||||
Chesapeake Energy Corp. | 2,645 | 2,671,450 | ||||||||||
Denbury Resources, Inc. | 2,108 | 2,065,714 | ||||||||||
9.25%, 3/31/22(d) | 871 | 907,808 | ||||||||||
Diamond Offshore Drilling, Inc. | 2,642 | 2,603,770 | ||||||||||
Ensco PLC | 2,880 | 2,343,168 | ||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 520 | 364,686 | ||||||||||
9.375%, 5/01/24(d) | 1,384 | 1,051,591 | ||||||||||
Genesis Energy LP/Genesis Energy Finance Corp. | 2,466 | 2,237,895 | ||||||||||
6.50%, 10/01/25 | 237 | 219,552 | ||||||||||
Gulfport Energy Corp. | 280 | 262,864 | ||||||||||
6.375%, 5/15/25-1/15/26 | 2,994 | 2,810,591 | ||||||||||
Hess Infrastructure Partners LP/Hess Infrastructure Partners Finance Corp. | 3,639 | 3,644,095 | ||||||||||
HighPoint Operating Corp. | 807 | 793,580 | ||||||||||
Indigo Natural Resources LLC | 2,570 | 2,428,727 |
22 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Nabors Industries, Inc. | U.S.$ | 2,220 | $ | 2,142,300 | ||||||
5.00%, 9/15/20 | 635 | 630,098 | ||||||||
5.50%, 1/15/23 | 845 | 794,934 | ||||||||
Nine Energy Service, Inc. | 1,313 | 1,331,356 | ||||||||
Noble Holding International Ltd. | 2,792 | 2,607,030 | ||||||||
Parkland Fuel Corp. | 2,841 | 2,783,555 | ||||||||
PDC Energy, Inc. | 2,650 | 2,431,640 | ||||||||
Precision Drilling Corp. | 1,545 | 1,534,911 | ||||||||
QEP Resources, Inc. | 746 | 714,444 | ||||||||
5.625%, 3/01/26(a) | 2,942 | 2,768,128 | ||||||||
Range Resources Corp. | 1,377 | 1,336,882 | ||||||||
Rowan Cos., Inc. | 436 | 308,719 | ||||||||
7.375%, 6/15/25 | 2,390 | 2,276,475 | ||||||||
Sanchez Energy Corp. | 2,401 | 893,772 | ||||||||
7.25%, 2/15/23(d) | 1,876 | 1,717,928 | ||||||||
SandRidge Energy, Inc. | 1,259 | – 0 | – | |||||||
SemGroup Corp. | 2,261 | 2,185,302 | ||||||||
7.25%, 3/15/26 | 882 | 855,778 | ||||||||
SM Energy Co. | 1,470 | 1,414,169 | ||||||||
6.625%, 1/15/27 | 738 | 741,136 | ||||||||
SRC Energy, Inc. | 1,330 | 1,238,057 | ||||||||
Sunoco LP/Sunoco Finance Corp. | 1,724 | 1,647,730 | ||||||||
5.875%, 3/15/28(d) | 1,319 | 1,229,123 | ||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 2,627 | 2,641,212 | ||||||||
Transocean Phoenix 2 Ltd. | 640 | 662,342 | ||||||||
Transocean, Inc. | 1,061 | 1,041,053 | ||||||||
9.00%, 7/15/23(d) | 2,375 | 2,491,660 |
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)(h) | 91 | 88,270 | ||||||||||
10.00%, 12/31/20(e)(l) | 77 | 75,460 | ||||||||||
Vine Oil & Gas LP/Vine Oil & Gas Finance Corp. | 2,272 | 2,101,600 | ||||||||||
Weatherford International LLC | 756 | 593,158 | ||||||||||
Weatherford International Ltd. | 338 | 259,425 | ||||||||||
7.75%, 6/15/21 | 650 | 540,313 | ||||||||||
9.875%, 2/15/24 | 1,189 | 929,239 | ||||||||||
Whiting Petroleum Corp. | 749 | 755,232 | ||||||||||
6.25%, 4/01/23 | 732 | 734,474 | ||||||||||
6.625%, 1/15/26 | 1,543 | 1,542,198 | ||||||||||
|
| |||||||||||
83,446,139 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.5% | ||||||||||||
Algeco Global Finance PLC | 2,258 | 2,284,780 | ||||||||||
American Tire Distributors, Inc. | 3,259 | 565,827 | ||||||||||
Global Partners LP/GLP Finance Corp. | 1,100 | 1,088,296 | ||||||||||
Laureate Education, Inc. | 2,096 | 2,245,487 | ||||||||||
Travis Perkins PLC | GBP | 5,979 | 7,491,117 | |||||||||
|
| |||||||||||
13,675,507 | ||||||||||||
|
| |||||||||||
Services – 0.8% | ||||||||||||
APX Group, Inc. | U.S.$ | 1,855 | 1,865,184 | |||||||||
8.75%, 12/01/20 | 851 | 833,827 | ||||||||||
Arena Luxembourg Finance SARL | EUR | 3,743 | 4,224,800 | |||||||||
Carlson Travel, Inc. | U.S.$ | 910 | 909,381 | |||||||||
eDreams ODIGEO SA | EUR | 1,327 | 1,509,460 | |||||||||
GEO Group, Inc. (The) | U.S.$ | 760 | 752,392 | |||||||||
La Financiere Atalian SASU | EUR | 5,000 | 5,070,592 | |||||||||
Monitronics International, Inc. | U.S.$ | 1,835 | 1,371,479 |
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 | $ | 2,384,487 | ||||||||
Refinitiv US Holdings, Inc. | 334 | 331,779 | ||||||||||
8.25%, 11/15/26(d) | 348 | 338,291 | ||||||||||
Team Health Holdings, Inc. | 692 | 595,127 | ||||||||||
|
| |||||||||||
20,186,799 | ||||||||||||
|
| |||||||||||
Technology – 0.4% |
| |||||||||||
Banff Merger Sub, Inc. | 2,677 | 2,593,103 | ||||||||||
Infor Software Parent LLC/Infor Software Parent, Inc. | 2,340 | 2,345,873 | ||||||||||
IQVIA, Inc. | EUR | 1,060 | 1,214,404 | |||||||||
Solera LLC/Solera Finance, Inc. | U.S.$ | 2,130 | 2,309,346 | |||||||||
Veritas US, Inc./Veritas Bermuda Ltd. | 1,257 | 1,197,984 | ||||||||||
|
| |||||||||||
9,660,710 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.7% |
| |||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 955 | 852,462 | ||||||||||
Europcar Mobility Group | EUR | 1,936 | 2,135,250 | |||||||||
Heathrow Finance PLC | GBP | 3,945 | 4,699,913 | |||||||||
Hertz Corp. (The) | U.S.$ | 1,478 | 1,141,193 | |||||||||
Hertz Holdings Netherlands BV | EUR | 2,888 | 3,275,477 | |||||||||
Loxam SAS | 4,855 | 5,815,486 | ||||||||||
United Rentals North America, Inc. | U.S.$ | 1,154 | 1,167,525 | |||||||||
|
| |||||||||||
19,087,306 | ||||||||||||
|
| |||||||||||
313,622,375 | ||||||||||||
|
| |||||||||||
Financial Institutions – 3.6% |
| |||||||||||
Banking – 2.3% |
| |||||||||||
American Express Co. | 505 | 502,950 |
abfunds.com | AB INCOME FUND | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Banco Bilbao Vizcaya Argentaria SA | EUR | 6,600 | $ | 7,438,115 | ||||||
8.875%, 4/14/21(d)(n) | 1,600 | 2,018,383 | ||||||||
Banco Santander SA | 2,200 | 2,557,640 | ||||||||
6.75%, 4/25/22(d)(n) | 1,500 | 1,809,409 | ||||||||
Barclays Bank PLC | U.S.$ | 656 | 703,409 | |||||||
Barclays PLC | GBP | 1,350 | 1,768,710 | |||||||
8.00%, 12/15/20(n) | EUR | 2,000 | 2,477,876 | |||||||
CIT Group, Inc. | U.S.$ | 1,451 | 1,506,501 | |||||||
Citigroup, Inc. | 2,055 | 2,051,424 | ||||||||
Series O | 524 | 531,278 | ||||||||
Series Q | 927 | 941,155 | ||||||||
Citizens Financial Group, Inc. | 222 | 223,041 | ||||||||
Credit Suisse Group AG | 640 | 622,794 | ||||||||
7.50%, 7/17/23-12/11/23(d)(n) | 3,638 | 3,737,927 | ||||||||
Danske Bank A/S | EUR | 3,302 | 3,782,087 | |||||||
6.125%, 3/28/24(d)(n) | U.S.$ | 540 | 483,116 | |||||||
Goldman Sachs Group, Inc. (The) | 74 | 74,363 | ||||||||
Series M | 149 | 150,652 | ||||||||
ING Groep NV | 6,341 | 6,024,711 | ||||||||
6.875%, 4/16/22(d)(n) | 515 | 520,037 | ||||||||
Intesa Sanpaolo SpA | 799 | 709,424 | ||||||||
7.75%, 1/11/27(d)(n) | EUR | 1,091 | 1,266,615 | |||||||
Series E | 134 | 145,848 | ||||||||
Morgan Stanley | U.S.$ | 424 | 431,043 | |||||||
Royal Bank of Scotland Group PLC | EUR | 150 | 163,951 |
26 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Societe Generale SA | U.S.$ | 2,015 | $ | 2,048,026 | ||||||||
Series E | 1,824 | 1,829,435 | ||||||||||
Standard Chartered PLC | 300 | 246,936 | ||||||||||
7.50%, 4/02/22(d)(n) | 1,278 | 1,292,377 | ||||||||||
7.75%, 4/02/23(d)(n) | 265 | 267,515 | ||||||||||
SunTrust Banks, Inc. | 492 | 496,910 | ||||||||||
Series H | 1,160 | 1,065,251 | ||||||||||
UBS Group Funding Switzerland AG | 1,863 | 1,928,615 | ||||||||||
UniCredit SpA | EUR | 2,970 | 3,334,840 | |||||||||
9.25%, 6/03/22(d)(n) | 2,700 | 3,277,059 | ||||||||||
|
| |||||||||||
58,429,423 | ||||||||||||
|
| |||||||||||
Brokerage – 0.0% | ||||||||||||
LPL Holdings, Inc. | U.S.$ | 1,094 | 1,061,246 | |||||||||
|
| |||||||||||
Finance – 0.4% | ||||||||||||
Compass Group Diversified Holdings LLC | 3,085 | 3,147,039 | ||||||||||
Enova International, Inc. | 3,178 | 3,011,377 | ||||||||||
goeasy Ltd. | 844 | 873,473 | ||||||||||
Navient Corp. | 2,067 | 2,106,583 | ||||||||||
8.00%, 3/25/20 | 422 | 440,598 | ||||||||||
|
| |||||||||||
9,579,070 | ||||||||||||
|
| |||||||||||
Insurance – 0.2% | ||||||||||||
ASR Nederland NV | EUR | 1,040 | 1,106,007 | |||||||||
Polaris Intermediate Corp. | U.S.$ | 2,692 | 2,760,107 | |||||||||
WellCare Health Plans, Inc. | 1,670 | 1,668,029 | ||||||||||
|
| |||||||||||
5,534,143 | ||||||||||||
|
| |||||||||||
Other Finance – 0.7% | ||||||||||||
Intrum AB | EUR | 5,160 | 5,705,669 | |||||||||
3.125%, 7/15/24(a)(d) | 2,730 | 2,898,877 |
abfunds.com | AB INCOME FUND | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
LHC3 PLC | EUR | 6,134 | $ | 6,902,726 | ||||||||
Tempo Acquisition LLC/Tempo Acquisition Finance Corp. | U.S.$ | 2,353 | 2,235,303 | |||||||||
|
| |||||||||||
17,742,575 | ||||||||||||
|
| |||||||||||
92,346,457 | ||||||||||||
|
| |||||||||||
Utility – 0.4% | ||||||||||||
Electric – 0.3% | ||||||||||||
Calpine Corp. | 624 | 591,371 | ||||||||||
5.50%, 2/01/24 | 1,308 | 1,188,187 | ||||||||||
5.75%, 1/15/25 | 1,160 | 1,037,214 | ||||||||||
Talen Energy Supply LLC | 1,155 | 1,081,461 | ||||||||||
6.50%, 6/01/25 | 540 | 404,071 | ||||||||||
10.50%, 1/15/26(d) | 1,681 | 1,476,288 | ||||||||||
Vistra Energy Corp. | 2,179 | 2,264,352 | ||||||||||
|
| |||||||||||
8,042,944 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.1% | ||||||||||||
NGL Energy Partners LP/NGL Energy Finance Corp. | 2,090 | 2,059,444 | ||||||||||
|
| |||||||||||
10,102,388 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 416,071,220 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 9.2% | ||||||||||||
Risk Share Floating Rate – 7.0% | ||||||||||||
Bellemeade Re Ltd. | 3,866 | 3,884,894 | ||||||||||
Series 2018-2A, Class M1B | 4,545 | 4,563,672 | ||||||||||
Series 2018-3A, Class M1B | 1,730 | 1,729,995 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 3,250 | 3,858,806 |
28 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2013-DN2, Class M2 | U.S.$ | 5,144 | $ | 5,686,031 | ||||||
Series 2014-DN1, Class M3 | 4,455 | 5,118,093 | ||||||||
Series 2014-DN2, Class M3 | 4,170 | 4,595,926 | ||||||||
Series 2014-DN3, Class M3 | 4,123 | 4,492,576 | ||||||||
Series 2014-DN4, Class M3 | 530 | 585,672 | ||||||||
Series 2014-HQ2, Class M3 | 1,010 | 1,154,626 | ||||||||
Series 2015-DN1, Class B | 2,599 | 3,699,492 | ||||||||
Series 2015-DNA2, Class B | 1,494 | 1,842,387 | ||||||||
Series 2015-DNA2, Class M2 | 1,680 | 1,710,632 | ||||||||
Series 2015-HQA1, Class B | 1,583 | 1,954,827 | ||||||||
Series 2016-DNA2, Class M3 | 6,600 | 7,568,458 | ||||||||
Series 2016-DNA4, Class M3 | 600 | 668,123 | ||||||||
Series 2017-DNA2, Class B1 | 3,650 | 4,210,129 | ||||||||
Series 2017-DNA2, Class M2 | 1,168 | 1,277,053 | ||||||||
Series 2017-DNA3, Class B1 | 4,550 | 4,998,595 | ||||||||
Series 2017-HQA3, Class M2 | 8,684 | 8,868,414 |
abfunds.com | AB INCOME FUND | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | U.S.$ | 11,046 | $ | 12,480,278 | ||||||
Series 2014-C02, Class 1M2 | 3,976 | 4,225,763 | ||||||||
Series 2014-C03, Class 1M2 | 12,355 | 13,158,949 | ||||||||
Series 2014-C04, Class 1M2 | 8,570 | 9,795,612 | ||||||||
Series 2014-C04, Class 2M2 | 1,659 | 1,869,822 | ||||||||
Series 2015-C01, Class 1M2 | 3,242 | 3,551,280 | ||||||||
Series 2015-C02, Class 1M2 | 5,117 | 5,608,271 | ||||||||
Series 2015-C02, Class 2M2 | 2,128 | 2,292,801 | ||||||||
Series 2015-C03, Class 1M2 | 4,477 | 5,035,070 | ||||||||
Series 2015-C03, Class 2M2 | 1,942 | 2,157,712 | ||||||||
Series 2015-C04, Class 1M2 | 2,352 | 2,718,326 | ||||||||
Series 2015-C04, Class 2M2 | 3,523 | 3,991,522 | ||||||||
Series 2016-C01, Class 2M2 | 1,887 | 2,222,925 | ||||||||
Series 2016-C02, Class 1M2 | 3,255 | 3,802,593 | ||||||||
Series 2016-C04, Class 1M2 | 666 | 747,449 |
30 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2016-C05, Class 2B | U.S.$ | 2,744 | $ | 3,624,759 | ||||||||
Series 2016-C05, Class 2M2 | 6,961 | 7,737,053 | ||||||||||
Series 2016-C07, Class 2B | 1,191 | 1,481,686 | ||||||||||
Series 2017-C01, Class 1B1 | 4,300 | 5,184,885 | ||||||||||
Series 2017-C02, Class 2M2 | 709 | 776,410 | ||||||||||
Series 2017-C07, Class 2M2 | 2,842 | 2,933,150 | ||||||||||
Series 2018-R07, Class 1M2 | 1,849 | 1,849,161 | ||||||||||
Home Re Ltd. | 2,359 | 2,358,544 | ||||||||||
JP Morgan Madison Avenue Securities Trust | 1,479 | 1,608,934 | ||||||||||
Series 2015-CH1, Class M2 | 2,220 | 2,511,642 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 857 | 964,981 | ||||||||||
|
| |||||||||||
177,157,979 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 1.8% |
| |||||||||||
Federal Home Loan Mortgage Corp. REMICs Series 3119, Class PI | 1,962 | 340,418 | ||||||||||
Series 3856, Class KS | 14,142 | 2,005,724 | ||||||||||
Series 4248, Class SL | 1,267 | 152,863 |
abfunds.com | AB INCOME FUND | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 4735, Class SA | U.S.$ | 13,186 | $ | 2,199,586 | ||||||||
Series 4763, Class SB | 25,854 | 5,454,894 | ||||||||||
Series 4774, Class BS | 16,032 | 2,478,580 | ||||||||||
Series 4774, Class SL | 21,166 | 3,311,677 | ||||||||||
Federal National Mortgage Association REMICs | 4,683 | 676,097 | ||||||||||
Series 2015-90, Class SA | 32,399 | 4,896,499 | ||||||||||
Series 2016-69, Class DS | 48,707 | 5,896,133 | ||||||||||
Series 2017-49, Class SP | 3,756 | 607,650 | ||||||||||
Series 2018-32, Class SB | 8,629 | 1,349,487 | ||||||||||
Series 2018-44, Class GS | 17,198 | 2,647,971 | ||||||||||
Series 2018-45, Class SL | 5,207 | 906,445 | ||||||||||
Series 2018-45, Class SM | 20,306 | 3,316,437 | ||||||||||
Series 2018-57, Class SL | 27,890 | 4,330,385 | ||||||||||
Series 2018-58, Class SA | 9,957 | 1,555,174 | ||||||||||
Series 2018-59, Class HS | 27,987 | 4,168,328 | ||||||||||
|
| |||||||||||
46,294,348 | ||||||||||||
|
|
32 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Non-Agency Fixed Rate – 0.4% | ||||||||||||
Alternative Loan Trust | U.S.$ | 1,409 | $ | 1,175,150 | ||||||||
Series 2007-13, Class A2 | 1,932 | 1,616,737 | ||||||||||
BNPP Mortgage Securities LLC Trust | 1,219 | 960,375 | ||||||||||
Citigroup Mortgage Loan Trust | 278 | 271,948 | ||||||||||
Series 2010-3, Class 2A2 | 548 | 438,815 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 861 | 692,317 | ||||||||||
Series 2007-HY4, Class 1A1 | 415 | 388,262 | ||||||||||
Credit Suisse Mortgage Trust | 173 | 137,008 | ||||||||||
CSMC Mortgage-Backed Trust | 580 | 478,105 | ||||||||||
Nomura Resecuritization Trust | 1,496 | 1,221,982 | ||||||||||
Wells Fargo Mortgage Backed Securities Trust | 1,796 | 1,757,743 | ||||||||||
|
| |||||||||||
9,138,442 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.0% |
| |||||||||||
Federal National Mortgage Association REMICs | 6,304 | 547,494 | ||||||||||
|
| |||||||||||
Non-Agency Floating Rate – 0.0% |
| |||||||||||
First Horizon Alternative Mortgage Securities Trust | 510 | 268,017 |
abfunds.com | AB INCOME FUND | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Lehman XS Trust | U.S.$ | 525 | $ | 66,079 | ||||||||
|
| |||||||||||
334,096 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 233,472,359 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 5.4% | ||||||||||||
Argentina – 0.6% |
| |||||||||||
Argentina POM Politica Monetaria | ARS | 372,572 | 11,757,684 | |||||||||
Argentine Bonos del Tesoro | 22,504 | 519,641 | ||||||||||
16.00%, 10/17/23 | 55,009 | 1,354,189 | ||||||||||
18.20%, 10/03/21 | 103,390 | 2,363,980 | ||||||||||
|
| |||||||||||
15,995,494 | ||||||||||||
|
| |||||||||||
Brazil – 4.1% |
| |||||||||||
Brazil Notas do Tesouro Nacional | BRL | 380,014 | 103,473,457 | |||||||||
|
| |||||||||||
Dominican Republic – 0.2% |
| |||||||||||
Dominican Republic International Bond | DOP | 149,900 | 3,559,376 | |||||||||
|
| |||||||||||
South Africa – 0.3% |
| |||||||||||
Republic of South Africa Government Bond | ZAR | 110,304 | 7,233,244 | |||||||||
|
| |||||||||||
Sri Lanka – 0.2% |
| |||||||||||
Sri Lanka Government Bonds | LKR | 444,000 | 2,375,248 | |||||||||
Series A | 644,000 | 3,668,757 | ||||||||||
|
| |||||||||||
6,044,005 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 136,305,576 | |||||||||||
|
| |||||||||||
34 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
LOCAL GOVERNMENTS – PROVINCIAL BONDS – 3.4% | ||||||||||||
Canada – 3.4% | ||||||||||||
Province of Alberta Canada | CAD | 16,314 | $ | 12,689,713 | ||||||||
Province of British Columbia Canada | 11,254 | 11,289,050 | ||||||||||
Province of Manitoba Canada | 15,924 | 15,669,013 | ||||||||||
Province of Ontario Canada | 11,092 | 11,691,403 | ||||||||||
Province of Quebec Canada | 19,724 | 20,347,281 | ||||||||||
Province of Saskatchewan Canada | 19,693 | 15,163,064 | ||||||||||
|
| |||||||||||
Total Local Governments – Provincial Bonds | 86,849,524 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT GRADE – 3.2% | ||||||||||||
Financial Institutions – 2.3% | ||||||||||||
Banking – 1.1% | ||||||||||||
Bank of America Corp. | U.S.$ | 2,526 | 2,660,282 | |||||||||
Series V | 570 | 570,365 | ||||||||||
Series Z | 68 | 71,905 | ||||||||||
Bank of New York Mellon Corp. (The) | 844 | 849,207 | ||||||||||
BNP Paribas SA | 418 | 423,029 | ||||||||||
7.625%, 3/30/21(d)(n) | 810 | 841,792 | ||||||||||
Cooperatieve Rabobank UA | 1,061 | 1,112,512 | ||||||||||
Credit Agricole SA | EUR | 4,806 | 5,872,140 | |||||||||
8.125%, 12/23/25(d)(n) | U.S.$ | 2,233 | 2,395,026 | |||||||||
HSBC Holdings PLC | EUR | 1,047 | 1,116,214 | |||||||||
6.00%, 9/29/23(d)(n) | 4,791 | 5,927,451 |
abfunds.com | AB INCOME FUND | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
JPMorgan Chase & Co. | U.S.$ | 2,998 | $ | 3,197,697 | ||||||||
Series Z | 82 | 83,059 | ||||||||||
Santander Holdings USA, Inc. | 2,686 | 2,508,187 | ||||||||||
|
| |||||||||||
27,628,866 | ||||||||||||
|
| |||||||||||
Insurance – 1.2% | ||||||||||||
ACE Capital Trust II | 750 | 1,043,228 | ||||||||||
Aegon NV | 1,870 | 1,776,126 | ||||||||||
AIG Life Holdings, Inc. | 509 | 641,340 | ||||||||||
Assicurazioni Generali SpA | EUR | 6,630 | 7,804,894 | |||||||||
Caisse Nationale de Reassurance Mutuelle Agricole Groupama | 3,100 | 4,079,366 | ||||||||||
CNP Assurances | 1,000 | 1,210,520 | ||||||||||
Fairfax Financial Holdings Ltd. | U.S.$ | 5,000 | 5,890,500 | |||||||||
Hartford Financial Services Group, Inc. (The) | 3,275 | 2,979,366 | ||||||||||
MetLife, Inc. | 2,033 | 2,111,819 | ||||||||||
Prudential Financial, Inc. | 3,771 | 3,835,899 | ||||||||||
|
| |||||||||||
31,373,058 | ||||||||||||
|
| |||||||||||
59,001,924 | ||||||||||||
|
| |||||||||||
Industrial – 0.7% | ||||||||||||
Basic – 0.3% | ||||||||||||
ArcelorMittal | 1,846 | 2,040,550 | ||||||||||
Braskem Finance Ltd. | 1,204 | 1,261,792 | ||||||||||
GTL Trade Finance, Inc. | 274 | 284,618 | ||||||||||
GTL Trade Finance, Inc./Gerdau Holdings, Inc. | 2,711 | 2,761,831 |
36 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Minsur SA | U.S.$ | 285 | $ | 289,631 | ||||||||
Suzano Austria GmbH | 1,883 | 1,904,654 | ||||||||||
|
| |||||||||||
8,543,076 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
General Electric Co. | 1,203 | 1,115,939 | ||||||||||
|
| |||||||||||
Communications - Media – 0.0% |
| |||||||||||
Myriad International Holdings BV | 683 | 697,514 | ||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.2% | ||||||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | 1,990 | 1,988,766 | ||||||||||
5.152%, 3/20/28(d) | 1,990 | 1,993,722 | ||||||||||
|
| |||||||||||
3,982,488 | ||||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Andeavor Logistics LP/Tesoro Logistics Finance Corp. | 591 | 608,966 | ||||||||||
Ecopetrol SA | 604 | 631,482 | ||||||||||
Hess Corp. | 1,598 | 1,805,149 | ||||||||||
|
| |||||||||||
3,045,597 | ||||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
Xerox Corp. | 697 | 638,138 | ||||||||||
|
| |||||||||||
18,022,752 | ||||||||||||
|
| |||||||||||
Utility – 0.2% | ||||||||||||
Electric – 0.2% | ||||||||||||
ComEd Financing III | 3,462 | 3,587,671 | ||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 80,612,347 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 3.0% |
| |||||||||||
Other ABS - Fixed Rate – 1.8% |
| |||||||||||
Atlas Ltd. | 1,269 | 1,193,185 |
abfunds.com | AB INCOME FUND | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CLUB Credit Trust | U.S.$ | 2,191 | $ | 2,176,335 | ||||||||
Consumer Loan Underlying Bond Certificate Issuer Trust I | 5,280 | 5,201,891 | ||||||||||
Consumer Loan Underlying Bond Credit Trust | 4,255 | 4,214,026 | ||||||||||
Marlette Funding Trust | 1,850 | 1,889,750 | ||||||||||
Series 2018-3A, Class C | 4,539 | 4,539,990 | ||||||||||
Prosper Marketplace Issuance Trust | 4,650 | 4,642,902 | ||||||||||
SoFi Consumer Loan Program LLC | 7,368 | 2,247,179 | ||||||||||
Series 2016-5, Class R | 24 | 575,783 | ||||||||||
Series 2017-1, Class B | 2,205 | 2,237,657 | ||||||||||
Series 2017-2, Class R | 13 | 551,293 | ||||||||||
Series 2017-3, Class R | 10 | 704,900 | ||||||||||
Series 2017-4, Class R1 | 19 | 1,346,414 | ||||||||||
Series 2017-5, Class R1 | 17 | 1,251,248 | ||||||||||
Series 2017-6, Class R1 | 25 | 2,662,506 | ||||||||||
SoFi Consumer Loan Program Trust | 37 | 3,677,431 | ||||||||||
Series 2018-2, Class C | 1,400 | 1,383,213 | ||||||||||
Series 2018-3, Class C | 4,611 | 4,618,012 | ||||||||||
|
| |||||||||||
45,113,715 | ||||||||||||
|
| |||||||||||
Autos - Fixed Rate – 1.2% | ||||||||||||
Avis Budget Rental Car Funding AESOP LLC | 2,372 | 2,351,683 |
38 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CPS Auto Receivables Trust | U.S.$ | 2,500 | $ | 2,662,899 | ||||||||
Series 2017-C, Class E | 1,400 | 1,407,301 | ||||||||||
Series 2018-B, Class E | 1,687 | 1,657,512 | ||||||||||
CPS Auto Trust | 3,000 | 3,088,392 | ||||||||||
Series 2017-A, Class E | 3,500 | 3,679,433 | ||||||||||
Exeter Automobile Receivables Trust | 1,090 | 1,117,834 | ||||||||||
Series 2017-1A, Class D | 2,000 | 2,039,760 | ||||||||||
Series 2017-3A, Class D | 4,370 | 4,360,834 | ||||||||||
First Investors Auto Owner Trust | 450 | 454,862 | ||||||||||
Flagship Credit Auto Trust | 1,750 | 1,787,155 | ||||||||||
Series 2016-2, Class D | 4,200 | 4,436,219 | ||||||||||
Series 2017-1, Class E | 1,000 | 1,020,946 | ||||||||||
Series 2018-3, Class D | 670 | 665,877 | ||||||||||
|
| |||||||||||
30,730,707 | ||||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 75,844,422 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 2.2% | ||||||||||||
Industrial – 1.8% | ||||||||||||
Basic – 0.3% | ||||||||||||
Consolidated Energy Finance SA | 787 | 801,780 | ||||||||||
Elementia SAB de CV | 1,039 | 961,075 | ||||||||||
First Quantum Minerals Ltd. | 910 | 864,500 | ||||||||||
7.50%, 4/01/25(d) | 410 | 368,024 |
abfunds.com | AB INCOME FUND | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Nexa Resources SA | U.S.$ | 1,300 | $ | 1,259,375 | ||||||||
Stillwater Mining Co. | 1,291 | 1,229,678 | ||||||||||
7.125%, 6/27/25(d) | 410 | 388,988 | ||||||||||
Vedanta Resources PLC | 1,474 | 1,376,933 | ||||||||||
|
| |||||||||||
7,250,353 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
Indo Energy Finance II BV | 1,390 | 1,324,573 | ||||||||||
Odebrecht Finance Ltd. | 6,760 | 1,292,850 | ||||||||||
5.25%, 6/27/29(d) | 2,103 | 346,995 | ||||||||||
|
| |||||||||||
2,964,418 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.3% | ||||||||||||
Digicel Group Ltd. | 3,000 | 2,137,500 | ||||||||||
Digicel Ltd. | 700 | 635,250 | ||||||||||
Millicom International Cellular SA | 1,762 | 1,588,002 | ||||||||||
6.625%, 10/15/26(d) | 1,040 | 1,054,321 | ||||||||||
MTN Mauritius Investments Ltd. | 1,500 | 1,441,875 | ||||||||||
|
| |||||||||||
6,856,948 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Servicios Corporativos Javer SAB de CV | 884 | 895,050 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.9% | ||||||||||||
BRF GmbH | 1,010 | 852,137 | ||||||||||
BRF SA | 200 | 180,500 | ||||||||||
Central American Bottling Corp. | 718 | 707,230 | ||||||||||
Cosan Ltd. | 587 | 564,988 | ||||||||||
Inretail Pharma SA | 4,634 | 4,660,645 | ||||||||||
MARB BondCo PLC | 3,730 | 3,500,418 | ||||||||||
Marfrig Holdings Europe BV | 2,420 | 2,448,435 |
40 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Minerva Luxembourg SA |
| |||||||||||
5.875%, 1/19/28(d) | U.S.$ | 200 | $ | 174,000 | ||||||||
6.50%, 9/20/26(d) | 3,300 | 3,032,370 | ||||||||||
Natura Cosmeticos SA | 2,139 | 2,087,226 | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV | 4,211 | 3,926,757 | ||||||||||
Tonon Luxembourg SA | 2,280 | 55,845 | ||||||||||
Virgolino de Oliveira Finance SA |
| |||||||||||
10.50%, 1/28/18(e)(g)(k)(l) | 4,738 | 288,781 | ||||||||||
10.875%, 1/13/20(f)(g)(l) | 750 | 206,325 | ||||||||||
11.75%, 2/09/22(f)(g)(l) | 1,690 | 50,869 | ||||||||||
|
| |||||||||||
22,736,526 | ||||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Medco Platinum Road Pte Ltd. | 1,532 | 1,388,375 | ||||||||||
YPF SA | ARS | 13,912 | 239,567 | |||||||||
|
| |||||||||||
1,627,942 | ||||||||||||
|
| |||||||||||
Technology – 0.0% | ||||||||||||
IHS Netherlands Holdco BV | U.S.$ | 500 | 504,375 | |||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg SARL | 2,272 | 2,348,680 | ||||||||||
|
| |||||||||||
45,184,292 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.3% | ||||||||||||
Banking – 0.3% | ||||||||||||
Akbank T.A.S. | 181 | 165,389 | ||||||||||
Akbank Turk AS | 287 | 240,721 | ||||||||||
Fidelity Bank PLC | 636 | 647,130 | ||||||||||
Itau Unibanco Holding SA/Cayman Island | 1,203 | 1,156,384 | ||||||||||
Turkiye Garanti Bankasi AS | 617 | 570,725 | ||||||||||
Turkiye Vakiflar Bankasi TAO | 2,799 | 2,428,132 | ||||||||||
Yapi ve Kredi Bankasi AS | 453 | 439,976 |
abfunds.com | AB INCOME FUND | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Zenith Bank PLC | U.S.$ | 1,400 | $ | 1,408,400 | ||||||||
|
| |||||||||||
7,056,857 | ||||||||||||
|
| |||||||||||
Finance – 0.0% | ||||||||||||
Unifin Financiera SAB de CV SOFOM ENR | 575 | 530,438 | ||||||||||
|
| |||||||||||
7,587,295 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Cemig Geracao e Transmissao SA | 1,219 | 1,297,930 | ||||||||||
Light Servicos de Eletricidade SA/Light Energia SA | 405 | 394,369 | ||||||||||
Pampa Energia SA | 2,500 | 2,162,500 | ||||||||||
Terraform Global Operating LLC | 695 | 649,200 | ||||||||||
|
| |||||||||||
4,503,999 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 57,275,586 | |||||||||||
|
| |||||||||||
COLLATERALIZED LOAN OBLIGATIONS – 2.2% | ||||||||||||
CLO - Floating Rate – 2.2% | ||||||||||||
Apidos CLO XXVI | 550 | 552,071 | ||||||||||
Black Diamond CLO Ltd. | 5,300 | 5,298,426 | ||||||||||
BlueMountain CLO Ltd. | 2,000 | 2,000,016 | ||||||||||
BlueMountain Fuji US CLO II Ltd. | 3,300 | 3,323,103 | ||||||||||
CBAM Ltd. |
| |||||||||||
Series 2017-3A, Class E1 | 1,604 | 1,616,864 | ||||||||||
Series 2018-7A, Class B1 | 1,996 | 1,993,122 |
42 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
CIFC Funding Ltd. | U.S.$ | 250 | $ | 250,076 | ||||||
Dryden Senior Loan Fund | 605 | 610,311 | ||||||||
GoldenTree Loan Opportunities IX Ltd. | 2,815 | 2,815,000 | ||||||||
Greywolf CLO VI Ltd. | 5,300 | 5,299,968 | ||||||||
Halcyon Loan Advisors Funding Ltd. | ||||||||||
Series 2018-1A, Class A2 | 1,826 | 1,825,598 | ||||||||
Series 2018-1A, Class C | 2,000 | 1,999,478 | ||||||||
Marble Point CLO XI Ltd. | 2,400 | 2,399,270 | ||||||||
Northwoods Capital XII-B Ltd. | 1,350 | 1,349,889 | ||||||||
OZLM Ltd. | ||||||||||
Series 2014-7RA, Class CR | 1,000 | 999,992 | ||||||||
Series 2014-8A, Class D | 1,908 | 1,909,750 | ||||||||
Series 2018-18A, Class B | 5,450 | 5,427,655 | ||||||||
Rockford Tower CLO Ltd. | ||||||||||
Series 2017-2A, Class D | 4,444 | 4,461,178 |
abfunds.com | AB INCOME FUND | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2017-3A, Class A | U.S.$ | 1,931 | $ | 1,931,973 | ||||||||
Sound Point CLO XIX Ltd. | 7,931 | 7,879,829 | ||||||||||
Venture XXVII CLO Ltd. | 1,591 | 1,602,190 | ||||||||||
|
| |||||||||||
Total Collateralized Loan Obligations | 55,545,759 | |||||||||||
|
| |||||||||||
AGENCIES – 1.6% | ||||||||||||
Agency Debentures – 1.6% | ||||||||||||
Federal Home Loan Banks | 8,695 | 10,759,976 | ||||||||||
Federal Home Loan Mortgage Corp. | ||||||||||||
Series GDIF | ||||||||||||
6.75%, 9/15/29 | 4,606 | 5,973,890 | ||||||||||
6.25%, 7/15/32 | 10,400 | 13,479,960 | ||||||||||
6.75%, 3/15/31 | 4,000 | 5,285,040 | ||||||||||
Residual Funding Corp. Principal Strip | 5,277 | 5,023,809 | ||||||||||
|
| |||||||||||
Total Agencies | 40,522,675 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 1.5% | ||||||||||||
Angola – 0.1% | ||||||||||||
Angolan Government International Bond | 3,233 | 3,560,341 | ||||||||||
|
| |||||||||||
Argentina – 0.1% | ||||||||||||
Argentine Republic Government International Bond | 3,570 | 2,980,950 | ||||||||||
|
| |||||||||||
Bahrain – 0.1% | ||||||||||||
Bahrain Government International Bond | ||||||||||||
6.75%, 9/20/29(d) | 1,709 | 1,632,095 | ||||||||||
7.00%, 10/12/28(d) | 1,288 | 1,255,800 | ||||||||||
|
| |||||||||||
2,887,895 | ||||||||||||
|
|
44 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Costa Rica – 0.1% | ||||||||||||
Costa Rica Government International Bond | U.S.$ | 1,935 | $ | 1,922,935 | ||||||||
|
| |||||||||||
Ecuador – 0.1% | ||||||||||||
Ecuador Government International Bond | 1,350 | 1,198,125 | ||||||||||
9.65%, 12/13/26(d) | 734 | 686,290 | ||||||||||
10.50%, 3/24/20(d) | 1,974 | 2,018,415 | ||||||||||
|
| |||||||||||
3,902,830 | ||||||||||||
|
| |||||||||||
Egypt – 0.2% | ||||||||||||
Egypt Government International Bond | 4,666 | 4,607,675 | ||||||||||
|
| |||||||||||
El Salvador – 0.1% | ||||||||||||
El Salvador Government International Bond | 1,427 | 1,424,467 | ||||||||||
|
| |||||||||||
Ghana – 0.1% | ||||||||||||
Ghana Government International Bond | 1,870 | 1,781,175 | ||||||||||
|
| |||||||||||
Honduras – 0.1% | ||||||||||||
Honduras Government International Bond | 1,555 | 1,527,788 | ||||||||||
|
| |||||||||||
Ivory Coast – 0.1% | ||||||||||||
Ivory Coast Government International Bond | 2,440 | 2,253,950 | ||||||||||
|
| |||||||||||
Kenya – 0.1% | ||||||||||||
Kenya Government International Bond | 1,252 | 1,256,069 | ||||||||||
7.25%, 2/28/28(d) | 1,639 | 1,544,758 | ||||||||||
|
| |||||||||||
2,800,827 | ||||||||||||
|
| |||||||||||
Lebanon – 0.1% | ||||||||||||
Lebanon Government International Bond | 1,520 | 1,516,200 | ||||||||||
8.25%, 4/12/21(d) | 1,410 | 1,344,787 | ||||||||||
|
| |||||||||||
2,860,987 | ||||||||||||
|
| |||||||||||
Nigeria – 0.0% | ||||||||||||
Nigeria Government International Bond | 248 | 245,520 | ||||||||||
6.75%, 1/28/21(d) | 501 | 515,404 | ||||||||||
7.875%, 2/16/32(d) | 426 | 410,025 | ||||||||||
|
| |||||||||||
1,170,949 | ||||||||||||
|
|
abfunds.com | AB INCOME FUND | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Senegal – 0.1% | ||||||||||||
Senegal Government International Bond | U.S.$ | 608 | $ | 522,880 | ||||||||
8.75%, 5/13/21(d) | 864 | 921,240 | ||||||||||
|
| |||||||||||
1,444,120 | ||||||||||||
|
| |||||||||||
Sri Lanka – 0.1% | ||||||||||||
Sri Lanka Government International Bond | 2,000 | 1,742,500 | ||||||||||
6.20%, 5/11/27(d) | 685 | 586,531 | ||||||||||
|
| |||||||||||
2,329,031 | ||||||||||||
|
| |||||||||||
Zambia – 0.0% | ||||||||||||
Zambia Government International Bond | 1,217 | 829,081 | ||||||||||
|
| |||||||||||
Total Emerging Markets – Sovereigns | 38,285,001 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 1.0% | ||||||||||||
Non-Agency Fixed Rate CMBS – 0.9% | ||||||||||||
Citigroup Commercial Mortgage Trust | 38,527 | 2,477,034 | ||||||||||
Citigroup/Deutsche Bank Mortgage Trust | 15,008 | 985,725 | ||||||||||
Commercial Mortgage Trust | 53,724 | 1,736,584 | ||||||||||
Series 2015-CR27, Class XA | 7,518 | 391,785 | ||||||||||
GS Mortgage Securities Trust | 34,380 | 2,504,884 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 1,863 | 1,700,508 | ||||||||||
Series 2016-JP2, Class XA | 16,988 | 1,843,078 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 1,300 | 1,279,903 |
46 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
LB-UBS Commercial Mortgage Trust | U.S.$ | 1,178 | $ | 813,090 | ||||||||
Madison Avenue Trust | 920 | 905,659 | ||||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 13,105 | 653,846 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 9,290 | 534,546 | ||||||||||
Series 2016-C36, Class XA | 52,215 | 3,989,683 | ||||||||||
Series 2016-LC24, Class XA | 10,075 | 980,181 | ||||||||||
Series 2016-LC25, Class XA | 20,536 | 1,128,564 | ||||||||||
|
| |||||||||||
21,925,070 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 0.1% | ||||||||||||
BBCMS Mortgage Trust | 1,655 | 1,677,874 | ||||||||||
CLNS Trust | 1,480 | 1,482,763 | ||||||||||
Credit Suisse Mortgage Trust | 755 | 756,257 | ||||||||||
|
| |||||||||||
3,916,894 | ||||||||||||
|
| |||||||||||
Agency CMBS – 0.0% | ||||||||||||
Government National Mortgage Association | 246 | 236 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 25,842,200 | |||||||||||
|
| |||||||||||
abfunds.com | AB INCOME FUND | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
BANK LOANS – 1.0% | ||||||||||||
Industrial – 1.0% | ||||||||||||
Basic – 0.1% | ||||||||||||
Foresight Energy LLC | U.S.$ | 431 | $ | 432,091 | ||||||||
Specialty Building Products Holdings, LLC | 1,021 | 1,016,058 | ||||||||||
Starfruit Finco B.V. (Starfruit US Holdco LLC) (fka AkzoNobel) | 175 | 174,343 | ||||||||||
|
| |||||||||||
1,622,492 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
Brookfield WEC Holdings Inc. (fka Westinghouse Electric Company LLC) | 762 | 766,212 | ||||||||||
9.05% (LIBOR 1 Month + 6.75%), 8/03/26(r) | 797 | 807,904 | ||||||||||
|
| |||||||||||
1,574,116 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.0% | ||||||||||||
Intelsat Jackson Holdings S.A. | 252 | 257,638 | ||||||||||
6.79% (LIBOR 1 Month + 4.50%), 1/02/24(e)(r) | 150 | 155,250 | ||||||||||
|
| |||||||||||
412,888 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Navistar, Inc. | 656 | 656,458 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.0% |
| |||||||||||
Stars Group Holdings B.V. | 807 | 810,291 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.0% | ||||||||||||
IRB Holding Corp. (fka Arby’s/Buffalo Wild Wings) | 573 | 571,018 | ||||||||||
|
|
48 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Non-Cyclical – 0.5% |
| |||||||||||
Air Medical Group Holdings, Inc. | U.S.$ | 1,179 | $ | 1,155,194 | ||||||||
Alphabet Holding Company, Inc. (fka Nature’s Bounty) | 3,524 | 3,126,366 | ||||||||||
Avantor, Inc. | 1,374 | 1,383,246 | ||||||||||
BI-LO, LLC | 1,617 | 1,594,610 | ||||||||||
10.34% (LIBOR 3 Month + 8.00%), 5/31/24(r) | 1,554 | 1,532,944 | ||||||||||
10.45% (LIBOR 3 Month + 8.00%), 5/31/24(r) | 1,617 | 1,594,611 | ||||||||||
Owens & Minor, Inc. | 3,328 | 3,012,061 | ||||||||||
|
| |||||||||||
13,399,032 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% |
| |||||||||||
American Tire Distributors, Inc. | 549 | 485,147 | ||||||||||
11.237% (LIBOR 3 Month + 8.75%), 10/05/19(e)(r) | 487 | 481,872 | ||||||||||
|
| |||||||||||
967,019 | ||||||||||||
|
| |||||||||||
Services – 0.1% |
| |||||||||||
Verscend Holding Corp. | 1,995 | 2,009,193 | ||||||||||
|
| |||||||||||
Technology – 0.1% |
| |||||||||||
Boxer Parent Company Inc. (fka BMC Software) | 2,700 | 2,706,480 | ||||||||||
Veritas US Inc. | 168 | 159,782 | ||||||||||
6.89% (LIBOR 1 Month + 4.50%), 1/27/23(r) | 56 | 52,948 | ||||||||||
|
| |||||||||||
2,919,210 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 24,941,717 | |||||||||||
|
|
abfunds.com | AB INCOME FUND | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
COMMON STOCKS – 0.4% | ||||||||||||
Energy – 0.3% | ||||||||||||
Oil, Gas & Consumable Fuels – 0.3% | ||||||||||||
Berry Petroleum Corp. | 133,343 | $ | 1,866,802 | |||||||||
Denbury Resources, Inc.(g) | 83,999 | 289,797 | ||||||||||
Golden Energy Offshore Services | 1,497,659 | 977,143 | ||||||||||
Paragon Litigation – Class A(e)(h) | 10,360 | 8,630 | ||||||||||
Paragon Litigation – Class B(e)(h) | 15,538 | 582,675 | ||||||||||
Tervita Corp.(g)(h) | 245,313 | 1,395,719 | ||||||||||
Vantage Drilling International(e)(g)(h) | 5,303 | 1,620,952 | ||||||||||
|
| |||||||||||
6,741,718 | ||||||||||||
|
| |||||||||||
Financials – 0.1% | ||||||||||||
Real Estate – 0.1% | ||||||||||||
Calibrate Real Estate Limited(e)(h)(i) | 4,439 | 1,329,762 | ||||||||||
|
| |||||||||||
Consumer Discretionary – 0.0% | ||||||||||||
Media – 0.0% | ||||||||||||
Ion Media Networks, Inc. – | 2,512 | 909,369 | ||||||||||
|
| |||||||||||
Information Technology – 0.0% | ||||||||||||
IT Services – 0.0% | ||||||||||||
Paysafe Group Ltd.(e)(h)(i) | 3,109 | 342,270 | ||||||||||
|
| |||||||||||
Software – 0.0% | ||||||||||||
Avaya Holdings Corp.(g) | 34,528 | 566,951 | ||||||||||
|
| |||||||||||
909,221 | ||||||||||||
|
| |||||||||||
Consumer Staples – 0.0% | ||||||||||||
Food & Staples Retailing – 0.0% | ||||||||||||
Southeastern Grocers, Inc. Npv(e)(h)(i) | 16,421 | 611,682 | ||||||||||
|
| |||||||||||
Industrials – 0.0% | ||||||||||||
Consumer Cyclical - Automotive – 0.0% | ||||||||||||
Exide Technologies/Old(e)(g)(i)(t) | 45,970 | 19,308 | ||||||||||
|
| |||||||||||
Total Common Stocks | 10,521,060 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
INFLATION-LINKED SECURITIES – 0.2% | ||||||||||||
Mexico – 0.2% | ||||||||||||
Mexican Udibonos | MXN | 129,008 | 6,325,928 | |||||||||
|
|
50 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
INVESTMENT COMPANIES – 0.2% | ||||||||||||
Funds and Investment Trusts – 0.2% | ||||||||||||
iShares MSCI Emerging Markets ETF(u) | 150,071 | $ | 5,876,780 | |||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
QUASI-SOVEREIGNS – 0.2% | ||||||||||||
Quasi-Sovereign Bonds – 0.2% | ||||||||||||
Kazakhstan – 0.1% | ||||||||||||
KazMunayGas National Co. JSC 4.75%, 4/24/25(d) | U.S.$ | 768 | 766,080 | |||||||||
5.375%, 4/24/30(d) | 1,940 | 1,925,450 | ||||||||||
|
| |||||||||||
2,691,530 | ||||||||||||
|
| |||||||||||
Mexico – 0.0% | ||||||||||||
Petroleos Mexicanos | 403 | 386,167 | ||||||||||
|
| |||||||||||
Turkey – 0.1% | ||||||||||||
Export Credit Bank of Turkey | 550 | 479,187 | ||||||||||
TC Ziraat Bankasi AS | 529 | 520,404 | ||||||||||
|
| |||||||||||
999,591 | ||||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 4,077,288 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.1% | ||||||||||||
United States – 0.1% | ||||||||||||
Texas Transportation Commission State Highway Fund | ||||||||||||
Series 2010B | 2,560 | 2,864,819 | ||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – REGIONAL BONDS – 0.1% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Provincia de Buenos Aires/Argentina | 1,057 | 1,046,430 | ||||||||||
36.245% (BADLAR + 3.83%), 5/31/22(o) | ARS | 28,600 | 727,213 |
abfunds.com | AB INCOME FUND | 51 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Provincia de Cordoba | U.S.$ | 493 | $ | 452,327 | ||||||||
|
| |||||||||||
Total Local Governments – Regional Bonds | 2,225,970 | |||||||||||
|
| |||||||||||
Notional Amount | ||||||||||||
OPTIONS PURCHASED – CALLS – 0.1% | ||||||||||||
Options on Forward Contracts – 0.1% | ||||||||||||
BRL/USD | BRL | 71,722,500 | 41,648 | |||||||||
TRY/EUR | TRY | 146,116,950 | 682,120 | |||||||||
TRY/USD | TRY | 150,540,100 | 867,835 | |||||||||
|
| |||||||||||
Total Options Purchased – Calls | 1,591,603 | |||||||||||
|
| |||||||||||
OPTIONS PURCHASED – PUTS – 0.1% | ||||||||||||
Swaptions – 0.1% | ||||||||||||
IRS Swaption | EUR | 47,600,000 | 107,828 | |||||||||
IRS Swaption | USD | 74,501,000 | 643,317 | |||||||||
|
| |||||||||||
751,145 | ||||||||||||
|
|
52 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Notional Amount | U.S. $ Value | |||||||||||
|
| |||||||||||
Options on Forward Contracts – 0.0% | ||||||||||||
CNH/USD | CNH | 747,723,200 | $ | 748,216 | ||||||||
|
| |||||||||||
Total Options Purchased – Puts | 1,499,361 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
WHOLE LOAN TRUSTS – 0.1% | ||||||||||||
Performing Asset – 0.1% | ||||||||||||
Flexpath Wh I LLC | U.S.$ | 279 | 75,865 | |||||||||
Sheridan Auto Loan Holdings I LLC | 1,904 | 679,409 | ||||||||||
Sheridan Consumer Finance Trust | 635 | 634,600 | ||||||||||
|
| |||||||||||
Total Whole Loan Trusts | 1,389,874 | |||||||||||
|
| |||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.0% | ||||||||||||
Qatar – 0.0% | ||||||||||||
Qatar Government International Bond | 861 | 863,152 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 0.0% | ||||||||||||
Industrial – 0.0% | ||||||||||||
Financial Institutions – 0.0% | ||||||||||||
Paysafe Holdings UK Ltd. | 834,450 | 834,450 | ||||||||||
|
| |||||||||||
WARRANTS – 0.0% | ||||||||||||
Avaya Holdings Corp., expiring 12/15/22(g) | 2,936 | 13,212 | ||||||||||
Encore Automotive Acceptance, expiring 7/05/31(e)(g)(h)(i) | 12 | – 0 | – |
abfunds.com | AB INCOME FUND | 53 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
|
| |||||||||||
Flexpath Capital, Inc., expiring | 17,195 | $ | – 0 | – | ||||||||
SandRidge Energy, Inc., A-CW22, expiring 10/04/22(g) | 2,475 | 248 | ||||||||||
SandRidge Energy, Inc., B-CW22, expiring 10/04/22(g) | 1,042 | 52 | ||||||||||
|
| |||||||||||
Total Warrants | 13,512 | |||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS – 1.5% | ||||||||||||
Investment Companies – 1.5% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 2.08%(u)(v)(w) | 37,089,316 | 37,089,316 | ||||||||||
|
| |||||||||||
Total Investments – 122.8% | 3,116,455,435 | |||||||||||
Other assets less liabilities – (22.8)% | (579,202,443 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 2,537,252,992 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional | Original Value | Value at October 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
10 Yr Canadian Bond Futures | 505 | | December 2018 | | CAD | 50,500 | $ | 51,392,807 | $ | 50,693,722 | $ | (699,085 | ) | |||||||||||||||
U.S. 10 Yr Ultra Futures | 1,709 | | December 2018 | | USD | 170,900 | 218,218,820 | 213,811,922 | (4,406,898 | ) | ||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 971 | | December 2018 | | USD | 194,200 | 204,562,961 | 204,547,219 | (15,742 | ) | ||||||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 2,790 | | December 2018 | | USD | 279,000 | 314,652,680 | 313,548,048 | (1,104,632 | ) | ||||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 3,364 | | December 2018 | | USD | 336,400 | 401,860,908 | 398,423,750 | (3,437,158 | ) | ||||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||||
Euro-BOBL Futures | 561 | | December 2018 | | EUR | 56,100 | 83,626,594 | 83,519,190 | 107,404 | |||||||||||||||||||
Euro-Bund Futures | 77 | | December 2018 | | EUR | 7,700 | 13,984,874 | 13,976,928 | 7,946 | |||||||||||||||||||
Euro-Schatz Futures | 1,569 | | December 2018 | | EUR | 156,900 | 198,930,029 | 198,993,952 | (63,923 | ) | ||||||||||||||||||
S&P 500 E-Mini Futures | 62 | | December 2018 | | USD | 3 | 8,977,867 | 8,404,410 | 573,457 | |||||||||||||||||||
U.S. Long Bond (CBT) Futures | 437 | | December 2018 | | USD | 43,700 | 63,326,821 | 60,360,625 | 2,966,196 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (6,072,435 | ) | ||||||||||||||||||||||||||
|
|
54 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Bank of America, NA | RUB | 713,217 | USD | 10,767 | 11/14/18 | $ | (42,996 | ) | ||||||||
Bank of America, NA | BRL | 133,060 | USD | 36,119 | 12/04/18 | 468,455 | ||||||||||
Bank of America, NA | BRL | 133,060 | USD | 35,791 | 11/05/18 | 36,546 | ||||||||||
Bank of America, NA | PLN | 25,356 | USD | 6,867 | 1/18/19 | 244,023 | ||||||||||
Bank of America, NA | USD | 5,485 | CHF | 5,353 | 2/28/19 | (104,783 | ) | |||||||||
Bank of America, NA | USD | 5,484 | CHF | 5,354 | 2/26/19 | (104,831 | ) | |||||||||
Bank of America, NA | USD | 11,790 | BRL | 44,018 | 11/13/18 | 26,491 | ||||||||||
Bank of America, NA | USD | 36,207 | BRL | 133,060 | 11/05/18 | (452,402 | ) | |||||||||
Barclays Bank PLC | KRW | 30,202,311 | USD | 26,468 | 11/15/18 | 3,096 | ||||||||||
Barclays Bank PLC | TRY | 75,147 | USD | 12,137 | 1/15/19 | (717,813 | ) | |||||||||
Barclays Bank PLC | ILS | 48,180 | USD | 13,508 | 11/29/18 | 528,041 | ||||||||||
Barclays Bank PLC | USD | 26,131 | EUR | 22,575 | 1/09/19 | (397,138 | ) | |||||||||
Barclays Bank PLC | USD | 21,056 | INR | 1,465,538 | 12/13/18 | (1,367,962 | ) | |||||||||
Barclays Bank PLC | USD | 6,207 | KRW | 6,919,917 | 11/15/18 | (143,107 | ) | |||||||||
Barclays Bank PLC | USD | 1,793 | IDR | 27,134,028 | 12/26/18 | (25,493 | ) | |||||||||
Barclays Bank PLC | USD | 4,996 | IDR | 73,943,417 | 11/08/18 | (136,671 | ) | |||||||||
BNP Paribas SA | MXN | 933,666 | USD | 49,307 | 12/05/18 | 3,572,349 | ||||||||||
BNP Paribas SA | ARS | 167,647 | USD | 4,292 | 11/13/18 | (314,431 | ) | |||||||||
BNP Paribas SA | ZAR | 65,994 | USD | 4,459 | 11/29/18 | 690 | ||||||||||
BNP Paribas SA | CHF | 5,334 | USD | 5,454 | 2/28/19 | 93,517 | ||||||||||
BNP Paribas SA | USD | 12,367 | CAD | 16,169 | 11/16/18 | (82,266 | ) | |||||||||
BNP Paribas SA | USD | 13,309 | JPY | 1,499,697 | 12/13/18 | 25,664 | ||||||||||
Citibank, NA | ARS | 160,700 | USD | 3,892 | 11/01/18 | (584,788 | ) | |||||||||
Citibank, NA | BRL | 58,548 | USD | 15,048 | 11/05/18 | (684,566 | ) | |||||||||
Citibank, NA | UYU | 41,678 | USD | 1,247 | 12/04/18 | (22,768 | ) | |||||||||
Citibank, NA | ARS | 14,739 | USD | 388 | 11/28/18 | (9,992 | ) | |||||||||
Citibank, NA | UYU | 12,573 | USD | 372 | 11/29/18 | (11,166 | ) | |||||||||
Citibank, NA | USD | 3,300 | EUR | 2,828 | 1/09/19 | (76,115 | ) | |||||||||
Citibank, NA | USD | 15,749 | BRL | 58,548 | 11/05/18 | (16,081 | ) | |||||||||
Citibank, NA | USD | 4,360 | ARS | 160,700 | 11/01/18 | 116,253 | ||||||||||
Citibank, NA | USD | 13,498 | INR | 941,855 | 12/13/18 | (845,354 | ) | |||||||||
Citibank, NA | USD | 13,086 | JPY | 1,463,139 | 12/13/18 | (76,102 | ) | |||||||||
Citibank, NA | USD | 13,309 | JPY | 1,499,697 | 12/13/18 | 25,507 | ||||||||||
Citibank, NA | USD | 2,409 | KRW | 2,676,307 | 11/15/18 | (63,405 | ) | |||||||||
Citibank, NA | USD | 1,028 | IDR | 15,033,467 | 11/08/18 | (40,571 | ) | |||||||||
Credit Suisse International | COP | 40,148,936 | USD | 13,229 | 11/15/18 | 765,063 | ||||||||||
Credit Suisse International | JPY | 802,322 | USD | 7,100 | 12/13/18 | (33,512 | ) | |||||||||
Credit Suisse International | MXN | 506,109 | USD | 25,867 | 12/05/18 | 1,076,184 | ||||||||||
Credit Suisse International | CNY | 135,361 | USD | 19,566 | 1/09/19 | 221,772 | ||||||||||
Credit Suisse International | NOK | 108,418 | USD | 13,011 | 11/15/18 | 142,902 | ||||||||||
Credit Suisse International | TRY | 37,163 | USD | 5,027 | 2/28/19 | (1,165,185 | ) | |||||||||
Credit Suisse International | TRY | 27,887 | USD | 4,776 | 2/26/19 | 123,952 |
abfunds.com | AB INCOME FUND | 55 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Credit Suisse International | TRY | 27,886 | USD | 4,771 | 2/28/19 | $ | 124,342 | |||||||||
Credit Suisse International | TRY | 16,220 | USD | 2,532 | 12/03/18 | (315,145 | ) | |||||||||
Credit Suisse International | CAD | 14,376 | USD | 11,131 | 11/16/18 | 207,472 | ||||||||||
Credit Suisse International | EUR | 3,521 | NOK | 33,953 | 11/15/18 | 38,240 | ||||||||||
Credit Suisse International | USD | 5,487 | CHF | 5,341 | 2/28/19 | (118,338 | ) | |||||||||
Credit Suisse International | USD | 1,695 | TRY | 10,621 | 12/03/18 | 168,736 | ||||||||||
Credit Suisse International | USD | 13,374 | ILS | 48,415 | 11/29/18 | (330,348 | ) | |||||||||
Credit Suisse International | CNY | 20,381 | JPY | 326,906 | 12/13/18 | (10,544 | ) | |||||||||
Credit Suisse International | USD | 4,801 | TRY | 27,887 | 2/26/19 | (148,322 | ) | |||||||||
Credit Suisse International | USD | 12,137 | TRY | 75,082 | 1/15/19 | 706,693 | ||||||||||
Credit Suisse International | USD | 9,282 | TRY | 64,156 | 2/28/19 | 1,408,706 | ||||||||||
Credit Suisse International | USD | 25,799 | NOK | 209,521 | 11/15/18 | (930,645 | ) | |||||||||
Credit Suisse International | USD | 13,618 | TRY | 82,666 | 1/17/19 | 506,692 | ||||||||||
Credit Suisse International | USD | 12,505 | ZAR | 181,203 | 11/29/18 | (261,986 | ) | |||||||||
Credit Suisse International | USD | 11,955 | INR | 831,677 | 12/13/18 | (781,587 | ) | |||||||||
Deutsche Bank AG | GBP | 77,969 | USD | 103,161 | 12/14/18 | 3,293,970 | ||||||||||
Deutsche Bank AG | USD | 2,091 | CHF | 1,989 | 2/28/19 | (92,293 | ) | |||||||||
Deutsche Bank AG | USD | 1,226 | TRY | 7,533 | 11/09/18 | 114,892 | ||||||||||
Deutsche Bank AG | TRY | 76,777 | EUR | 11,216 | 1/17/19 | (323,089 | ) | |||||||||
Deutsche Bank AG | USD | 2,249 | IDR | 32,918,393 | 11/08/18 | (85,529 | ) | |||||||||
Goldman Sachs Bank USA | IDR | 27,134,028 | USD | 1,793 | 12/26/18 | 25,493 | ||||||||||
Goldman Sachs Bank USA | NZD | 31,050 | USD | 20,033 | 12/07/18 | (235,963 | ) | |||||||||
Goldman Sachs Bank USA | JPY | 326,905 | CNY | 20,381 | 12/13/18 | 10,548 | ||||||||||
Goldman Sachs Bank USA | USD | 7,403 | INR | 544,181 | 12/13/18 | (91,957 | ) | |||||||||
Goldman Sachs Bank USA | USD | 20,128 | CLP | 13,477,445 | 11/15/18 | (762,106 | ) | |||||||||
HSBC Bank USA | INR | 765,829 | USD | 10,492 | 12/13/18 | 203,197 | ||||||||||
HSBC Bank USA | USD | 18,520 | KRW | 20,626,344 | 11/15/18 | (446,006 | ) | |||||||||
JPMorgan Chase Bank, NA | JPY | 580,992 | USD | 5,125 | 12/13/18 | (40,770 | ) | |||||||||
JPMorgan Chase Bank, NA | ARS | 160,700 | USD | 4,360 | 11/01/18 | (116,253 | ) | |||||||||
JPMorgan Chase Bank, NA | ARS | 160,700 | USD | 3,985 | 1/09/19 | (128,901 | ) | |||||||||
JPMorgan Chase Bank, NA | NOK | 214,998 | USD | 25,981 | 11/15/18 | 463,229 | ||||||||||
JPMorgan Chase Bank, NA | ARS | 168,834 | USD | 4,284 | 11/05/18 | (400,904 | ) | |||||||||
JPMorgan Chase Bank, NA | TRY | 77,221 | USD | 11,422 | 2/28/19 | (1,444,993 | ) | |||||||||
JPMorgan Chase Bank, NA | CNY | 34,249 | USD | 4,971 | 12/19/18 | 70,530 | ||||||||||
JPMorgan Chase Bank, NA | TRY | 10,621 | USD | 1,695 | 12/03/18 | (168,725 | ) | |||||||||
JPMorgan Chase Bank, NA | CHF | 5,354 | USD | 5,480 | 2/26/19 | 100,939 | ||||||||||
JPMorgan Chase Bank, NA | EUR | 7,992 | NOK | 76,578 | 11/15/18 | 27,765 |
56 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
JPMorgan Chase Bank, NA | USD | 6,120 | TRY | 34,649 | 11/09/18 | $ | 48,584 | |||||||||
JPMorgan Chase Bank, NA | USD | 19,566 | CNY | 135,361 | 1/09/19 | (221,772 | ) | |||||||||
JPMorgan Chase Bank, NA | USD | 19,464 | NOK | 158,476 | 11/15/18 | (654,544 | ) | |||||||||
JPMorgan Chase Bank, NA | USD | 4,360 | ARS | 160,700 | 11/01/18 | 116,584 | ||||||||||
JPMorgan Chase Bank, NA | USD | 22,882 | TWD | 702,630 | 12/11/18 | (122,155 | ) | |||||||||
Morgan Stanley Capital Services, Inc. | AUD | 68,470 | USD | 48,568 | 12/07/18 | 63,442 | ||||||||||
Morgan Stanley Capital Services, Inc. | BRL | 74,511 | USD | 18,471 | 11/05/18 | (1,550,419 | ) | |||||||||
Morgan Stanley Capital Services, Inc. | BRL | 44,018 | USD | 11,790 | 11/13/18 | (26,586 | ) | |||||||||
Morgan Stanley Capital Services, Inc. | USD | 20,042 | BRL | 74,511 | 11/05/18 | (20,465 | ) | |||||||||
Natwest Markets PLC | COP | 19,638,985 | USD | 6,407 | 11/15/18 | 310,312 | ||||||||||
Natwest Markets PLC | ARS | 149,206 | USD | 3,875 | 11/16/18 | (208,745 | ) | |||||||||
Natwest Markets PLC | TRY | 31,663 | USD | 4,945 | 12/03/18 | (611,787 | ) | |||||||||
Standard Chartered Bank | IDR | 227,946,745 | USD | 15,392 | 11/08/18 | 413,105 | ||||||||||
Standard Chartered Bank | JPY | 3,077,767 | USD | 27,305 | 12/13/18 | (61,458 | ) | |||||||||
Standard Chartered Bank | INR | 1,698,871 | USD | 22,768 | 12/13/18 | (55,463 | ) | |||||||||
Standard Chartered Bank | TWD | 1,183,325 | USD | 38,669 | 12/11/18 | 337,958 | ||||||||||
Standard Chartered Bank | BRL | 256,119 | USD | 67,933 | 1/09/19 | (516,171 | ) | |||||||||
Standard Chartered Bank | CAD | 128,210 | USD | 99,477 | 11/16/18 | 2,062,061 | ||||||||||
Standard Chartered Bank | BRL | 22,151 | USD | 5,974 | 11/13/18 | 27,101 | ||||||||||
Standard Chartered Bank | USD | 30,339 | INR | 2,233,077 | 12/13/18 | (339,101 | ) | |||||||||
Standard Chartered Bank | USD | 10,402 | JPY | 1,176,716 | 12/13/18 | 60,412 | ||||||||||
Standard Chartered Bank | USD | 2,359 | IDR | 34,737,980 | 11/08/18 | (76,463 | ) | |||||||||
Standard Chartered Bank | USD | 13,443 | KRW | 14,997,507 | 11/15/18 | (301,180 | ) | |||||||||
State Street Bank & Trust Co. | KRW | 15,040,057 | USD | 13,393 | 11/15/18 | 213,733 | ||||||||||
State Street Bank & Trust Co. | SEK | 6,624 | USD | 747 | 11/15/18 | 22,586 |
abfunds.com | AB INCOME FUND | 57 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
State Street Bank & Trust Co. | EUR | 250 | USD | 291 | 1/09/19 | $ | 5,671 | |||||||||
State Street Bank & Trust Co. | USD | 2,234 | EUR | 1,930 | 1/09/19 | (34,886 | ) | |||||||||
State Street Bank & Trust Co. | USD | 2,743 | CHF | 2,684 | 1/17/19 | (57,139 | ) | |||||||||
State Street Bank & Trust Co. | USD | 5,584 | MYR | 22,513 | 11/29/18 | (209,856 | ) | |||||||||
State Street Bank & Trust Co. | USD | 1,247 | IDR | 18,399,711 | 11/08/18 | (37,630 | ) | |||||||||
UBS AG | EUR | 100,329 | USD | 115,970 | 1/09/19 | 1,600,949 | ||||||||||
UBS AG | USD | 14,319 | GBP | 11,064 | 12/14/18 | (147,522 | ) | |||||||||
UBS AG | USD | 12,910 | JPY | 1,436,587 | 1/18/19 | (91,090 | ) | |||||||||
UBS AG | USD | 2,132 | IDR | 31,302,794 | 11/08/18 | (74,804 | ) | |||||||||
|
| |||||||||||||||
$ | 51,309 | |||||||||||||||
|
|
INTEREST RATE SWAPTIONS WRITTEN (see Note D)
Description | Index | Counter- Party | Strike Rate | Expiration Date | Notional Amount (000) | Premiums Received | Market Value | |||||||||||||||||||||
Call |
| |||||||||||||||||||||||||||
OTC – 1 Year Interest Rate Swap(x) | | 3 Month LIBOR | | | Morgan Stanley Capital Services LLC | | 2.94 | % | 1/29/19 | $ | 74,501 | $ | 257,029 | $ | (193,685 | ) | ||||||||||||
Put |
| |||||||||||||||||||||||||||
OTC – 1 Year Interest Rate Swap(x) | | 3 Month LIBOR | | | Citibank, NA | | 3.33 | 11/29/18 | 12,959 | 80,346 | (126,229 | ) | ||||||||||||||||
OTC – 1 Year Interest Rate Swap(x) | | 3 Month LIBOR | | | Morgan Stanley Capital Services LLC | | 3.44 | 1/29/19 | 74,501 | 257,028 | (324,607 | ) | ||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
$ | 594,403 | $ | (644,521 | ) | ||||||||||||||||||||||||
|
|
|
|
CURRENCY OPTIONS WRITTEN (see Note D)
Description/ Counterparty | Exercise Price | Expiration Month | Contracts | Notional Amount (000) | Premiums Received | U.S. $ Value | ||||||||||||||||
Put |
| |||||||||||||||||||||
BRL vs. USD/ | BRL | 3.880 | 11/2018 | 76,242,000 | BRL | 76,242 | $ | 269,696 | $ | (19,565 | ) | |||||||||||
BRL vs. USD/ | BRL | 4.560 | 11/2018 | 60,192,000 | BRL | 60,192 | 169,356 | (3,785 | ) | |||||||||||||
CNH vs. USD/ | CNH | 7.050 | 12/2018 | 187,706,250 | CNH | 187,706 | 134,323 | (149,441 | ) |
58 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Description/ Counterparty | Exercise Price | Expiration Month | Contracts | Notional Amount (000) | Premiums Received | U.S. $ Value | ||||||||||||||||
IDR vs. USD/ | IDR | 15,870.000 | 12/2018 | 210,753,600,000 | IDR | 210,753,600 | $ | 84,753 | $ | (50,974 | ) | |||||||||||
INR vs. USD/ | INR | 71.320 | 02/2019 | 921,811,000 | INR | 921,811 | 119,685 | (680,890 | ) | |||||||||||||
JPY vs. CNH/ | JPY | 16.500 | 12/2018 | 1,511,400,000 | JPY | 1,511,400 | 67,944 | (32,509 | ) | |||||||||||||
MXN vs. USD/ | MXN | 23.820 | 02/2019 | 307,873,500 | MXN | 307,874 | 172,200 | (74,781 | ) | |||||||||||||
SGD vs. CHF/ | SGD | 1.550 | 06/2019 | 19,956,250 | SGD | 19,956 | 60,327 | (38,093 | ) | |||||||||||||
TRY vs. CHF/ | TRY | 5.900 | 02/2019 | 72,570,000 | TRY | 72,570 | 132,672 | (765,545 | ) | |||||||||||||
TRY vs. EUR/ | TRY | 7.510 | 01/2019 | 168,561,950 | TRY | 168,562 | 449,651 | (301,865 | ) | |||||||||||||
TRY vs. USD/ | TRY | 7.000 | 12/2018 | 92,610,000 | TRY | 92,610 | 136,004 | (15,872 | ) | |||||||||||||
TRY vs. USD/ | TRY | 7.000 | 11/2018 | 92,715,000 | TRY | 92,715 | 148,741 | (14,746 | ) | |||||||||||||
TRY vs. USD/ | TRY | 6.900 | 01/2019 | 179,710,500 | TRY | 179,711 | 582,627 | (190,494 | ) | |||||||||||||
|
|
|
| |||||||||||||||||||
$ | 2,527,979 | $ | (2,338,560 | ) | ||||||||||||||||||
|
|
|
|
abfunds.com | AB INCOME FUND | 59 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
ITRAXX-AUSTRALIA Series 30, 5 Year Index, 12/20/23* | (1.00 | )% | Quarterly | 0.82 | % | USD | 65,200 | $ | (622,806 | ) | $ | (736,902 | ) | $ | 114,096 | |||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||
CDX-NAHY Series 31, 5 Year Index, 12/20/23* | 5.00 | Quarterly | 3.74 | USD | 27,780 | 1,638,482 | 2,070,718 | (432,236 | ) | |||||||||||||||||||
CDX-NAIG Series 31, 5 Year Index, 12/20/23* | 1.00 | Quarterly | 0.68 | USD | 11,500 | 184,991 | 207,204 | (22,213 | ) | |||||||||||||||||||
iTRAXX-XOVER Series 30, 5 Year Index, 12/20/23* | 5.00 | Quarterly | 2.98 | EUR | 23,460 | 2,612,086 | 2,556,677 | 55,409 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 3,812,753 | $ | 4,097,697 | $ | (284,944 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||||||||
Notional Amount | Termination Date | Payments Fund | Payments received by the Fund | Payment Frequency Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
USD | 109,350 | 4/20/23 | 2.850 | % | | 3 Month LIBOR | | | Semi- Annual/ Quarterly |
| $ | 1,287,434 | $ | — | $ | 1,287,434 | ||||||||||||||||
USD | 46,860 | 4/02/24 | 2.851 | % | | 3 Month LIBOR | | | Semi- Annual/ Quarterly |
| 659,518 | — | 659,518 | |||||||||||||||||||
USD | 30,755 | 2/10/25 | 2.034 | % | | 3 Month LIBOR | | | Semi- Annual/ Quarterly |
| 2,019,276 | — | 2,019,276 | |||||||||||||||||||
USD | 6,010 | 6/09/25 | 2.491 | % | | 3 Month LIBOR | | | Semi- Annual/ Quarterly |
| 206,429 | — | 206,429 | |||||||||||||||||||
USD | 10,000 | 1/11/27 | 2.285 | % | | 3 Month LIBOR | | | Semi- Annual/ Quarterly |
| 613,536 | — | 613,536 | |||||||||||||||||||
USD | 11,920 | 4/26/27 | 2.287 | % | | 3 Month LIBOR | | | Semi- Annual/ Quarterly |
| 827,878 | — | 827,878 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 5,614,071 | $ | — | $ | 5,614,071 | |||||||||||||||||||||||||||
|
|
|
|
|
|
60 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||||||
Republic of Korea, 7.125%, 4/16/19, 12/20/23* | (1.00 | )% | Quarterly | 0.41 | % | USD | 26,900 | $ | (786,826 | ) | $ | (694,225 | ) | $ | (92,601 | ) | ||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||
CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 8,586 | 658,689 | 513,126 | 145,563 | |||||||||||||||||||
CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 17,164 | 1,316,765 | 1,105,727 | 211,038 | |||||||||||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||||||||||
People’s Republic of China, 7.500%, 10/28/27, 12/20/23* | (1.00 | ) | Quarterly | 0.72 | USD | 26,900 | (386,713 | ) | (448,509 | ) | 61,796 | |||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 13.65 | USD | 5,000 | (1,219,138 | ) | (128,131 | ) | (1,091,007 | ) | |||||||||||||||||
Federative Republic of Brazil, 4.250%, 1/07/25, 6/20/23* | 1.00 | Quarterly | 1.86 | USD | 6,750 | (242,176 | ) | (267,784 | ) | 25,608 | ||||||||||||||||||
Republic of Colombia, 10.375%, 1/28/33, 6/20/23* | 1.00 | Quarterly | 1.16 | USD | 6,750 | (42,459 | ) | (43,956 | ) | 1,497 | ||||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 643 | (89,130 | ) | (75,227 | ) | (13,903 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 12,000 | (1,663,400 | ) | (1,574,474 | ) | (88,926 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 19,075 | (2,644,113 | ) | (2,121,563 | ) | (522,550 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 5,000 | (693,083 | ) | (522,761 | ) | (170,322 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 5,000 | (693,083 | ) | (530,434 | ) | (162,649 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 5,000 | (693,083 | ) | (629,315 | ) | (63,768 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,146 | (158,855 | ) | (189,456 | ) | 30,601 |
abfunds.com | AB INCOME FUND | 61 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | % | Monthly | 2.69 | % | USD | 6,500 | $ | (146,323 | ) | $ | (363,122 | ) | $ | 216,799 | |||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 2,839 | (63,909 | ) | (116,342 | ) | 52,433 | ||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 567 | (12,764 | ) | (23,236 | ) | 10,472 | ||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 1,136 | (25,572 | ) | (47,436 | ) | 21,864 | ||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 15,000 | (337,667 | ) | (438,259 | ) | 100,592 | ||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 13.65 | USD | 4,000 | (975,311 | ) | 47,927 | (1,023,238 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 763 | (105,764 | ) | (89,384 | ) | (16,380 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 17,343 | (2,404,029 | ) | (2,223,138 | ) | (180,891 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 660 | (91,487 | ) | (8,904 | ) | (82,583 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 9,220 | (1,278,045 | ) | (1,153,411 | ) | (124,634 | ) | |||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 23,700 | (533,514 | ) | (1,074,027 | ) | 540,513 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 20,000 | (2,772,334 | ) | (2,988,838 | ) | 216,504 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 10,000 | (1,386,167 | ) | (1,639,508 | ) | 253,341 | ||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/63* | 5.00 | Monthly | 13.65 | USD | 16,500 | (4,023,159 | ) | (3,857,389 | ) | (165,770 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 11,909 | (1,650,786 | ) | (1,430,366 | ) | (220,420 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 14,291 | (1,980,971 | ) | (1,719,729 | ) | (261,242 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 32,853 | (4,553,974 | ) | (4,736,339 | ) | 182,365 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 6,323 | (876,473 | ) | (1,060,706 | ) | 184,233 |
62 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 8,827 | $ | (1,223,569 | ) | $ | (1,502,067 | ) | $ | 278,498 | |||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 361 | (43,428 | ) | (44,467 | ) | 1,039 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 361 | (43,428 | ) | (44,880 | ) | 1,452 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 722 | (86,857 | ) | (82,900 | ) | (3,957 | ) | |||||||||||||||||
HSBC Bank USA | ||||||||||||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 361 | (43,428 | ) | (44,880 | ) | 1,452 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 904 | (108,751 | ) | (104,147 | ) | (4,604 | ) | |||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 903 | (108,631 | ) | (105,137 | ) | (3,494 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 362 | (43,548 | ) | (44,866 | ) | 1,318 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 542 | (65,203 | ) | (67,176 | ) | 1,973 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 361 | (43,428 | ) | (42,541 | ) | (887 | ) | |||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 359 | (43,187 | ) | (44,631 | ) | 1,444 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 361 | (43,429 | ) | (42,311 | ) | (1,118 | ) | |||||||||||||||||
JPMorgan Securities LLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 9,543 | (1,322,819 | ) | (1,113,910 | ) | (208,909 | ) | |||||||||||||||||
Morgan Stanley & Co. International PLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 293 | (6,597 | ) | (12,445 | ) | 5,848 | ||||||||||||||||||
Republic of South Africa, 5.500%, 3/09/20, 6/20/23* | 1.00 | Quarterly | 2.22 | USD | 6,750 | (336,442 | ) | (208,747 | ) | (127,695 | ) | |||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 921 | (110,797 | ) | (120,013 | ) | 9,216 | ||||||||||||||||||
Republic of Turkey, 11.875%, 01/15/30, 12/20/23* | 1.00 | Quarterly | 3.85 | USD | 903 | (108,631 | ) | (104,788 | ) | (3,843 | ) | |||||||||||||||||
Russian Federation, 7.500%, 3/31/30, 6/20/23* | 1.00 | Quarterly | 1.37 | USD | 6,750 | (100,371 | ) | (115,401 | ) | 15,030 |
abfunds.com | AB INCOME FUND | 63 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 547 | $ | (75,823 | ) | $ | (39,589 | ) | $ | (36,234 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (34,513,221 | ) | $ | (32,414,085 | ) | $ | (2,099,136 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note D)
Counterparty & | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional Amount (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Pay Total Return on Reference Obligation |
| |||||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 26,500,000 | LIBOR | Maturity | USD | 26,500 | 12/20/18 | $ | 413,173 | ||||||||||||||||
Morgan Stanley Capital Services LLC |
| |||||||||||||||||||||||
iBoxx $ Liquid High Yield Index | 26,200,000 | LIBOR | Maturity | USD | 26,200 | 12/20/18 | 203,536 | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 616,709 | |||||||||||||||||||||||
|
|
VARIANCE SWAPS (see Note D)
Swap Counterparty & | Volatility Strike Rate | Payment Frequency | Notional | Market Value | Upfront Premiums (Paid) Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||
AUD/JPY 1/14/20* | 11.12 | % | Maturity | AUD | 314 | $ | 56,928 | $ | – 0 | – | $ | 56,928 | ||||||||||||||||
AUD/JPY 3/03/20* | 12.75 | Maturity | AUD | 160 | (35,243 | ) | – 0 | – | (35,243 | ) | ||||||||||||||||||
AUD/JPY 4/16/20* | 12.25 | Maturity | AUD | 423 | (18,726 | ) | – 0 | – | (18,726 | ) | ||||||||||||||||||
AUD/JPY 5/07/20* | 12.22 | Maturity | AUD | 264 | (5,267 | ) | – 0 | – | (5,267 | ) | ||||||||||||||||||
Goldman Sachs Bank USA |
| |||||||||||||||||||||||||||
AUD/JPY 3/10/20* | 12.90 | Maturity | AUD | 72 | (18,402 | ) | – 0 | – | (18,402 | ) | ||||||||||||||||||
AUD/JPY 3/11/20* | 12.80 | Maturity | AUD | 87 | (19,281 | ) | – 0 | – | (19,281 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (39,991 | ) | $ | – 0 | – | $ | (39,991 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
REVERSE REPURCHASE AGREEMENTS (see Note D)
Broker | Principal Amount (000) | Currency | Interest Rate | Maturity | U.S. $ 2018 | |||||||||||||||
Barclays Capital, Inc.+ | 642 | USD | (0.35 | )% | — | $ | 641,830 | |||||||||||||
Barclays Capital, Inc.+ | 324 | USD | 0.50 | % | — | 324,149 | ||||||||||||||
Barclays Capital, Inc.+ | 2,876 | USD | 1.50 | % | — | 2,883,494 |
64 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Broker | Principal Amount (000) | Currency | Interest Rate | Maturity | U.S. $ 2018 | |||||||||||||||
Barclays Capital, Inc.+ | 1,374 | USD | (4.75 | )% | — | $ | 1,373,956 | |||||||||||||
First Boston+ | 4,931 | EUR | (0.75 | )% | — | 5,585,382 | ||||||||||||||
First Boston+ | 948 | EUR | (0.85 | )% | — | 1,073,186 | ||||||||||||||
First Boston+ | 5,219 | EUR | (1.10 | )% | — | 5,911,444 | ||||||||||||||
First Boston+ | 1,965 | EUR | (1.10 | )% | — | 2,225,658 | ||||||||||||||
First Boston+ | 2,607 | EUR | (1.25 | )% | — | 2,952,989 | ||||||||||||||
JP Morgan Chase Bank+ | 1,369 | USD | 0.75 | % | — | 1,369,350 | ||||||||||||||
JP Morgan Chase Bank+ | 2,646 | EUR | (1.00 | )% | — | 2,996,427 | ||||||||||||||
JP Morgan Chase Bank+ | 1,032 | EUR | (1.25 | )% | — | 1,169,122 | ||||||||||||||
JP Morgan Chase Bank+ | 3,365 | USD | 1.85 | % | — | 3,381,258 | ||||||||||||||
|
| |||||||||||||||||||
$ | 31,888,245 | |||||||||||||||||||
|
|
+ | The reverse repurchase agreement matures on demand. Interest rate resets daily and the rate shown is the rate in effect on October 31, 2018 |
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 | $ | 27,137,637 | $ | – 0 | – | $ | – 0 | – | $ | –0 | – | $ | 27,137,637 | |||||||
Corporates – Investment Grade | 3,381,258 | – 0 | – | – 0 | – | – 0 | – | 3,381,258 | ||||||||||||
Governments – Treasuries | 1,369,350 | – 0 | – | – 0 | – | – 0 | – | 1,369,350 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 31,888,245 | $ | – 0 | – | $ | – 0 | – | $ | –0 | – | $ | 31,888,245 | |||||||
|
|
|
|
|
|
|
|
|
|
(a) | Position, or a portion thereof, has been segregated to collateralize reverse repurchase agreements. |
(b) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(c) | Position, or a portion thereof, has been segregated to collateralize margin requirements for open futures contracts. |
(d) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2018, the aggregate market value of these securities amounted to $580,912,876 or 22.9% of net assets. |
(e) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(f) | Defaulted. |
(g) | Non-income producing security. |
(h) | Illiquid security. |
(i) | Fair valued by the Adviser. |
(j) | 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 October 31, 2018. |
(k) | Defaulted matured security. |
abfunds.com | AB INCOME FUND | 65 |
PORTFOLIO OF INVESTMENTS (continued)
(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 October 31, 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. | ||||||||||||||||
7.00%, 4/01/19 | 12/15/17 | $ | – 0 | – | $ | – 0 | – | 0.00 | % | |||||||
Aveta, Inc. | ||||||||||||||||
10.50%, 3/01/21 | 12/15/17 | – 0 | – | – 0 | – | 0.00 | % | |||||||||
Exide Technologies | ||||||||||||||||
11.00%, 4/30/22 | 12/01/17 | 2,876,199 | 2,924,944 | 0.12 | % | |||||||||||
Exide Technologies | ||||||||||||||||
7.00%, 4/30/25 | 12/01/17 | 2,647,423 | 1,875,978 | 0.07 | % | |||||||||||
JP Morgan Madison Avenue Securities Trust Series 2014-CH1, Class M2 | ||||||||||||||||
6.531%, 11/25/24 | 11/06/15 | 1,464,416 | 1,608,934 | 0.06 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | ||||||||||||||||
11.00%, 5/15/18 | 2/19/15 | 861,788 | 14 | 0.00 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-6, Class R1 | ||||||||||||||||
Zero Coupon, 11/25/26 | 11/09/17 | 2,912,244 | 2,662,506 | 0.10 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2016-1, Class R | ||||||||||||||||
Zero Coupon, 8/25/25 | 7/28/17 | 2,384,683 | 2,247,179 | 0.09 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-4, Class R1 | ||||||||||||||||
Zero Coupon, 5/26/26 | 6/28/17 | 1,956,053 | 1,346,414 | 0.05 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-5, Class R1 | 9/18/17 | 1,758,337 | 1,251,248 | 0.05 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-3, Class R | 5/11/17 | 1,107,300 | 704,900 | 0.03 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2016-5, Class R | 6/23/17 | 1,275,923 | 575,783 | 0.02 | % | |||||||||||
SoFi Consumer Loan Program LLC Series 2017-2, Class R | 6/15/17 | 953,251 | 551,293 | 0.02 | % | |||||||||||
SoFi Consumer Loan Program Trust Series 2018-1, Class R1 | 2/01/18 | 3,677,431 | 3,677,431 | 0.14 | % | |||||||||||
Tonon Luxembourg SA | 7/24/15 | 2,269,964 | 55,845 | 0.00 | % | |||||||||||
Vantage Drilling International | 6/17/16 | 74,006 | 75,460 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 1/27/14 | 3,510,948 | 288,781 | 0.01 | % | |||||||||||
Virgolino de Oliveira Finance SA | 6/09/14 | 745,965 | 206,325 | 0.01 | % | |||||||||||
Virgolino de Oliveira Finance SA | 2/03/14 | 916,308 | 50,869 | 0.00 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust Series 2015-WF1, Class 1M2 | 9/06/16 | 867,562 | 964,981 | 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) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2018. |
66 | AB INCOME FUND | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(p) | Inverse interest only security. |
(q) | IO – Interest Only. |
(r) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at October 31, 2018. |
(s) | 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. |
(t) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Exide Technologies/Old | 4/30/15 | $ | 87,194 | $ | 19,308 | 0.00 | % |
(u) | 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. |
(v) | Affiliated investments. |
(w) | The rate shown represents the 7-day yield as of period end. |
(x) | One contract relates to 1 share. |
Currency Abbreviations:
ARS – Argentine Peso
AUD – Australian Dollar
BRL – Brazilian Real
CAD – Canadian Dollar
CHF – Swiss Franc
CLP – Chilean Peso
CNH – Chinese Yuan Renminbi (Offshore)
CNY – Chinese Yuan Renminbi
COP – Colombian Peso
DOP – Dominican Peso
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
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
ARLLMONP – Argentina Blended Policy Rate
BADLAR – Argentina Deposit Rates Badlar Private Banks
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
IRS – Interest Rate Swaption
JSC – Joint Stock Company
LIBOR – London Interbank Offered Rates
MSCI – Morgan Stanley Capital International
REMICs – Real Estate Mortgage Investment Conduits
See notes to financial statements.
abfunds.com | AB INCOME FUND | 67 |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2018
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $3,170,806,826) | $ | 3,079,366,119 | ||
Affiliated issuers (cost $37,089,316) | 37,089,316 | |||
Cash | 376,389 | |||
Cash collateral due from broker | 6,503,480 | |||
Foreign currencies, at value (cost $15,784,245) | 15,500,988 | |||
Interest receivable | 27,043,868 | |||
Unrealized appreciation on forward currency exchange contracts | 20,224,447 | |||
Receivable for capital stock sold | 3,630,183 | |||
Receivable for investment securities sold | 2,777,608 | |||
Market value on credit default swaps (net premiums paid $1,666,780) | 1,975,454 | |||
Receivable for variation margin on centrally cleared swaps | 949,223 | |||
Unrealized appreciation on total return swaps | 616,709 | |||
Market value on variance swaps | 56,928 | |||
Affiliated dividends receivable | 34,434 | |||
Other assets | 52,424 | |||
|
| |||
Total assets | 3,196,197,570 | |||
|
| |||
Liabilities |
| |||
Options written, at value (premiums received $2,527,979) | 2,338,560 | |||
Swaptions written, at value (premiums received $594,403) | 644,521 | |||
Payable for investment securities purchased | 527,576,927 | |||
Market value on credit default swaps (net premiums received $34,080,865) | 36,488,675 | |||
Payable for capital stock repurchased | 32,739,757 | |||
Payable for reverse repurchase agreements | 31,888,245 | |||
Unrealized depreciation on forward currency exchange contracts | 20,173,138 | |||
Payable for variation margin on futures | 2,570,346 | |||
Cash collateral due to broker | 1,540,000 | |||
Dividends payable | 1,037,782 | |||
Advisory fee payable | 639,079 | |||
Distribution fee payable | 120,100 | |||
Market value on variance swaps | 96,919 | |||
Transfer Agent fee payable | 56,939 | |||
Administrative fee payable | 23,638 | |||
Directors’ fees payable | 2,122 | |||
Accrued expenses and other liabilities | 1,007,830 | |||
|
| |||
Total liabilities | 658,944,578 | |||
|
| |||
Net Assets | $ | 2,537,252,992 | ||
|
| |||
Composition of Net Assets |
| |||
Shares of beneficial interest, at par | $ | 338,307 | ||
Additional paid-in capital | 2,765,800,748 | |||
Accumulated loss | (228,886,063 | ) | ||
|
| |||
$ | 2,537,252,992 | |||
|
|
See notes to financial statements.
68 | 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 | $ | 232,930,774 | 31,089,772 | $ | 7.49 | * | ||||||
| ||||||||||||
C | $ | 82,283,123 | 10,969,230 | $ | 7.50 | |||||||
| ||||||||||||
Advisor | $ | 2,222,039,095 | 296,247,959 | $ | 7.50 | |||||||
|
* | The maximum offering price per share for Class A shares was $7.82 which reflects a sales charge of 4.25%. |
See notes to financial statements.
abfunds.com | AB INCOME FUND | 69 |
STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $82,443) | $ | 123,432,025 | ||||||
Dividends | ||||||||
Affiliated issuers | 446,376 | |||||||
Unaffiliated issuers | 75,346 | |||||||
Other income | 74,736 | $ | 124,028,483 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 11,554,392 | |||||||
Distribution fee—Class A | 646,516 | |||||||
Distribution fee—Class C | 808,398 | |||||||
Transfer agency—Class A | 252,995 | |||||||
Transfer agency—Class C | 80,456 | |||||||
Transfer agency—Advisor Class | 2,206,210 | |||||||
Custodian | 440,960 | |||||||
Registration fees | 282,480 | |||||||
Printing | 255,713 | |||||||
Audit and tax | 143,717 | |||||||
Legal | 69,419 | |||||||
Administrative | 67,265 | |||||||
Directors’ fees | 25,624 | |||||||
Miscellaneous | 92,481 | |||||||
|
| |||||||
Total expenses before interest expense | 16,926,626 | |||||||
Interest expense | 8,087,949 | |||||||
Total expenses | 25,014,575 | |||||||
|
| |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (2,139,230 | ) | ||||||
|
| |||||||
Net expenses | 22,875,345 | |||||||
|
| |||||||
Net investment income | 101,153,138 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (54,282,812 | ) | ||||||
Forward currency exchange contracts | 15,247,308 | |||||||
Futures | (31,495,303 | ) | ||||||
Options written | 10,144,846 | |||||||
Swaps | 5,785,739 | |||||||
Swaptions written | 496,902 | |||||||
Foreign currency transactions | (20,943,495 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (90,960,569 | ) | ||||||
Forward currency exchange contracts | (12,625,814 | ) | ||||||
Futures | (252,045 | ) | ||||||
Options written | 1,292,010 | |||||||
Swaps | 10,418,999 | |||||||
Swaptions written | (195,379 | ) | ||||||
Foreign currency denominated assets and liabilities | 321,847 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (167,047,766 | ) | ||||||
|
| |||||||
Contributions from Affiliates (see Note B) | 28,261 | |||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (65,866,367 | ) | |||||
|
|
See notes to financial statements.
70 | AB INCOME FUND | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 101,153,138 | $ | 61,160,636 | ||||
Net realized gain (loss) on investment and foreign currency transactions | (75,046,815 | ) | 34,281,947 | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (92,000,951 | ) | (41,091,689 | ) | ||||
Contributions from Affiliates (see Note B) | 28,261 | 346 | ||||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (65,866,367 | ) | 54,351,240 | |||||
Distributions to Shareholders | ||||||||
Class A | (11,572,396 | ) | (2,100,463 | ) | ||||
Class C | (3,029,311 | ) | (684,581 | ) | ||||
Advisor Class | (105,142,843 | ) | (57,585,904 | ) | ||||
Return of Capital | ||||||||
Class A | (1,019,139 | ) | – 0 | – | ||||
Class C | (266,781 | ) | – 0 | – | ||||
Advisor Class | (9,259,554 | ) | – 0 | – | ||||
Capital Stock Transactions | ||||||||
Net increase | 699,716,997 | 1,120,697,788 | ||||||
|
|
|
| |||||
Total increase | 503,560,606 | 1,114,678,080 | ||||||
Net Assets | ||||||||
Beginning of period | 2,033,692,386 | 919,014,306 | ||||||
|
|
|
| |||||
End of period | $ | 2,537,252,992 | $ | 2,033,692,386 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB INCOME FUND | 71 |
STATEMENT OF CASH FLOWS
For the Year Ended October 31, 2018
Cash flows from operating activities | ||||||||
Net decrease in net assets from operations | $ | (65,866,367 | ) | |||||
Reconciliation of net decrease in net assets from operations to net cash used in operating activities | ||||||||
Purchases of long-term investments | $ | (4,041,059,286 | ) | |||||
Purchases of short-term investments | (1,323,933,389 | ) | ||||||
Proceeds from disposition of long-term investments | 3,186,663,249 | |||||||
Proceeds from disposition of short-term investments | 1,296,108,602 | |||||||
Net realized loss on investment transactions and foreign currency transactions | 75,046,815 | |||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | 92,000,951 | |||||||
Net accretion of bond discount and amortization of bond premium | 20,413,319 | |||||||
Inflation index adjustment | (329,985 | ) | ||||||
Increase in receivable for investments sold | (189,920 | ) | ||||||
Decrease in interest receivable | 6,374,597 | |||||||
Increase in affiliated dividends receivable | (21,490 | ) | ||||||
Increase due from custodian | (52,424 | ) | ||||||
Increase in cash collateral due from broker | (3,085,755 | ) | ||||||
Increase in payable for investments purchased | 465,919,990 | |||||||
Increase in cash collateral due to broker | 1,228,000 | |||||||
Increase in advisory fee payable | 173,162 | |||||||
Decrease in administrative fee payable | (436 | ) | ||||||
Decrease in Transfer Agent fee payable | (14,078 | ) | ||||||
Increase in distribution fee payable | 42,791 | |||||||
Decrease in directors’ fee payable | (173 | ) | ||||||
Increase in accrued expenses | 374,515 | |||||||
Proceeds from options written, net | 8,326,276 | |||||||
Proceeds from swaptions written, net | 844,400 | |||||||
Proceeds on swaps, net | 24,426,583 | |||||||
Payments for exchange-traded derivatives settlements | (24,553,635 | ) | ||||||
|
| |||||||
Total adjustments | (215,297,321 | ) | ||||||
|
| |||||||
Net cash provided by (used in) from operating activities |
| (281,163,688 | ) |
See notes to financial statements.
72 | AB INCOME FUND | abfunds.com |
STATEMENT OF CASH FLOWS (continued)
Cash flows from financing activities | ||||||||
Subscriptions of capital stock, net | $ | 676,201,658 | ||||||
Cash dividends paid (net of dividend reinvestments)† | (45,933,303 | ) | ||||||
Repayment of reverse repurchase agreements | (337,047,226 | ) | ||||||
|
| |||||||
Net cash provided by (used in) financing activities | $ | 293,221,129 | ||||||
Effect of exchange rate on cash | (5,374,340 | ) | ||||||
|
| |||||||
Net increase in cash | 6,683,101 | |||||||
Cash at beginning of year | 9,194,276 | |||||||
|
| |||||||
Cash at end of year | $ | 15,877,377 | ||||||
|
| |||||||
Supplemental disclosure of cash flow information | ||||||||
† Reinvestment of dividends | $ | 83,740,213 | ||||||
Interest expense paid during the year | $ | 8,877,711 |
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 year.
See notes to financial statements.
abfunds.com | AB INCOME FUND | 73 |
NOTES TO FINANCIAL STATEMENTS
October 31, 2018
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.
74 | 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 | 75 |
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) |
76 | 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 | 77 |
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 October 31, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Governments – Treasuries | $ | – 0 | – | $ | 1,246,035,584 | $ | – 0 | – | $ | 1,246,035,584 | ||||||
Mortgage Pass-Throughs | – 0 | – | 523,678,352 | – 0 | – | 523,678,352 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 410,940,775 | 5,130,445 | (a) | 416,071,220 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 231,113,815 | 2,358,544 | 233,472,359 | |||||||||||
Emerging Markets – Treasuries | – 0 | – | 136,305,576 | – 0 | – | 136,305,576 | ||||||||||
Local Governments – Provincial Bonds | – 0 | – | 86,849,524 | – 0 | – | 86,849,524 | ||||||||||
Corporates – Investment Grade | – 0 | – | 80,612,347 | – 0 | – | 80,612,347 | ||||||||||
Asset-Backed Securities | – 0 | – | 30,730,707 | 45,113,715 | 75,844,422 |
78 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Emerging Markets – Corporate Bonds | $ | – 0 | – | $ | 56,930,960 | $ | 344,626 | $ | 57,275,586 | |||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 55,545,759 | 55,545,759 | ||||||||||
Agencies | – 0 | – | 40,522,675 | – 0 | – | 40,522,675 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 38,285,001 | – 0 | – | 38,285,001 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 17,226,146 | 8,616,054 | 25,842,200 | |||||||||||
Bank Loans | – 0 | – | 21,292,534 | 3,649,183 | 24,941,717 | |||||||||||
Common Stocks | 5,096,412 | – 0 | – | 5,424,648 | 10,521,060 | |||||||||||
Inflation-Linked Securities | – 0 | – | 6,325,928 | – 0 | – | 6,325,928 | ||||||||||
Investment Companies | 5,876,780 | – 0 | – | – 0 | – | 5,876,780 | ||||||||||
Quasi-Sovereigns | – 0 | – | 4,077,288 | – 0 | – | 4,077,288 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 2,864,819 | – 0 | – | 2,864,819 | ||||||||||
Local Governments – Regional Bonds | – 0 | – | 2,225,970 | – 0 | – | 2,225,970 | ||||||||||
Options Purchased – Calls | – 0 | – | 1,591,603 | – 0 | – | 1,591,603 | ||||||||||
Options Purchased – Puts | – 0 | – | 1,499,361 | – 0 | – | 1,499,361 | ||||||||||
Whole Loan Trusts | – 0 | – | – 0 | – | 1,389,874 | 1,389,874 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 863,152 | – 0 | – | 863,152 | ||||||||||
Preferred Stocks | – 0 | – | – 0 | – | 834,450 | 834,450 | ||||||||||
Warrants | 13,512 | – 0 | – | 0 | (a) | 13,512 | ||||||||||
Short-Term Investments | 37,089,316 | – 0 | – | – 0 | – | 37,089,316 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 48,076,020 | 2,939,972,117 | 128,407,298 | 3,116,455,435 | ||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 3,655,003 | – 0 | – | – 0 | – | 3,655,003 | (c) | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 20,224,447 | – 0 | – | 20,224,447 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 4,435,559 | – 0 | – | 4,435,559 | (c) | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 5,614,071 | – 0 | – | 5,614,071 | (c) | |||||||||
Credit Default Swaps | – 0 | – | 1,975,454 | – 0 | – | 1,975,454 | ||||||||||
Total Return Swaps | – 0 | – | 616,709 | – 0 | – | 616,709 | ||||||||||
Variance Swaps | – 0 | – | 56,928 | – 0 | – | 56,928 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (9,727,438 | ) | – 0 | – | – 0 | – | (9,727,438 | )(c) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (20,173,138 | ) | – 0 | – | (20,173,138 | ) | ||||||||
Interest Rate Swaptions | – 0 | – | (644,521 | ) | – 0 | – | (644,521 | ) | ||||||||
Currency Options Written | – 0 | – | (2,338,560 | ) | – 0 | – | (2,338,560 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (622,806 | ) | – 0 | – | (622,806 | )(c) | ||||||||
Credit Default Swaps | – 0 | – | (36,488,675 | ) | – 0 | – | (36,488,675 | ) | ||||||||
Variance Swaps | – 0 | – | (96,919 | ) | – 0 | – | (96,919 | ) |
abfunds.com | AB INCOME FUND | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Reverse Repurchase Agreements | $ | (31,888,245 | ) | $ | – 0 | – | $ | – 0 | – | $ | (31,888,245 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Total(d) | $ | 10,115,340 | $ | 2,912,530,666 | $ | 128,407,298 | $ | 3,051,053,304 | ||||||||
|
|
|
|
|
|
|
|
(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) 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. |
(d) | There were de minimis transfers under 1% of net assets 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) | 137,404 | – 0 | – | (139,886 | ) | |||||||
Realized gain (loss) | (12,804 | ) | – 0 | – | (3,425,710 | ) | ||||||
Change in unrealized appreciation/depreciation | 1,266,995 | – 0 | – | (3,168,117 | ) | |||||||
Purchases/Payups | 2,916,993 | 2,358,544 | 28,829,910 | |||||||||
Sales/Paydowns | (8,018,100 | ) | – 0 | – | (757,170 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | (5,300,000 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 5,130,445 | $ | 2,358,544 | $ | 45,113,715 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | (799,199 | ) | $ | – 0 | – | $ | (3,221,377 | ) | |||
|
|
|
|
|
|
80 | 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) | (2,254 | ) | 3,991 | 91,516 | ||||||||
Realized gain (loss) | – 0 | – | 32,659 | (211,473 | ) | |||||||
Change in unrealized appreciation/depreciation | (149,623 | ) | (190,154 | ) | 1,648,819 | |||||||
Purchases/Payups | – 0 | – | 43,861,124 | 3,378,345 | ||||||||
Sales/Paydowns | – 0 | – | (3,007,055 | ) | (37,982,039 | ) | ||||||
Transfers in to Level 3 | 242,818 | – 0 | – | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 344,626 | $ | 55,545,759 | $ | 8,616,054 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | (149,623 | ) | $ | (195,429 | ) | $ | (202,260 | ) | |||
|
|
|
|
|
| |||||||
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) | 4,387 | – 0 | – | (5,593 | ) | |||||||
Realized gain (loss) | 156 | 217,842 | (4,054,943 | ) | ||||||||
Change in unrealized appreciation/depreciation | (253,612 | ) | 979,040 | 2,144,330 | ||||||||
Purchases/Payups | 3,906,593 | 1,702,609 | – 0 | – | ||||||||
Sales/Paydowns | (8,341 | ) | (2,487,616 | ) | (7,427,614 | ) | ||||||
Transfers in to Level 3 | – 0 | – | 981,055 | – 0 | – | |||||||
Transfers out of Level 3 | (2,077,333 | ) | (578,018 | ) | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 3,649,183 | $ | 5,424,648 | $ | 1,389,874 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | (253,612 | ) | $ | 954,004 | $ | (105,050 | ) | ||||
|
|
|
|
|
| |||||||
Preferred Stocks | Warrants(a) | Total | ||||||||||
Balance as of 10/31/17 | $ | 3,578,937 | $ | – 0 | – | $ | 115,704,110 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | 89,565 | |||||||
Realized gain (loss) | 104,762 | – 0 | – | (7,349,511 | ) | |||||||
Change in unrealized appreciation/depreciation | (442,509 | ) | – 0 | – | 1,835,169 |
abfunds.com | AB INCOME FUND | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
Preferred Stocks | Warrants(a) | Total | ||||||||||
Purchases/Payups | $ | 869,331 | $ | – 0 | – | $ | 87,823,449 | |||||
Sales/Paydowns | (3,276,071 | ) | – 0 | – | (62,964,006 | ) | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | 1,223,873 | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (7,955,351 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 834,450 | $ | – 0 | – | $ | 128,407,298 | (c) | ||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | – 0 | – | $ | – 0 | – | $ | (3,972,546 | ) | |||
|
|
|
|
|
|
(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 October 31, 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 10/31/18 | Valuation Technique | Unobservable Input | Input | |||||||
Corporates – Non-Investment Grade | $ | – 0 | – | Qualitative Assessment | $– 0 – | |||||
$ | 165,779 | Recovery Analysis | Collateral Value | $100.00 / N/A | ||||||
|
| |||||||||
$ | 165,779 | |||||||||
|
| |||||||||
Common Stocks | $ | 909,369 | EBITDA* Projection EBITDA* Multiples | $329.2mm / N/A 4.3X-6.3X / 5.3X | ||||||
$ | 342,270 | Market- Approach | EBITDA* Projection EBITDA* Multiples | $505mm / N/A 13.8X / N/A | ||||||
$ | 1,329,762 | Recovery Analysis | Liquidation Value | $299.56 / N/A | ||||||
|
| |||||||||
$ | 2,581,401 | |||||||||
|
| |||||||||
Whole Loan Trusts | $ | 75,865 | Discounted Cash Flow | Level Yield | 27.22% / N/A | |||||
$ | 634,600 | Discounted Cash Flow | Cash Flow Yield | 100.00% / N/A | ||||||
$ | 679,409 | Recovery Analysis | Cumulative Loss | <20% / N/A | ||||||
|
| |||||||||
$ | 1,389,874 | |||||||||
|
|
82 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Fair Value at 10/31/18 | Valuation Technique | Unobservable Input | Input | |||||||
Preferred Stocks | $ | 834,450 | Market- Approach | EBITDA* Projection EBITDA* Multiples | $505mm / N/A 13.8X / N/A | |||||
Warrants | $ | – 0 | – | Qualitative Assessment | $– 0 – |
* | Earnings before Interest, Taxes, Depreciation and Amortization. |
Generally, a change in the assumptions used in any input in isolation may be accompanied by a change in another input. Significant changes in any of the unobservable inputs may significantly impact the fair value measurement. Significant increases (decreases) in discount rates, level 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 appraisal value and EBITDA projections/multiples in isolation 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 exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
abfunds.com | AB INCOME FUND | 83 |
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.
84 | AB INCOME FUND | abfunds.com |
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.
8. Repurchase Agreements
It is the Fund’s policy that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Fund may be delayed or limited.
9. Redemption Fees
The Fund imposed a .75% fee on redemption and exchanges of Advisor Class shares. This fee is retained by the Fund and is included in the financials statements as a component of additional paid-in capital. The fee was effective until July 22, 2016.
10. Change of Fiscal Year End
The Predecessor Fund’s fiscal year end was December 31 and the Fund’s fiscal year end is October 31. Accordingly, the statement of operations,
abfunds.com | AB INCOME FUND | 85 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, such reimbursement/waivers amounted to $2,076,002. Prior to April 21, 2016, the Predecessor Fund paid the Adviser a monthly advisory fee in an amount equal to the sum of 1/12th of .30 of 1% of the Predecessor Fund’s average weekly net assets up to $250 million, 1/12th of .25 of 1% of the Predecessor Fund’s average weekly net assets in
86 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan
abfunds.com | AB INCOME FUND | 87 |
NOTES TO FINANCIAL STATEMENTS (continued)
that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the December 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
During the year ended October 31, 2018 and the year ended October 31, 2017, the Adviser reimbursed the Fund $28,261 and $346, respectively, 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 year ended October 31, 2018, the reimbursement for such services amounted to $67,265.
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 $761,625 for the year ended October 31, 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 $58,042 from the sale of Class A shares and received $37,088 and $50,218 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, for the year ended October 31, 2018.
88 | AB INCOME FUND | 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. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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 year ended October 31, 2018, such waiver amounted to $63,228.
A summary of the Fund’s transactions in AB mutual funds for the year ended October 31, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 79,428 | $ | 1,240,843 | $ | 1,283,182 | $ | 37,089 | $ | 446 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2018 amounted to $186,916, 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 $410,135 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
abfunds.com | AB INCOME FUND | 89 |
NOTES TO FINANCIAL STATEMENTS (continued)
beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 830,059,814 | $ | 935,246,303 | ||||
U.S. government securities | 3,210,999,472 | 2,197,642,626 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 3,205,560,545 | ||
|
| |||
Gross unrealized appreciation | $ | 64,118,484 | ||
Gross unrealized depreciation | (149,168,935 | ) | ||
|
| |||
Net unrealized depreciation | $ | (85,050,451 | ) | |
|
|
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”.
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
90 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended October 31, 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 year ended October 31, 2018, the Fund held forward currency exchange contracts for hedging and non-hedging purposes.
abfunds.com | AB INCOME FUND | 91 |
NOTES TO FINANCIAL STATEMENTS (continued)
• | 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. The Fund maximum payment for written put options equates to the number of shares multiplied by the strike price, as included on the Portfolio of Investments. 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. 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.
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The Fund may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. The Fund maximum payment for written put swaptions equates to the notional amount of the underlying swap. 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 year ended October 31, 2018, the Fund held purchased options for hedging and non-hedging purposes. During the year ended October 31, 2018, the Fund held purchased swaptions for hedging and non-hedging purposes.
During the year ended October 31, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust 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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NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 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 October 31, 2018, the Fund did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
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NOTES TO FINANCIAL STATEMENTS (continued)
Credit default swaps may involve greater risks than if a 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 year ended October 31, 2018, the Fund held credit default swaps for 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 year ended October 31, 2018, the Fund held total return swaps for non-hedging purposes.
Variance Swaps:
The Fund may enter into variance swaps to hedge equity market risk or adjust exposure to the equity markets. Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on underlying asset(s) or index(es). Actual
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NOTES TO FINANCIAL STATEMENTS (continued)
“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 year ended October 31, 2018, the Fund held variance swaps for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 year ended October 31, 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 | $ | 3,081,546 | * | Receivable/Payable for variation margin on futures | $ | 9,727,438 | * | ||||
Equity contracts | Receivable/Payable for variation margin on futures | 573,457 | * | |||||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 169,505 | * | Receivable/Payable for variation margin on centrally cleared swaps | 454,449 | * |
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NOTES TO FINANCIAL STATEMENTS (continued)
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 5,614,071 | * | ||||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 20,224,447 |
| Unrealized depreciation on forward currency exchange contracts |
| 20,173,138 |
| ||||
Interest rate contracts | Investments in securities, at value | | 751,145 | |||||||||
Foreign exchange contracts | Investments in securities, at value |
| 2,339,819 |
| ||||||||
Interest rate contracts | Swaptions written, at value |
| 644,521 |
| ||||||||
Foreign exchange contracts | Options written, at value |
| 2,338,560 |
| ||||||||
Credit contracts | Market value on credit default swaps | 1,975,454 | Market value on credit default swaps | 36,488,675 | ||||||||
Equity contracts | Unrealized appreciation on total return swaps | 616,709 | ||||||||||
Equity contracts | Market value on variance swaps | $ | 56,928 |
| Market value on variance swaps | $ | 96,919 |
| ||||
|
|
|
| |||||||||
Total | $ | 35,403,081 | $ | 69,923,700 | ||||||||
|
|
|
|
* | 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 | 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 | $ | (29,918,642 | ) | $ | (825,502 | ) | |||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,576,661 | ) | 573,457 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | 15,247,308 |
| (12,625,814 | ) | ||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | 238,790 | 128,698 | |||||||
Foreign exchange contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | (2,542,591) | | 1,184,826 | |||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | $ | (730,067 | ) | $ | 130,886 | ||||
Foreign exchange contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | | 9,877,019 | | 1,292,010 | |||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 267,827 | – 0 | – | ||||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 200,987 | (50,118 | ) |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Credit contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 295,915 | (145,261 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | (358,430 | ) | 7,297,410 | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 4,953,525 | 2,763,766 | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | $ | 1,190,644 | $ | 357,823 | |||||
|
|
|
| |||||||
Total | $ | (2,854,376) | $ | 82,181 | ||||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 878,256,591 | ||
Average original value of sale contracts | $ | 565,188,794 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 567,430,114 | ||
Average principal amount of sale contracts | $ | 1,295,101,487 | ||
Purchased Options: | ||||
Average notional amount | $ | 127,069,802 | ||
Purchased Swaptions: | ||||
Average notional amount | $ | 96,672,711 | (a) | |
Options Written: | ||||
Average notional amount | $ | 371,153,173 | ||
Swaptions Written: | ||||
Average notional amount | $ | 114,833,600 | (b) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 927,214,493 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 62,433,333 | (c) | |
Average notional amount of sale contracts | $ | 182,492,802 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 65,000,482 | (d) | |
Average notional amount of sale contracts | $ | 36,542,379 | (e) | |
Total Return Swaps: | ||||
Average notional amount | $ | 39,600,000 | (f) | |
Variance Swaps: | ||||
Average notional amount | $ | 7,662,145 | (g) |
(a) | Positions were open for three months during the year. |
(b) | Positions were open for four months during the year. |
(c) | Positions were open for six months during the year. |
(d) | Positions were open for ten months during the year. |
(e) | Positions were open for seven months during the year. |
(f) | Positions were open for two months during the year. |
(g) | Positions were open for eleven months during the year. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 775,515 | $ | (705,012 | ) | $ | – 0 | – | $ | – 0 | – | $ | 70,503 | |||||||
Barclays Bank PLC | 1,398,972 | (1,398,972 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
BNP Paribas SA | 3,692,220 | (396,697 | ) | (1,460,000 | ) | – 0 | – | 1,835,523 | ||||||||||||
Citibank, NA | 141,760 | (141,760 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citigroup Global Markets, Inc. | 1,975,454 | (1,975,454 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 5,490,754 | (5,490,754 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 4,147,910 | (4,147,910 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 449,214 | (449,214 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 203,197 | (203,197 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA/JPMorgan Securities LLC | 1,575,847 | (1,575,847 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC/Morgan Stanley Capital Services, Inc. | 1,059,771 | (1,059,771 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Natwest Markets PLC | 310,312 | (310,312 | ) | – 0 | – | –0 | – | –0 | – |
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NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Standard Chartered Bank | 2,900,637 | (1,349,836 | ) | – 0 | – | – 0 | – | 1,550,801 | ||||||||||||
State Street Bank & Trust Co. | 241,990 | (241,990 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
UBS AG | 1,600,949 | (1,117,054 | ) | – 0 | – | – 0 | – | 483,895 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 25,964,502 | $ | (20,563,780 | ) | $ | (1,460,000 | ) | $ | – 0 | – | $ | 3,940,722 | ^ | ||||||
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| |||||||||||
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 705,012 | $ | (705,012 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 5,269,277 | (1,398,972 | ) | – 0 | – | (3,201,875 | ) | 668,430 | ||||||||||||
BNP Paribas SA | 396,697 | (396,697 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 2,557,137 | (141,760 | ) | – 0 | – | (2,099,918 | ) | 315,459 | ||||||||||||
Citigroup Global Markets, Inc. | 6,634,747 | (1,975,454 | ) | – 0 | – | (4,606,963 | ) | 52,330 | ||||||||||||
Credit Suisse International | 9,536,483 | (5,490,754 | ) | – 0 | – | (4,045,729 | ) | – 0 | – | |||||||||||
Deutsche Bank AG | 5,557,812 | (4,147,910 | ) | – 0 | – | (1,409,902 | ) | – 0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 15,709,709 | (449,214 | ) | – 0 | – | (15,260,495 | ) | – 0 | – | |||||||||||
HSBC Bank USA | 706,816 | (203,197 | ) | – 0 | – | (503,619 | ) | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA/JPMorgan Securities LLC | 6,092,421 | (1,575,847 | ) | – 0 | – | (3,008,640 | ) | 1,507,934 | ||||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC/Morgan Stanley Capital Services, Inc. | 2,948,769 | (1,059,771 | ) | – 0 | – | (1,888,998 | ) | – 0 | – | |||||||||||
Natwest Markets PLC | 820,532 | (310,312 | ) | – 0 | – | – 0 | – | 510,220 | ||||||||||||
Standard Chartered Bank | 1,349,836 | (1,349,836 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 339,511 | (241,990 | ) | – 0 | – | (97,521 | ) | – 0 | – | |||||||||||
UBS AG | 1,117,054 | (1,117,054 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 59,741,813 | $ | (20,563,780 | ) | $ | – 0 | – | $ | (36,123,660 | ) | $ | 3,054,373 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over0collateralization. |
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NOTES TO FINANCIAL STATEMENTS (continued)
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
See Note D.4 for additional disclosure of netting arrangements regarding reverse repurchase agreements.
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. Dollar Rolls
The Fund may enter into dollar rolls. Dollar rolls involve sales by the Fund of securities for delivery in the current month and the Fund’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the year ended October 31, 2018, the Fund earned drop income of $286,639 which is included in interest income in the accompanying statement of operations.
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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, the average amount of reverse repurchase agreements outstanding was $467,635,002 and the daily weighted average interest rate was 1.73%. At October 31, 2018, the Fund had reverse repurchase agreements outstanding in the amount of $31,888,245 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 October 31, 2018:
Counterparty | RVP Liabilities Subject to a MRA | Securities Collateral Pledged†* | Net Amount of RVP Liabilities | |||||||||
Barclays Capital, Inc. | $ | 5,223,429 | $ | (5,223,429 | ) | $ | – 0 | – | ||||
Credit Suisse | 17,748,659 | (17,748,659 | ) | – 0 | – | |||||||
JP Morgan Chase Bank | 8,916,157 | (8,916,157 | ) | – 0 | – | |||||||
|
|
|
|
|
| |||||||
Total | $ | 31,888,245 | $ | (31,888,245 | ) | $ | – 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
Unfunded loan commitments and funded loans are marked to market daily.
During the year ended October 31, 2018, the Fund had no commitments outstanding and did not receive commitment 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 | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 32,114,424 | 23,455,002 | $ | 252,914,475 | $ | 191,015,549 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 1,146,597 | 161,151 | 8,920,450 | 1,312,042 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 11,741 | 11,746 | 89,977 | 95,630 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (22,604,798 | ) | (3,466,393 | ) | (174,654,492 | ) | (28,278,499 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 10,667,964 | 20,161,506 | $ | 87,270,410 | $ | 164,144,722 | ||||||||||||||||||
|
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NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 6,215,383 | 7,657,205 | $ | 48,710,990 | $ | 62,456,060 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 282,813 | 58,798 | 2,202,886 | 479,345 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (11,726 | ) | (11,732 | ) | (89,977 | ) | (95,630 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,182,470 | ) | (179,030 | ) | (24,535,511 | ) | (1,463,342 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 3,304,000 | 7,525,241 | $ | 26,288,388 | $ | 61,376,433 | ||||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 185,948,197 | 134,693,611 | $ 1,457,082,069 | $ | 1,097,096,092 | |||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 9,334,370 | 3,720,533 | 72,616,877 | 30,140,363 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (121,941,646 | ) | (28,723,376 | ) | (943,540,747 | ) | (232,059,822 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 73,340,921 | 109,690,768 | $ | 586,158,199 | $ | 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”) 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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, generally 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 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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-Related and/or Other Asset-Backed Securities Risk—Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by nongovernmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
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 $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 119,744,550 | $ | 60,370,948 | ||||
Total taxable distributions paid | 119,744,550 | 60,370,948 | ||||||
Return of Capital | 10,545,474 | – 0 | – | |||||
|
|
|
| |||||
Total distributions paid | $ | 130,290,024 | $ | 60,370,948 | ||||
|
|
|
|
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital and other losses | $ | (138,008,372 | )(a) | |
Unrealized appreciation/(depreciation) | (84,959,089 | )(b) | ||
|
| |||
|
| |||
Total accumulated earnings/(deficit) | $ | (222,967,461 | )(c) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $137,987,468. As of October 31, 2018, the cumulative deferred loss on straddles was $20,904. |
(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, the recognition for tax purposes of unrealized gains/losses on certain derivative instruments, and the tax treatment of grantor trusts. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to dividends payable, the tax treatment of defaulted securities, and the accrual of foreign capital gains tax. |
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, 2018, the Fund had a net short-term capital loss carryforward of $53,007,488 and a net long-term capital loss carryforward of $84,979,980, which may be carried forward for an indefinite period.
During the current fiscal year, permanent differences primarily due to contributions from the Adviser resulted in a net decrease in accumulated loss and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
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
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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 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 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 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.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At
110 | AB INCOME FUND | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements 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.
abfunds.com | AB INCOME FUND | 111 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||
Year Ended October 31, | April 21, 2016(a) to October 31, 2016 | |||||||||||
2018 | 2017 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 8.09 | $ 8.08 | $ 7.99 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .29 | .36 | .17 | † | ||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.50 | ) | .05 | .08 | ||||||||
Contributions from Affiliates | .00 | (d) | .00 | (d) | – 0 | – | ||||||
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.21 | ) | .41 | .25 | ||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.36 | ) | (.40 | ) | (.16 | ) | ||||||
Return of capital | (.03 | ) | – 0 | – | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 7.49 | $ 8.09 | $ 8.08 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | (2.71 | )% | 5.17 | % | 3.14 | %† | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $232,931 | $165,294 | $2,104 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(f) | 1.08 | % | 1.03 | % | 1.16 | %^ | ||||||
Expenses, before waivers/reimbursements(f) | 1.16 | % | 1.11 | % | 1.37 | %^ | ||||||
Net investment income(c) | 3.73 | % | 4.42 | % | 4.06 | %^† | ||||||
Portfolio turnover rate | 105 | % | 42 | % | 14 | % |
See footnote summary on page 115.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||
Year Ended October 31, | April 21, 2016(a) to October 31, | |||||||||||
2018 | 2017 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ 8.10 | $ 8.09 | $ 7.99 | |||||||||
|
| |||||||||||
Income From Investment Operations | ||||||||||||
Net investment income(b)(c) | .23 | .30 | .14 | † | ||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.50 | ) | .05 | .09 | ||||||||
Contributions from Affiliates | .00 | (d) | .00 | (d) | – 0 | – | ||||||
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.27 | ) | .35 | .23 | ||||||||
|
| |||||||||||
Less: Dividends | ||||||||||||
Dividends from net investment income | (.30 | ) | (.34 | ) | (.13 | ) | ||||||
Return of capital | (.03 | ) | – 0 | – | – 0 | – | ||||||
|
| |||||||||||
Net asset value, end of period | $ 7.50 | $ 8.10 | $ 8.09 | |||||||||
|
| |||||||||||
Total Return | ||||||||||||
Total investment return based on net asset value(e) | (3.43 | )% | 4.37 | % | 2.85 | %† | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (000’s omitted) | $82,283 | $62,121 | $1,133 | |||||||||
Ratio to average net assets of: | ||||||||||||
Expenses, net of waivers/reimbursements(f) | 1.83 | % | 1.78 | % | 1.90 | %^ | ||||||
Expenses, before waivers/reimbursements(f) | 1.92 | % | 1.87 | % | 2.15 | %^ | ||||||
Net investment income(c) | 2.98 | % | 3.68 | % | 3.34 | %^† | ||||||
Portfolio turnover rate | 105 | % | 42 | % | 14 | % |
See footnote summary on page 115.
abfunds.com | AB INCOME FUND | 113 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||
Year Ended October 31, | January 1, 2016(g) | Year Ended December 31, | ||||||||||||||||||||||
2018 | 2017 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, beginning of period | $ 8.10 | $ 8.09 | $ 7.86 | $ 8.34 | $ 8.13 | $ 8.89 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||
Net investment income(b) | .31 | (c) | .41 | (c) | .29 | (c)† | .38 | .42 | .40 | |||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.50 | ) | .02 | .22 | (.41 | ) | .19 | (.71 | ) | |||||||||||||||
Contributions from Affiliates | .00 | (d) | .00 | (d) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.19 | ) | .43 | .51 | (.03 | ) | .61 | (.31 | ) | |||||||||||||||
|
| |||||||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||||||
Dividends from net investment income | (.38 | ) | (.42 | ) | (.28 | ) | (.46 | ) | (.45 | ) | (.41 | ) | ||||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.05 | ) | – 0 | – | (.04 | ) | ||||||||||||
Return of capital | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
|
| |||||||||||||||||||||||
Total dividends and distributions | (.41 | ) | (.42 | ) | (.28 | ) | (.51 | ) | (.45 | ) | (.45 | ) | ||||||||||||
|
| |||||||||||||||||||||||
Redemption fee | – 0 | – | – 0 | – | .00 | (d) | – 0 | – | – 0 | – | – 0 | – | ||||||||||||
Anti-Dilutive Effect of Share Repurchase Program | – 0 | – | – 0 | – | – 0 | – | .06 | .05 | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ 7.50 | $ 8.10 | $ 8.09 | $ 7.86 | $ 8.34 | $ 8.13 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Market value, end of period | N/A | N/A | N/A | $ 7.67 | $ 7.47 | $ 7.13 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Discount, end of period | N/A | N/A | N/A | (2.42 | )% | (10.43 | )% | (12.30 | )% | |||||||||||||||
Total Return | ||||||||||||||||||||||||
Total investment return based on: | ||||||||||||||||||||||||
Market value | N/A | N/A | N/A | 9.71 | %(h) | 11.28 | %(h) | (6.50 | )%(h) | |||||||||||||||
Net asset value | (2.46 | )%(e) | 5.44 | %(e) | 6.66 | %(e)† | .70 | %(h) | 8.96 | %(h) | (2.86 | )%(h) | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000,000’s omitted) | $2,222 | $1,806 | $916 | $1,696 | $1,902 | $1,976 | ||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(f) | .83 | % | .81 | % | .88 | %^ | .75 | % | .67 | % | .63 | % | ||||||||||||
Expenses, before waivers/reimbursements(f) | .91 | % | .93 | % | .96 | %^ | .75 | % | .67 | % | .63 | % | ||||||||||||
Net investment income | 3.98 | %(c) | 5.11 | %(c) | 4.29 | %(c)^† | 4.57 | % | 5.02 | % | 4.74 | % | ||||||||||||
Portfolio turnover rate | 105 | % | 42 | % | 14 | % | 34 | % | 32 | % | 107 | % |
See footnote summary on page 115.
114 | 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: |
Year Ended October 31, | January 1, 2016 to October 31, 2016(g) | Year Ended December 31, | ||||||||||||||||||||||
2018 | 2017 | 2015 | 2014 | 2013 | ||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Net of waivers/reimbursements | .77 | % | .77 | % | .88 | %^ | N/A | N/A | N/A | |||||||||||||||
Before waivers/reimbursements | .85 | % | .85 | % | 1.09 | %^ | N/A | N/A | N/A | |||||||||||||||
Class C | ||||||||||||||||||||||||
Net of waivers/reimbursements | 1.52 | % | 1.52 | % | 1.63 | %^ | N/A | N/A | N/A | |||||||||||||||
Before waivers/reimbursements | 1.60 | % | 1.61 | % | 1.87 | %^ | N/A | N/A | N/A | |||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Net of waivers/reimbursements | .52 | % | .54 | % | .61 | %^ | .61 | % | .61 | % | .57 | % | ||||||||||||
Before waivers/reimbursements | .60 | % | .65 | % | .69 | %^ | .61 | % | .61 | % | .57 | % |
(g) | The Predecessor Fund's fiscal year end was December 31 and the Fund's fiscal year end is October 31. |
(f) | Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. Total investment return calculated for a period of less than one year is not annualized. |
† | For the 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 | 115 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of AB Income Fund, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Income Fund (the “Fund”), (one of the funds constituting AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of October 31, 2018, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the two years in the period then ended, the period from January 1, 2016 to October 31, 2016, and each of the three years in the period ended December 31, 2015 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Bond Fund, Inc.) at October 31, 2018, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the two years in the period then ended, the period from January 1, 2016 to October 31, 2016, and each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
116 | AB INCOME FUND | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 28, 2018
abfunds.com | AB INCOME FUND | 117 |
2018 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during the taxable year ended October 31, 2018. For foreign shareholders, 63.66% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2019.
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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
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 | Michael B. Reyes, Senior Analyst 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. |
abfunds.com | AB INCOME FUND | 119 |
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey,## 74 | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 | |||||
William H. Foulk, Jr.,## ^ 86 (1990) | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member at the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 to 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Dept.—Mututal Fund Legal,1345 Avenue of the Americas, New York, NY 10105 |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to this position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below.
NAME, ADDRESS* AND AGE | POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Paul J. DeNoon 56 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. | ||
Gershon M. Distenfeld 43 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also co-Head of Fixed Income. | ||
Douglas J. Peebles 52 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of Fixed Income. | ||
Matthew S. Sheridan 43 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”**), with which he has been associated since prior to 2013. | ||
Phyllis J. Clarke 57 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser**, since 2012. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-(800)227-4618, or visit www.abfunds.com for a free prospectus or SAI.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB Income Fund (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature
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and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
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Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is
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difficult to make comparisons of the profitability of the Proposed Agreements 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 each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
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Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable 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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be
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priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current 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”).
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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 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
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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.
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
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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 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.
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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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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 INCOME FUND | 139 |
NOTES
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AB INCOME FUND
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
IF-0151-1018
OCT 10.31.18
ANNUAL REPORT
AB INTERMEDIATE BOND PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
ANNUAL REPORT
December 14, 2018
This report provides management’s discussion of fund performance for AB Intermediate Bond Portfolio for the annual reporting period ended October 31, 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 OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB INTERMEDIATE BOND PORTFOLIO | ||||||||
Class A Shares | -0.51% | -1.75% | ||||||
Class B Shares1 | -0.88% | -2.48% | ||||||
Class C Shares | -0.88% | -2.40% | ||||||
Advisor Class Shares2 | -0.47% | -1.50% | ||||||
Class R Shares2 | -0.63% | -1.90% | ||||||
Class K Shares2 | -0.51% | -1.66% | ||||||
Class I Shares2 | -0.48% | -1.50% | ||||||
Class Z Shares2 | -0.38% | -1.49% | ||||||
Bloomberg Barclays US Aggregate Bond Index | -0.19% | -2.05% |
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 October 31, 2018.
During the 12-month period, all share classes except Class B and C outperformed the benchmark, before sales charges. The Fund’s shorter-than-benchmark duration contributed to relative performance, as yields rose across the spectrum during the period. Within the Fund’s yield-curve positioning, an overweight in six-month maturities and an underweight in five-year maturities (which did not rise as much as other maturities) detracted, though an underweight in two-year maturities was positive. Overall country positioning did not significantly impact returns in the period, as losses from an exposure to the eurozone were partly offset by several modest
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contributors across a range of country positions. Security selection was also positive, primarily because of selection within commercial mortgage-backed securities (“CMBS”). Selection in mortgage-backed securities took back some of these gains.
During the six-month period, all share classes of the Fund underperformed the benchmark, before sales charges. Country allocation detracted from performance, primarily because of exposure in the eurozone. The Fund’s shorter-than-benchmark duration and yield-curve positioning contributed, as yields moved higher in the period. Negative returns from security selection within non-investment grade corporates outweighed gains from selection within CMBS. Currency positioning also added to returns.
During both periods, the Fund utilized currency forwards to hedge currency risk and actively manage currency positions. Credit default swaps were utilized in the corporate and CMBS sectors for hedging and investment purposes. Treasury futures and interest rate swaps were utilized to manage duration, country exposure and yield-curve positioning. Variance swaps were used for hedging purposes, which had no material impact on absolute returns. During the six-month period, interest rate swaptions were used for investment purposes to take active yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets had mixed performance over the 12-month period, as volatility spiked in the latter part of the period on tighter monetary policy and the onset of a global trade war. Developed-market treasuries rallied, outperforming the positive returns of emerging-market local-currency government bonds, while global high yield and investment-grade securities ended the period in negative territory. A stronger US dollar, slowing Chinese growth, the global trade war and a hawkish US Federal Reserve (the “Fed”) weighed on emerging markets. Developed-market yield curves moved in different directions (bond yields move inversely to price).
The Fed raised interest rates four times in the period, while the European Central Bank started to scale back asset purchases but updated forward guidance to say that it would not change its policy rate until summer 2019 at the earliest. The Bank of Japan tweaked its monetary policy, holding rates and yields steady, but widening the band around 10-year yields, potentially allowing them to move higher.
US yields rose dramatically, with the 10- and 30-year Treasury yields soaring to multiyear highs, on the back of higher inflation forecasts, the Fed’s expected rate hike path and a robust US labor market. The US administration announced tariffs on imports from China, the European Union, Mexico and Canada, all of which reciprocated with tariffs on the US, triggering a global trade war. An upsurge in geopolitical uncertainty, including governmental turmoil in Italy, sparked a flight to quality.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 3 |
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 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.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays US Aggregate Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities and CMBS. 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, generally 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.
6 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest-rate environment, when the value and liquidity of fixed-income securities generally decline.
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
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 7 |
DISCLOSURES AND RISKS (continued)
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 INTERMEDIATE BOND PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
10/31/2008 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB Intermediate Bond Portfolio Class A shares (from 10/31/2008 to 10/31/2018) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 9 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS A SHARES | 2.28% | |||||||||||
1 Year | -1.75% | -5.90% | ||||||||||
5 Years | 2.30% | 1.41% | ||||||||||
10 Years | 5.33% | 4.88% | ||||||||||
CLASS B SHARES | 1.60% | |||||||||||
1 Year | -2.48% | -5.36% | ||||||||||
5 Years | 1.55% | 1.55% | ||||||||||
10 Years2 | 4.90% | 4.90% | ||||||||||
CLASS C SHARES | 1.63% | |||||||||||
1 Year | -2.40% | -3.36% | ||||||||||
5 Years | 1.56% | 1.56% | ||||||||||
10 Years | 4.60% | 4.60% | ||||||||||
ADVISOR CLASS SHARES3 | 2.64% | |||||||||||
1 Year | -1.50% | -1.50% | ||||||||||
5 Years | 2.57% | 2.57% | ||||||||||
10 Years | 5.62% | 5.62% | ||||||||||
CLASS R SHARES3 | 2.23% | |||||||||||
1 Year | -1.90% | -1.90% | ||||||||||
5 Years | 2.06% | 2.06% | ||||||||||
10 Years | 5.10% | 5.10% | ||||||||||
CLASS K SHARES3 | 2.33% | |||||||||||
1 Year | -1.66% | -1.66% | ||||||||||
5 Years | 2.31% | 2.31% | ||||||||||
10 Years | 5.36% | 5.36% | ||||||||||
CLASS I SHARES3 | 2.66% | |||||||||||
1 Year | -1.50% | -1.50% | ||||||||||
5 Years | 2.57% | 2.57% | ||||||||||
10 Years | 5.62% | 5.62% | ||||||||||
CLASS Z SHARES3 | 2.77% | |||||||||||
1 Year | -1.49% | -1.49% | ||||||||||
Since Inception4 | 2.18% | 2.18% |
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, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. These waivers/
(footnotes continued on next page)
10 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE (continued)
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 section since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 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. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 11 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS A SHARES | ||||
1 Year | -4.93% | |||
5 Years | 1.89% | |||
10 Years | 4.25% | |||
CLASS B SHARES | ||||
1 Year | -4.38% | |||
5 Years | 2.03% | |||
10 Years1 | 4.27% | |||
CLASS C SHARES | ||||
1 Year | -2.54% | |||
5 Years | 2.01% | |||
10 Years | 3.96% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | -0.58% | |||
5 Years | 3.05% | |||
10 Years | 5.00% | |||
CLASS R SHARES2 | ||||
1 Year | -1.07% | |||
5 Years | 2.52% | |||
10 Years | 4.47% | |||
CLASS K SHARES2 | ||||
1 Year | -0.83% | |||
5 Years | 2.77% | |||
10 Years | 4.74% | |||
CLASS I SHARES2 | ||||
1 Year | -0.58% | |||
5 Years | 3.05% | |||
10 Years | 5.00% | |||
CLASS Z SHARES2 | ||||
1 Year | -0.48% | |||
Since Inception3 | 2.43% |
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. |
12 | AB INTERMEDIATE BOND 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.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 13 |
EXPENSE EXAMPLE (continued)
Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 994.90 | $ | 3.87 | 0.77 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.32 | $ | 3.92 | 0.77 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.20 | $ | 7.63 | 1.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.54 | $ | 7.73 | 1.52 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 991.20 | $ | 7.63 | 1.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.54 | $ | 7.73 | 1.52 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 995.30 | $ | 2.62 | 0.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.58 | $ | 2.65 | 0.52 | % | ||||||||
Class R | ||||||||||||||||
Actual | $ | 1,000 | $ | 993.70 | $ | 5.13 | 1.02 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,020.06 | $ | 5.19 | 1.02 | % | ||||||||
Class K | ||||||||||||||||
Actual | $ | 1,000 | $ | 994.90 | $ | 3.87 | 0.77 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.32 | $ | 3.92 | 0.77 | % | ||||||||
Class I | ||||||||||||||||
Actual | $ | 1,000 | $ | 995.20 | $ | 2.62 | 0.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.58 | $ | 2.65 | 0.52 | % | ||||||||
Class Z | ||||||||||||||||
Actual | $ | 1,000 | $ | 996.20 | $ | 2.62 | 0.52 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.58 | $ | 2.65 | 0.52 | % |
* | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
14 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $326.0
TOP TEN SECTORS (including derivatives)1
Governments – Treasuries2 | 33.5 | % | ||
Corporates – Investment Grade3 | 20.9 | |||
Mortgage Pass-Throughs | 16.8 | |||
Commercial Mortgage-Backed Securities3 | 14.1 | |||
Asset-Backed Securities | 9.0 | |||
Collateralized Mortgage Obligations | 7.3 | |||
Interest Rate Swaps4 | 5.5 | |||
Inflation-Linked Securities | 4.7 | |||
Corporates – Non-Investment Grade3 | 3.3 | |||
Emerging Markets – Corporate Bonds | 0.5 |
SECTOR BREAKDOWN (excluding derivatives)5
Corporates – Investment Grade | 22.3 | % | Emerging Markets – Corporate Bonds | 0.5 | % | |||||||||
Mortgage Pass-Throughs | 16.6 | Local Governments – US Municipal Bonds | 0.4 | |||||||||||
Governments – Treasuries | 15.9 | Quasi-Sovereigns | 0.3 | |||||||||||
Commercial Mortgage-Backed Securities | 12.3 | Common Stocks | 0.2 | |||||||||||
Asset-Backed Securities | 9.0 | Governments – Sovereign Bonds | 0.2 | |||||||||||
Collateralized Mortgage Obligations | 7.2 | Other | 0.1 | |||||||||||
Inflation-Linked Securities | 4.6 | Short-Term | 6.8 | |||||||||||
Corporates – Non-Investment Grade | 3.6 | 100.0 | % |
1 | All data are as of October 31, 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 October 31, 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: Emerging Markets – Sovereigns and Emerging Markets – Treasuries. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS
October 31, 2018
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – INVESTMENT GRADE – 22.5% | ||||||||||||
Industrial – 11.1% | ||||||||||||
Basic – 1.3% | ||||||||||||
Eastman Chemical Co. | U.S.$ | 220 | $ | 213,803 | ||||||||
Glencore Funding LLC | 516 | 511,567 | ||||||||||
Mexichem SAB de CV | 350 | 310,625 | ||||||||||
4.875%, 9/19/22(a) | 225 | 225,000 | ||||||||||
Minsur SA | 335 | 340,444 | ||||||||||
Sociedad Quimica y Minera de Chile SA | 697 | 673,476 | ||||||||||
Suzano Austria GmbH | 497 | 505,076 | ||||||||||
Vale Overseas Ltd. | 1,030 | 1,100,833 | ||||||||||
Yamana Gold, Inc. | 339 | 331,081 | ||||||||||
|
| |||||||||||
4,211,905 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.4% | ||||||||||||
Embraer Netherlands Finance BV | 540 | 556,875 | ||||||||||
General Electric Co. | 187 | 173,467 | ||||||||||
United Technologies Corp. | 600 | 593,976 | ||||||||||
|
| |||||||||||
1,324,318 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.6% | ||||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 740 | 743,774 | ||||||||||
Cox Communications, Inc. | 233 | 221,809 | ||||||||||
Time Warner Cable LLC | 230 | 185,205 | ||||||||||
5.00%, 2/01/20 | 740 | 752,084 | ||||||||||
|
| |||||||||||
1,902,872 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 1.4% | ||||||||||||
AT&T, Inc. | 1,610 | 1,513,690 | ||||||||||
4.125%, 2/17/26 | 1,161 | 1,124,080 |
16 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 740 | $ | 739,541 | ||||||||
Verizon Communications, Inc. | 355 | 339,732 | ||||||||||
Vodafone Group PLC | 297 | 290,433 | ||||||||||
4.125%, 5/30/25 | 653 | 639,738 | ||||||||||
|
| |||||||||||
4,647,214 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.4% | ||||||||||||
Ford Motor Credit Co. LLC | 590 | 609,972 | ||||||||||
General Motors Financial Co., Inc. | 560 | 560,017 | ||||||||||
4.00%, 1/15/25 | 106 | 100,085 | ||||||||||
4.30%, 7/13/25 | 135 | 128,270 | ||||||||||
|
| |||||||||||
1,398,344 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.5% | ||||||||||||
Becton Dickinson and Co. | 180 | 174,449 | ||||||||||
Biogen, Inc. | 683 | 676,614 | ||||||||||
CVS Health Corp. | 450 | 444,352 | ||||||||||
4.30%, 3/25/28 | 450 | 438,516 | ||||||||||
Gilead Sciences, Inc. | 910 | 899,189 | ||||||||||
Mylan NV | EUR | 344 | 391,927 | |||||||||
Reynolds American, Inc. | U.S.$ | 345 | 361,915 | |||||||||
Tyson Foods, Inc. | 164 | 163,449 | ||||||||||
3.95%, 8/15/24 | 541 | 537,900 | ||||||||||
Zimmer Biomet Holdings, Inc. | 377 | 372,989 | ||||||||||
Zoetis, Inc. | 334 | 334,551 | ||||||||||
|
| |||||||||||
4,795,851 | ||||||||||||
|
| |||||||||||
Energy – 3.7% | ||||||||||||
Cenovus Energy, Inc. | 42 | 40,179 | ||||||||||
4.25%, 4/15/27 | 1,206 | 1,135,859 | ||||||||||
5.70%, 10/15/19 | 65 | 66,373 | ||||||||||
Encana Corp. | 415 | 415,066 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Energy Transfer Partners LP | U.S.$ | 1,138 | $ | 1,122,569 | ||||||||
Energy Transfer Partners LP/Regency Energy Finance Corp. | 135 | 135,864 | ||||||||||
Enterprise Products Operating LLC | 1,025 | 991,165 | ||||||||||
5.20%, 9/01/20 | 235 | 242,174 | ||||||||||
Hess Corp. | 648 | 610,494 | ||||||||||
Kinder Morgan Energy Partners LP | 125 | 135,932 | ||||||||||
Kinder Morgan, Inc./DE | 1,700 | 1,640,398 | ||||||||||
4.30%, 3/01/28 | 632 | 612,263 | ||||||||||
Marathon Oil Corp. | 650 | 753,109 | ||||||||||
Noble Energy, Inc. | 275 | 252,780 | ||||||||||
3.90%, 11/15/24 | 580 | 563,888 | ||||||||||
4.15%, 12/15/21 | 290 | 292,303 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 802 | 762,726 | ||||||||||
Sabine Pass Liquefaction LLC | 482 | 486,391 | ||||||||||
5.625%, 3/01/25 | 1,045 | 1,091,126 | ||||||||||
Western Gas Partners LP | 200 | 189,062 | ||||||||||
4.75%, 8/15/28 | 130 | 124,485 | ||||||||||
Williams Cos., Inc. (The) | 403 | 405,821 | ||||||||||
|
| |||||||||||
12,070,027 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.2% | ||||||||||||
Alfa SAB de CV | 530 | 523,375 | ||||||||||
|
| |||||||||||
Services – 0.4% | ||||||||||||
Expedia Group, Inc. | 636 | 575,167 | ||||||||||
S&P Global, Inc. | 584 | 595,335 | ||||||||||
Total System Services, Inc. | 309 | 309,189 | ||||||||||
|
| |||||||||||
1,479,691 | ||||||||||||
|
|
18 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Technology – 1.0% | ||||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | U.S.$ | 181 | $ | 173,441 | ||||||||
3.875%, 1/15/27 | 395 | 362,515 | ||||||||||
Dell International LLC/EMC Corp. | 447 | 462,431 | ||||||||||
6.02%, 6/15/26(a) | 469 | 486,649 | ||||||||||
Hewlett Packard Enterprise Co. | 629 | 622,842 | ||||||||||
KLA-Tencor Corp. | 614 | 625,856 | ||||||||||
Lam Research Corp. | 269 | 263,483 | ||||||||||
Seagate HDD Cayman | 336 | 307,383 | ||||||||||
|
| |||||||||||
3,304,600 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.2% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 545 | 532,178 | ||||||||||
|
| |||||||||||
36,190,375 | ||||||||||||
|
| |||||||||||
Financial Institutions – 10.7% | ||||||||||||
Banking – 9.6% | ||||||||||||
ABN AMRO Bank NV | 200 | 198,614 | ||||||||||
Banco Santander SA | EUR | 300 | 349,822 | |||||||||
3.50%, 4/11/22 | U.S.$ | 400 | 390,868 | |||||||||
5.179%, 11/19/25 | 600 | 593,268 | ||||||||||
Bank of America Corp. | 185 | 194,835 | ||||||||||
Series L | 1,455 | 1,410,681 | ||||||||||
Series Z | 289 | 305,594 | ||||||||||
Banque Federative du Credit Mutuel SA | 565 | 556,067 | ||||||||||
BB&T Corp. | 319 | 315,593 | ||||||||||
BNP Paribas SA | 355 | 350,211 | ||||||||||
3.80%, 1/10/24(a) | 347 | 337,582 | ||||||||||
Series E | EUR | 345 | 390,760 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
BPCE SA | U.S.$ | 313 | $ | 306,818 | ||||||
5.70%, 10/22/23(a) | 230 | 238,006 | ||||||||
Capital One Financial Corp. | 901 | 851,175 | ||||||||
Citigroup, Inc. | 1,000 | 959,410 | ||||||||
4.044%, 6/01/24 | 1,307 | 1,304,072 | ||||||||
Citizens Bank NA/Providence RI | 380 | 374,562 | ||||||||
Commonwealth Bank of Australia/New York NY | 250 | 246,780 | ||||||||
Compass Bank | 895 | 859,003 | ||||||||
5.50%, 4/01/20 | 1,339 | 1,368,297 | ||||||||
Cooperatieve Rabobank UA | 1,373 | 1,343,165 | ||||||||
Credit Agricole SA/London | 378 | 373,944 | ||||||||
3.25%, 10/04/24(a) | 257 | 239,915 | ||||||||
3.375%, 1/10/22(a) | 355 | 347,474 | ||||||||
Credit Suisse Group Funding Guernsey Ltd. | 600 | 589,146 | ||||||||
Discover Bank | 250 | 246,973 | ||||||||
Goldman Sachs Group, Inc. (The) | 254 | 245,903 | ||||||||
3.85%, 7/08/24 | 905 | 886,411 | ||||||||
Series D | 1,282 | 1,332,806 | ||||||||
HSBC Bank USA NA | 360 | 368,370 | ||||||||
HSBC Holdings PLC | 1,170 | 1,155,176 | ||||||||
4.292%, 9/12/26 | 831 | 819,383 | ||||||||
ING Bank NV | 871 | 913,043 | ||||||||
JPMorgan Chase & Co. | 890 | 855,922 | ||||||||
3.54%, 5/01/28 | 790 | 747,143 | ||||||||
KeyBank NA/Cleveland OH | 629 | 620,527 | ||||||||
Lloyds Banking Group PLC | 333 | 318,904 | ||||||||
4.582%, 12/10/25 | 929 | 894,961 |
20 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Manufacturers & Traders Trust Co. | U.S.$ | 550 | $ | 540,496 | ||||||||
Morgan Stanley | 640 | 654,432 | ||||||||||
Series G | 1,030 | 1,005,816 | ||||||||||
National Australia Bank Ltd./New York | 300 | 296,277 | ||||||||||
Nationwide Building Society | 950 | 875,340 | ||||||||||
PNC Bank NA | 250 | 247,013 | ||||||||||
Santander Holdings USA, Inc. | 890 | 831,082 | ||||||||||
Standard Chartered PLC | 350 | 341,131 | ||||||||||
UBS AG/Stamford CT | 620 | 678,863 | ||||||||||
UBS Group Funding Switzerland AG | 436 | 429,286 | ||||||||||
US Bancorp | 380 | 372,016 | ||||||||||
Wells Fargo & Co. | 712 | 689,921 | ||||||||||
|
| |||||||||||
31,162,857 | ||||||||||||
|
| |||||||||||
Finance – 0.3% | ||||||||||||
Synchrony Financial | 1,008 | 954,979 | ||||||||||
|
| |||||||||||
Insurance – 0.8% | ||||||||||||
American International Group, Inc. | 200 | 246,140 | ||||||||||
Guardian Life Insurance Co. of America (The) | 294 | 282,169 | ||||||||||
Halfmoon Parent, Inc. | 252 | 249,856 | ||||||||||
4.125%, 11/15/25(a) | 299 | 295,430 | ||||||||||
4.375%, 10/15/28(a) | 399 | 389,751 | ||||||||||
Hartford Financial Services Group, Inc. (The) | 110 | 113,141 | ||||||||||
MetLife Capital Trust IV | 699 | 845,573 | ||||||||||
Nationwide Mutual Insurance Co. | 246 | 371,017 | ||||||||||
|
| |||||||||||
2,793,077 | ||||||||||||
|
| |||||||||||
34,910,913 | ||||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Utility – 0.7% | ||||||||||||
Electric – 0.7% | ||||||||||||
Dominion Energy, Inc. | U.S.$ | 325 | $ | 318,818 | ||||||||
Enel Chile SA | 514 | 505,005 | ||||||||||
Exelon Generation Co. LLC | 453 | 449,997 | ||||||||||
Israel Electric Corp., Ltd. | 580 | 585,800 | ||||||||||
TECO Finance, Inc. | 380 | 387,395 | ||||||||||
|
| |||||||||||
2,247,015 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 73,348,303 | |||||||||||
|
| |||||||||||
MORTGAGE PASS-THROUGHS – 16.8% | ||||||||||||
Agency ARMs – 0.0% | ||||||||||||
Federal Home Loan Mortgage Corp. | 26 | 26,948 | ||||||||||
|
| |||||||||||
Agency Fixed Rate 15-Year – 1.5% | ||||||||||||
Federal National Mortgage Association | 3,967 | 3,802,270 | ||||||||||
Series 2017 | 1,179 | 1,129,905 | ||||||||||
|
| |||||||||||
4,932,175 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate 30-Year – 15.2% | ||||||||||||
Federal Home Loan Mortgage Corp. Gold | 197 | 212,380 | ||||||||||
Series 2007 | 28 | 29,978 | ||||||||||
Series 2016 | 1,429 | 1,441,557 | ||||||||||
Series 2017 | 1,129 | 1,139,621 | ||||||||||
Series 2018 | 1,443 | 1,443,793 | ||||||||||
4.50%, 10/01/48 | 1,375 | 1,415,705 | ||||||||||
Federal National Mortgage Association | 192 | 206,137 |
22 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2004 | U.S.$ | 633 | $ | 682,272 | ||||||||
Series 2005 | 80 | 86,391 | ||||||||||
Series 2007 | 368 | 396,657 | ||||||||||
Series 2010 | 673 | 678,833 | ||||||||||
Series 2013 | 1,596 | 1,609,683 | ||||||||||
Series 2016 | 1,555 | 1,516,718 | ||||||||||
Series 2017 | 12,384 | 12,065,190 | ||||||||||
Series 2018 | 13,194 | 12,854,279 | ||||||||||
4.00%, 8/01/48-9/01/48 | 3,045 | 3,053,977 | ||||||||||
4.50%, 9/01/48 | 4,162 | 4,287,002 | ||||||||||
4.50%, 11/01/48, TBA | 3,725 | 3,813,178 | ||||||||||
5.00%, 11/01/48, TBA | 1,580 | 1,648,508 | ||||||||||
Government National Mortgage Association | 0 | ** | 2 | |||||||||
Series 1999 | 8 | 7,785 | ||||||||||
Series 2016 | 1,129 | 1,083,267 | ||||||||||
|
| |||||||||||
49,672,913 | ||||||||||||
|
| |||||||||||
Other Agency Fixed Rate Programs – 0.1% | ||||||||||||
Federal National Mortgage Association | 119 | 116,976 | ||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 54,749,012 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 16.0% | ||||||||||||
United States – 16.0% | ||||||||||||
U.S. Treasury Bonds | 4,460 | 3,744,964 | ||||||||||
2.75%, 11/15/47 | 1,572 | 1,382,132 | ||||||||||
2.875%, 8/15/45-11/15/46 | 1,556 | 1,409,083 | ||||||||||
3.00%, 5/15/45-5/15/47 | 2,876 | 2,667,862 | ||||||||||
3.125%, 8/15/44 | 8,704 | 8,288,914 | ||||||||||
4.375%, 2/15/38 | 960 | 1,108,200 | ||||||||||
4.50%, 2/15/36 | 416 | 484,277 | ||||||||||
5.375%, 2/15/31 | 1,744 | 2,127,952 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
U.S. Treasury Notes | U.S.$ | 802 | $ | 771,424 | ||||||||
1.375%, 9/30/20 | 6,816 | 6,628,560 | ||||||||||
1.625%, 6/30/20(d) | 3,407 | 3,339,392 | ||||||||||
1.625%, 4/30/23-10/31/23 | 3,878 | 3,652,907 | ||||||||||
1.75%, 11/30/19-11/30/21 | 7,893 | 7,724,615 | ||||||||||
1.875%, 1/31/22-4/30/22 | 4,690 | 4,530,762 | ||||||||||
2.125%, 12/31/22 | 3,430 | 3,314,826 | ||||||||||
2.375%, 8/15/24 | 1,040 | 1,003,890 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 52,179,760 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 12.4% | ||||||||||||
Non-Agency Fixed Rate CMBS – 9.5% | ||||||||||||
CFCRE Commercial Mortgage Trust | 735 | 703,246 | ||||||||||
CGRBS Commercial Mortgage Trust | 1,305 | 1,290,536 | ||||||||||
Citigroup Commercial Mortgage Trust | 565 | 554,364 | ||||||||||
Series 2015-GC27, Class A5 | 1,223 | 1,178,198 | ||||||||||
Series 2015-GC27, Class XA | 9,586 | 629,241 | ||||||||||
Series 2015-GC35, Class A4 | 340 | 338,309 | ||||||||||
Series 2016-GC36, Class A5 | 425 | 417,420 | ||||||||||
Series 2018-B2, Class A4 | 1,050 | 1,049,146 | ||||||||||
Commercial Mortgage Trust | 327 | 314,333 | ||||||||||
Series 2015-CR24, Class A5 | 430 | 425,191 | ||||||||||
Series 2015-CR25, Class A4 | 1,045 | 1,038,353 | ||||||||||
Series 2015-DC1, Class A5 | 765 | 742,086 | ||||||||||
Series 2015-PC1, Class A5 | 685 | 683,773 |
24 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
CSAIL Commercial Mortgage Trust | U.S.$ | 332 | $ | 325,106 | ||||||
Series 2015-C3, Class A4 | 573 | 567,434 | ||||||||
Series 2015-C4, Class A4 | 1,450 | 1,438,752 | ||||||||
GS Mortgage Securities Corp. II | 1,107 | 1,100,430 | ||||||||
GS Mortgage Securities Trust | 766 | 751,357 | ||||||||
Series 2018-GS9, Class A4 | 1,125 | 1,117,883 | ||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 104 | 104,351 | ||||||||
Series 2011-C5, Class D | 127 | 126,535 | ||||||||
Series 2012-C6, Class D | 690 | 676,679 | ||||||||
Series 2012-C6, Class E | 389 | 350,451 | ||||||||
JPMBB Commercial Mortgage Securities Trust | 735 | 734,970 | ||||||||
Series 2015-C30, Class A5 | 425 | 423,164 | ||||||||
Series 2015-C31, Class A3 | 1,009 | 1,003,605 | ||||||||
Series 2015-C32, Class C | 540 | 531,160 | ||||||||
Series 2015-C33, Class A4 | 1,050 | 1,040,407 | ||||||||
JPMCC Commercial Mortgage Securities Trust | 4,770 | 322,858 | ||||||||
LB-UBS Commercial Mortgage Trust | 143 | 98,820 | ||||||||
LSTAR Commercial Mortgage Trust | 6 | 5,952 | ||||||||
Series 2015-3, Class A2 | 477 | 471,345 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2016-4, Class A2 | U.S.$ | 615 | $ | 589,926 | ||||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 730 | 732,067 | ||||||||||
Morgan Stanley Capital I Trust | 365 | 338,774 | ||||||||||
Series 2016-UB12, Class A4 | 660 | 643,302 | ||||||||||
UBS Commercial Mortgage Trust | 750 | 763,297 | ||||||||||
Series 2018-C8, Class A4 | 720 | 714,852 | ||||||||||
Series 2018-C9, Class A4 | 1,300 | 1,300,940 | ||||||||||
UBS-Barclays Commercial Mortgage Trust | 1,098 | 1,069,460 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 1,040 | 1,016,386 | ||||||||||
Series 2015-SG1, Class C | 516 | 500,388 | ||||||||||
Series 2016-C35, Class XA | 3,902 | 432,659 | ||||||||||
Series 2016-LC25, Class C | 545 | 529,732 | ||||||||||
Series 2016-NXS6, Class C | 600 | 588,545 | ||||||||||
Series 2018-C43, Class A4 | 900 | 895,550 | ||||||||||
WF-RBS Commercial Mortgage Trust | 7,864 | 325,503 | ||||||||||
|
| |||||||||||
30,996,836 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate CMBS – 2.9% |
| |||||||||||
Ashford Hospitality Trust | 698 | 696,704 | ||||||||||
Series 2018-KEYS, Class A | 750 | 750,043 |
26 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Atrium Hotel Portfolio Trust | U.S.$ | 750 | $ | 749,538 | ||||||||
BAMLL Commercial Mortgage Securities Trust | 1,330 | 1,345,015 | ||||||||||
BHMS Mortgage Trust | 675 | 674,804 | ||||||||||
Braemar Hotels & Resorts Trust | 700 | 699,561 | ||||||||||
BX Trust | 805 | 804,997 | ||||||||||
Series 2018-EXCL, Class A | 660 | 657,945 | ||||||||||
Credit Suisse Mortgage Trust | 450 | 450,749 | ||||||||||
Great Wolf Trust | 655 | 654,186 | ||||||||||
Morgan Stanley Capital I Trust | 185 | 184,624 | ||||||||||
RETL | 728 | 728,208 | ||||||||||
Starwood Retail Property Trust | 1,075 | 1,076,074 | ||||||||||
|
| |||||||||||
9,472,448 | ||||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Agency CMBS – 0.0% | ||||||||||||
Government National Mortgage Association | U.S.$ | 830 | $ | 8 | ||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 40,469,292 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 9.0% | ||||||||||||
Autos - Fixed Rate – 5.2% | ||||||||||||
AmeriCredit Automobile Receivables Trust | 179 | 178,284 | ||||||||||
Avis Budget Rental Car Funding AESOP LLC | 418 | 411,361 | ||||||||||
Series 2018-1A, Class A | 920 | 910,842 | ||||||||||
Series 2018-2A, Class A | 755 | 755,527 | ||||||||||
CarMax Auto Owner Trust | 158 | 156,870 | ||||||||||
Chrysler Capital Auto Receivables Trust | 117 | 117,025 | ||||||||||
CPS Auto Receivables Trust | 600 | 639,096 | ||||||||||
Series 2017-D, Class A | 413 | 411,389 | ||||||||||
CPS Auto Trust | 550 | 578,197 | ||||||||||
DT Auto Owner Trust | 35 | 34,723 | ||||||||||
Series 2018-1A, Class A | 490 | 489,554 | ||||||||||
Exeter Automobile Receivables Trust | 270 | 284,768 | ||||||||||
Series 2016-3A, Class A | 18 | 18,483 | ||||||||||
Series 2016-3A, Class D | 350 | 358,937 | ||||||||||
Series 2017-1A, Class D | 525 | 535,437 |
28 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2017-2A, Class A | U.S.$ | 115 | $ | 115,019 | ||||||
Series 2017-3A, Class A | 351 | 349,714 | ||||||||
Series 2017-3A, Class C | 385 | 382,804 | ||||||||
Series 2018-1A, Class A | 413 | 411,926 | ||||||||
First Investors Auto Owner Trust | 7 | 7,166 | ||||||||
Flagship Credit Auto Trust | 350 | 369,685 | ||||||||
Series 2016-4, Class E | 565 | 570,281 | ||||||||
Series 2017-2, Class A | 258 | 256,994 | ||||||||
Series 2017-3, Class A | 298 | 295,864 | ||||||||
Series 2017-4, Class A | 263 | 260,953 | ||||||||
Series 2018-3, Class B | 675 | 672,851 | ||||||||
Ford Credit Auto Owner Trust | 322 | 319,722 | ||||||||
Ford Credit Floorplan Master Owner Trust | 682 | 680,016 | ||||||||
Series 2017-1, Class A1 | 710 | 697,395 | ||||||||
GMF Floorplan Owner Revolving Trust | 860 | 855,740 | ||||||||
Hertz Vehicle Financing II LP | 386 | 383,379 | ||||||||
Series 2015-3A, Class A | 180 | 176,579 | ||||||||
Series 2016-1A, Class A | 678 | 676,206 | ||||||||
Series 2017-1A, Class A | 950 | 937,106 | ||||||||
Hertz Vehicle Financing LLC | 1,035 | 1,031,658 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Santander Drive Auto Receivables Trust | U.S.$ | 26 | $ | 26,126 | ||||||||
Westlake Automobile Receivables Trust | 632 | 631,532 | ||||||||||
Wheels SPV 2 LLC | 950 | 940,866 | ||||||||||
|
| |||||||||||
�� | 16,930,075 | |||||||||||
|
| |||||||||||
Other ABS - Fixed Rate – 2.8% | ||||||||||||
CLUB Credit Trust | 700 | 696,572 | ||||||||||
Series 2017-P2, Class A | 371 | 368,658 | ||||||||||
CNH Equipment Trust | 551 | 549,866 | ||||||||||
Consumer Loan Underlying Bond Credit Trust | 471 | 470,090 | ||||||||||
Marlette Funding Trust | 67 | 66,613 | ||||||||||
Series 2017-1A, Class C | 750 | 766,115 | ||||||||||
Series 2017-2A, Class A | 127 | 126,726 | ||||||||||
Series 2017-3A, Class A | 130 | 129,497 | ||||||||||
Series 2017-3A, Class B | 543 | 538,536 | ||||||||||
Series 2018-3A, Class A | 733 | 731,111 | ||||||||||
Prosper Marketplace Issuance Trust | 215 | 214,672 | ||||||||||
SBA Tower Trust | 688 | 682,482 | ||||||||||
SoFi Consumer Loan Program LLC | 217 | 216,196 | ||||||||||
Series 2016-3, Class A | 260 | 259,517 |
30 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2017-1, Class A | U.S.$ | 220 | $ | 219,894 | ||||||||
Series 2017-2, Class A | 309 | 308,238 | ||||||||||
Series 2017-3, Class A | 263 | 260,488 | ||||||||||
Series 2017-4, Class B | 870 | 855,618 | ||||||||||
Series 2017-6, Class A2 | 725 | 716,501 | ||||||||||
SoFi Consumer Loan Program Trust | 502 | 499,181 | ||||||||||
Series 2018-3, Class A2 | 341 | 341,386 | ||||||||||
|
| |||||||||||
9,017,957 | ||||||||||||
|
| |||||||||||
Credit Cards - Fixed Rate – 1.0% | ||||||||||||
GE Capital Credit Card Master Note Trust | 1,050 | 1,048,962 | ||||||||||
Synchrony Credit Card Master Note Trust | 544 | 542,569 | ||||||||||
World Financial Network Credit Card Master Trust | 685 | 679,406 | ||||||||||
Series 2018-B, Class A | 330 | 329,282 | ||||||||||
Series 2018-B, Class M | 825 | 823,324 | ||||||||||
|
| |||||||||||
3,423,543 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.0% | ||||||||||||
Credit-Based Asset Servicing & Securitization LLC | 65 | 65,609 | ||||||||||
|
| |||||||||||
Home Equity Loans - Floating Rate – 0.0% | ||||||||||||
Asset Backed Funding Certificates Trust | 30 | 30,128 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 29,467,312 | |||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 7.2% | ||||||||||||
Risk Share Floating Rate – 5.0% | ||||||||||||
Bellemeade Re Ltd. | U.S.$ | 401 | $ | 403,149 | ||||||||
Series 2018-2A, Class M1B | 505 | 507,092 | ||||||||||
Series 2018-3A, Class M1B | 815 | 814,998 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 708 | 771,676 | ||||||||||
Series 2014-DN4, Class M3 | 227 | 251,002 | ||||||||||
Series 2014-HQ3, Class M3 | 694 | 766,575 | ||||||||||
Series 2015-DNA2, Class M2 | 352 | 358,307 | ||||||||||
Series 2015-HQA1, Class M2 | 240 | 243,742 | ||||||||||
Series 2015-HQA2, Class M3 | 500 | 580,306 | ||||||||||
Series 2016-DNA1, Class M3 | 330 | 396,162 | ||||||||||
Series 2016-DNA2, Class M3 | 650 | 745,378 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 290 | 309,324 | ||||||||||
Series 2014-C04, Class 2M2 | 128 | 144,240 |
32 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Series 2015-C01, Class 1M2 | U.S.$ | 230 | $ | 252,069 | ||||||
Series 2015-C01, Class 2M2 | 263 | 283,730 | ||||||||
Series 2015-C02, Class 1M2 | 417 | 456,997 | ||||||||
Series 2015-C02, Class 2M2 | 273 | 293,738 | �� | |||||||
Series 2015-C03, Class 1M2 | 516 | 580,158 | ||||||||
Series 2015-C03, Class 2M2 | 482 | 535,700 | ||||||||
Series 2015-C04, Class 1M2 | 720 | 831,968 | ||||||||
Series 2015-C04, Class 2M2 | 481 | 544,775 | ||||||||
Series 2016-C01, Class 1M2 | 982 | 1,178,875 | ||||||||
Series 2016-C01, Class 2M2 | 459 | 540,360 | ||||||||
Series 2016-C02, Class 1M2 | 539 | 629,604 | ||||||||
Series 2016-C03, Class 2M2 | 1,206 | 1,383,547 | ||||||||
Series 2016-C05, Class 2M2 | 765 | 850,267 | ||||||||
Series 2018-R07, Class 1M2 | 378 | 377,832 | ||||||||
Home Re Ltd. | 655 | 655,000 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
JP Morgan Madison Avenue Securities Trust | U.S.$ | 83 | $ | 90,157 | ||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 361 | 406,246 | ||||||||||
Series 2015-WF1, Class 2M2 | 103 | 119,670 | ||||||||||
|
| |||||||||||
16,302,644 | ||||||||||||
|
| |||||||||||
Agency Floating Rate – 1.1% | ||||||||||||
Federal Home Loan Mortgage Corp. REMICs Series 4116, Class LS | 1,497 | 242,669 | ||||||||||
Series 4719, Class JS | 1,739 | 268,223 | ||||||||||
Federal National Mortgage Association REMICs | 1,042 | 177,464 | ||||||||||
Series 2012-70, Class SA | 1,904 | 329,695 | ||||||||||
Series 2015-90, Class SL | 2,087 | 297,418 | ||||||||||
Series 2016-77, Class DS | 2,112 | 311,352 | ||||||||||
Series 2017-16, Class SG | 2,134 | 321,201 | ||||||||||
Series 2017-26, Class TS | 1,988 | 313,307 | ||||||||||
Series 2017-62, Class AS | 2,099 | 325,106 | ||||||||||
Series 2017-81, Class SA | 2,122 | 343,396 |
34 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series 2017-97, Class LS | U.S.$ | 1,849 | $ | 313,450 | ||||||||
Government National Mortgage Association | 2,084 | 314,377 | ||||||||||
|
| |||||||||||
3,557,658 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.8% |
| |||||||||||
Alternative Loan Trust | 162 | 139,396 | ||||||||||
Series 2006-24CB, Class A16 | 307 | 256,234 | ||||||||||
Series 2006-28CB, Class A14 | 222 | 181,334 | ||||||||||
Series 2006-J1, Class 1A13 | 172 | 154,293 | ||||||||||
Citigroup Mortgage Loan Trust, Inc. | 273 | 275,328 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 88 | 69,914 | ||||||||||
Credit Suisse Mortgage Trust | 312 | 249,010 | ||||||||||
First Horizon Alternative Mortgage Securities Trust | 277 | 224,248 | ||||||||||
JP Morgan Alternative Loan Trust | 769 | 746,053 | ||||||||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates | 452 | 320,989 | ||||||||||
|
| |||||||||||
2,616,799 | ||||||||||||
|
| |||||||||||
Non-Agency Floating Rate – 0.3% | ||||||||||||
Deutsche Alt-A Securities Mortgage Loan Trust | 677 | 396,549 |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
HomeBanc Mortgage Trust | U.S.$ | 222 | $ | 193,988 | ||||||||
Impac Secured Assets Corp. | 346 | 288,487 | ||||||||||
Residential Accredit Loans, Inc. Trust | 679 | 213,087 | ||||||||||
|
| |||||||||||
1,092,111 | ||||||||||||
|
| |||||||||||
Agency Fixed Rate – 0.0% | ||||||||||||
Federal National Mortgage Association Grantor Trust | 65 | 61,264 | ||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 23,630,476 | |||||||||||
|
| |||||||||||
INFLATION-LINKED SECURITIES – 4.7% | ||||||||||||
Japan – 1.1% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 376,757 | 3,473,804 | |||||||||
|
| |||||||||||
United States – 3.6% | ||||||||||||
U.S. Treasury Inflation Index | U.S.$ | 4,409 | 4,251,014 | |||||||||
0.375%, 7/15/25 (TIPS) | 5,149 | 4,930,427 | ||||||||||
0.625%, 7/15/21 (TIPS) | 2,534 | 2,512,125 | ||||||||||
|
| |||||||||||
11,693,566 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 15,167,370 | |||||||||||
|
| |||||||||||
CORPORATES – NON-INVESTMENT GRADE – 3.6% | ||||||||||||
Financial Institutions – 1.9% | ||||||||||||
Banking – 1.6% | ||||||||||||
American Express Co. | 461 | 459,128 | ||||||||||
Barclays Bank PLC | 129 | 138,323 |
36 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CIT Group, Inc. | U.S.$ | 383 | $ | 385,930 | ||||||||
Citigroup, Inc. | 216 | 215,624 | ||||||||||
Series Q | 575 | 583,780 | ||||||||||
Credit Suisse Group AG | 363 | 378,413 | ||||||||||
Goldman Sachs Group, Inc. (The) | 157 | 158,741 | ||||||||||
Series P | 352 | 324,562 | ||||||||||
ING Groep NV | 425 | 429,157 | ||||||||||
Intesa Sanpaolo SpA | 288 | 255,712 | ||||||||||
Morgan Stanley | 110 | 111,827 | ||||||||||
Royal Bank of Scotland Group PLC | EUR | 50 | 54,650 | |||||||||
8.625%, 8/15/21(b) | U.S.$ | 320 | 336,906 | |||||||||
Series U | 700 | 655,102 | ||||||||||
Standard Chartered PLC | 400 | 329,248 | ||||||||||
7.50%, 4/02/22(a)(b) | 363 | 367,084 | ||||||||||
SunTrust Banks, Inc. | 158 | 159,577 | ||||||||||
|
| |||||||||||
5,343,764 | ||||||||||||
|
| |||||||||||
Finance – 0.2% | ||||||||||||
Navient Corp. | 440 | 453,191 | ||||||||||
7.25%, 1/25/22 | 99 | 103,134 | ||||||||||
|
| |||||||||||
556,325 | ||||||||||||
|
| |||||||||||
Insurance – 0.1% | ||||||||||||
Voya Financial, Inc. | 180 | 177,408 | ||||||||||
|
| |||||||||||
6,077,497 | ||||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Industrial – 1.7% | ||||||||||||
Communications - Media – 0.0% | ||||||||||||
CSC Holdings LLC | U.S.$ | 120 | $ | 125,576 | ||||||||
|
| |||||||||||
Communications - Telecommunications – 0.3% | ||||||||||||
Sprint Capital Corp. | 970 | 982,319 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.1% | ||||||||||||
KB Home | 286 | 286,155 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.4% | ||||||||||||
First Quality Finance Co., Inc. | 475 | 467,657 | ||||||||||
HCA, Inc. | 445 | 441,391 | ||||||||||
Spectrum Brands, Inc. | 512 | 497,720 | ||||||||||
|
| |||||||||||
1,406,768 | ||||||||||||
|
| |||||||||||
Energy – 0.6% | ||||||||||||
Antero Resources Corp. | 100 | 99,478 | ||||||||||
Diamond Offshore Drilling, Inc. | 457 | 316,344 | ||||||||||
Nabors Industries, Inc. | 721 | 678,281 | ||||||||||
PDC Energy, Inc. | 465 | 426,684 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 459 | 443,353 | ||||||||||
|
| |||||||||||
1,964,140 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
Global Partners LP/GLP Finance Corp. | 361 | 357,159 | ||||||||||
|
| |||||||||||
Technology – 0.1% | ||||||||||||
Western Digital Corp. | 335 | 309,801 | ||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 309 | 275,823 | ||||||||||
|
| |||||||||||
5,707,741 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 11,785,238 | |||||||||||
|
|
38 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.5% |
| |||||||||||
Industrial – 0.4% | ||||||||||||
Capital Goods – 0.0% | ||||||||||||
Odebrecht Finance Ltd. | U.S.$ | 341 | $ | 56,265 | ||||||||
7.125%, 6/26/42(a) | 394 | 62,055 | ||||||||||
|
| |||||||||||
118,320 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.2% | ||||||||||||
Millicom International Cellular SA | 475 | 481,541 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.1% | ||||||||||||
BRF GmbH | 210 | 177,177 | ||||||||||
BRF SA | 203 | 183,208 | ||||||||||
Virgolino de Oliveira Finance SA | 660 | 40,227 | ||||||||||
|
| |||||||||||
400,612 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.1% | ||||||||||||
Rumo Luxembourg SARL | 315 | 298,856 | ||||||||||
|
| |||||||||||
1,299,329 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Genneia SA | 261 | 242,404 | ||||||||||
Terraform Global Operating LLC | 153 | 142,917 | ||||||||||
|
| |||||||||||
385,321 | ||||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 1,684,650 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.4% | ||||||||||||
United States – 0.4% | ||||||||||||
State of California | 970 | 1,374,645 | ||||||||||
|
| |||||||||||
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
QUASI-SOVEREIGNS – 0.3% | ||||||||||||
Quasi-Sovereign Bonds – 0.3% | ||||||||||||
Indonesia – 0.2% | ||||||||||||
Pertamina Persero PT | U.S.$ | 350 | $ | 348,250 | ||||||||
Perusahaan Listrik Negara PT | 452 | 446,915 | ||||||||||
|
| |||||||||||
795,165 | ||||||||||||
|
| |||||||||||
Mexico – 0.1% | ||||||||||||
Petroleos Mexicanos | 205 | 196,437 | ||||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 991,602 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.2% | ||||||||||||
Financials – 0.2% | ||||||||||||
Insurance – 0.2% | ||||||||||||
Mt Logan Re Ltd. (Preference Shares)(i)(k) | 626 | 627,844 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
GOVERNMENTS – SOVEREIGN BONDS – 0.2% | ||||||||||||
Mexico – 0.2% | ||||||||||||
Mexico Government International Bond | U.S.$ | 552 | 521,640 | |||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 0.1% | ||||||||||||
Egypt – 0.1% | ||||||||||||
Egypt Government International Bond | 235 | 232,062 | ||||||||||
|
| |||||||||||
EMERGING MARKETS – TREASURIES – 0.1% | ||||||||||||
Argentina – 0.1% | ||||||||||||
Argentina POM Politica Monetaria | ARS | 6,500 | 205,128 | |||||||||
|
| |||||||||||
40 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
SHORT-TERM INVESTMENTS – 6.8% | ||||||||||||
Agency Discount Note – 3.2% | ||||||||||||
Federal Home Loan Bank Discount Notes | U.S.$ | 10,610 | $ | 10,573,693 | ||||||||
|
| |||||||||||
Governments – Treasuries – 3.0% | ||||||||||||
Japan – 3.0% | ||||||||||||
Japan Treasury Discount Bill | JPY | 709,100 | 6,284,460 | |||||||||
Series 776 | 391,000 | 3,465,376 | ||||||||||
|
| |||||||||||
Total Governments – Treasuries | 9,749,836 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
Investment Companies – 0.6% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 2.08%(m)(n)(o) | 2,051,158 | 2,051,158 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 22,374,687 | |||||||||||
|
| |||||||||||
Total Investments – 100.8% | 328,809,021 | |||||||||||
Other assets less liabilities – (0.8)% | (2,762,784 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 326,046,237 | ||||||||||
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at October 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 152 | | December 2018 |
| USD | 30,400 | $ | 32,093,015 | $ | 32,019,750 | $ | (73,265 | ) | |||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 148 | | December 2018 | | USD | 14,800 | 16,642,267 | 16,632,656 | (9,611 | ) | ||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 67 | | December 2018 | | USD | 6,700 | 7,939,718 | 7,935,313 | (4,405 | ) | ||||||||||||||
U.S. Ultra Bond (CBT) Futures | 32 | | December 2018 | | USD | 3,200 | 5,053,430 | 4,775,000 | (278,430 | ) | ||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||
10 Yr Japan Bond (OSE) Futures | 3 | | December 2018 | | JPY | 300,000 | 3,996,016 | 4,004,874 | (8,858 | ) | ||||||||||||||
Euro-BOBL Futures | 71 | | December 2018 | | EUR | 7,100 | 10,535,711 | 10,570,165 | (34,454 | ) | ||||||||||||||
|
| |||||||||||||||||||||||
$ | (409,023 | ) | ||||||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Barclays Bank PLC | KRW | 952,323 | USD | 835 | 11/15/18 | $ | 98 | |||||||||
Barclays Bank PLC | USD | 829 | INR | 57,720 | 12/13/18 | (53,877 | ) | |||||||||
BNP Paribas SA | CNY | 7,977 | USD | 1,152 | 12/13/18 | 10,635 | ||||||||||
BNP Paribas SA | ARS | 2,266 | USD | 58 | 11/13/18 | (4,165 | ) | |||||||||
BNP Paribas SA | ARS | 2,510 | USD | 64 | 11/05/18 | (6,058 | ) | |||||||||
BNP Paribas SA | USD | 423 | JPY | 47,741 | 11/05/18 | 669 | ||||||||||
Citibank, NA | JPY | 1,592,117 | USD | 14,019 | 11/05/18 | (94,239 | ) | |||||||||
Citibank, NA | NOK | 6,570 | USD | 786 | 11/15/18 | 6,383 | ||||||||||
Citibank, NA | USD | 423 | JPY | 47,741 | 11/05/18 | 675 | ||||||||||
Citibank, NA | USD | 834 | INR | 58,158 | 12/13/18 | (52,200 | ) | |||||||||
Credit Suisse International | CAD | 1,126 | USD | 872 | 11/16/18 | 16,255 | ||||||||||
Credit Suisse International | USD | 807 | NOK | 6,541 | 11/15/18 | (30,838 | ) | |||||||||
Deutsche Bank AG | USD | 663 | JPY | 74,077 | 12/13/18 | (4,018 | ) | |||||||||
Goldman Sachs Bank USA | NZD | 1,450 | USD | 935 | 12/07/18 | (11,016 | ) | |||||||||
HSBC Bank USA | BRL | 1,848 | USD | 503 | 11/05/18 | 6,421 | ||||||||||
HSBC Bank USA | ARS | 1,146 | USD | 28 | 11/05/18 | (4,189 | ) | |||||||||
HSBC Bank USA | USD | 497 | BRL | 1,848 | 11/05/18 | (508 | ) | |||||||||
HSBC Bank USA | USD | 502 | BRL | 1,848 | 12/04/18 | (6,650 | ) | |||||||||
JPMorgan Chase Bank, NA | NOK | 6,780 | USD | 819 | 11/15/18 | 14,608 | ||||||||||
JPMorgan Chase Bank, NA | GBP | 2,287 | USD | 3,029 | 12/14/18 | 98,928 | ||||||||||
JPMorgan Chase Bank, NA | USD | 883 | NOK | 7,205 | 11/15/18 | (27,637 | ) |
42 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
JPMorgan Chase Bank, NA | USD | 648 | TWD | 19,911 | 12/11/18 | $ | (3,462 | ) | ||||||||
Morgan Stanley & Co., Inc. | AUD | 2,907 | USD | 2,062 | 12/07/18 | 2,694 | ||||||||||
Morgan Stanley & Co., Inc. | BRL | 617 | USD | 149 | 11/05/18 | (16,419 | ) | |||||||||
Morgan Stanley & Co., Inc. | USD | 166 | BRL | 617 | 11/05/18 | (169 | ) | |||||||||
Natwest Markets PLC | ARS | 2,266 | USD | 59 | 11/16/18 | (3,017 | ) | |||||||||
Natwest Markets PLC | USD | 825 | CAD | 1,082 | 11/16/18 | (3,049 | ) | |||||||||
Standard Chartered Bank | TWD | 103,134 | USD | 3,370 | 12/11/18 | 29,455 | ||||||||||
Standard Chartered Bank | INR | 41,210 | USD | 552 | 12/13/18 | (1,345 | ) | |||||||||
Standard Chartered Bank | BRL | 2,465 | USD | 663 | 11/05/18 | 677 | ||||||||||
Standard Chartered Bank | USD | 157 | BRL | 615 | 11/05/18 | 8,792 | ||||||||||
Standard Chartered Bank | USD | 498 | BRL | 1,850 | 11/05/18 | (430 | ) | |||||||||
Standard Chartered Bank | USD | 1,246 | TWD | 38,016 | 12/11/18 | (14,563 | ) | |||||||||
Standard Chartered Bank | USD | 783 | INR | 57,605 | 12/13/18 | (9,054 | ) | |||||||||
Standard Chartered Bank | USD | 1,704 | KRW | 1,897,681 | 11/15/18 | (40,797 | ) | |||||||||
State Street Bank & Trust Co. | KRW | 946,061 | USD | 842 | 11/15/18 | 13,444 | ||||||||||
State Street Bank & Trust Co. | MXN | 9,201 | USD | 486 | 12/05/18 | 35,499 | ||||||||||
State Street Bank & Trust Co. | JPY | 7,158 | USD | 64 | 12/13/18 | 436 | ||||||||||
State Street Bank & Trust Co. | PLN | 3,118 | USD | 844 | 1/18/19 | 29,416 | ||||||||||
State Street Bank & Trust Co. | EUR | 1,458 | USD | 1,687 | 1/09/19 | 25,092 | ||||||||||
State Street Bank & Trust Co. | NOK | 1,315 | USD | 161 | 11/15/18 | 4,532 | ||||||||||
State Street Bank & Trust Co. | SEK | 499 | USD | 56 | 11/15/18 | 1,106 | ||||||||||
State Street Bank & Trust Co. | NZD | 285 | USD | 185 | 12/07/18 | (402 | ) | |||||||||
State Street Bank & Trust Co. | CAD | 243 | USD | 188 | 11/16/18 | 3,246 | ||||||||||
State Street Bank & Trust Co. | JPY | 173 | USD | 2 | 11/05/18 | 10 | ||||||||||
State Street Bank & Trust Co. | USD | 72 | GBP | 55 | 12/14/18 | (2,351 | ) | |||||||||
State Street Bank & Trust Co. | USD | 223 | CAD | 288 | 11/16/18 | (4,503 | ) | |||||||||
State Street Bank & Trust Co. | USD | 159 | NOK | 1,315 | 11/15/18 | (3,255 | ) | |||||||||
State Street Bank & Trust Co. | USD | 1,437 | MYR | 5,793 | 11/29/18 | (54,002 | ) | |||||||||
|
| |||||||||||||||
$ | (143,142 | ) | ||||||||||||||
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||
CDX-NAIG Series 31, 5 Year Index, 12/20/23* | (1.00 | )% | Quarterly | 0.68% | USD | 5,620 | $ | (90,405 | ) | $ | (101,778 | ) | $ | 11,373 |
* | Termination date |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | |||||||||||||
AUD | 29,450 | 6/21/20 | 2.118% | 3 Month BBSW | Quarterly/ Quarterly | $ | (55,712 | ) | ||||||||||
NOK | 335,480 | 6/22/20 | 6 Month NIBOR | 1.378% | Semi-Annual/Annual | (73,531 | ) | |||||||||||
USD | 2,480 | 8/22/22 | 3 Month LIBOR | 2.886% | Quarterly/ Semi-Annual | (19,310 | ) | |||||||||||
USD | 8,260 | 9/10/23 | 3 Month LIBOR | 2.896% | Quarterly/ Semi-Annual | (85,148 | ) | |||||||||||
USD | 3,600 | 11/10/25 | 2.256% | 3 Month LIBOR | Semi-Annual/Quarterly | 191,737 | ||||||||||||
USD | 456 | 6/28/26 | 1.460% | 3 Month LIBOR | Semi-Annual/Quarterly | 52,822 | ||||||||||||
USD | 985 | 11/08/26 | 1.657% | 3 Month LIBOR | Semi-Annual/Quarterly | 104,732 | ||||||||||||
USD | 1,240 | 11/09/26 | 1.672% | 3 Month LIBOR | Semi-Annual/Quarterly | 130,460 | ||||||||||||
USD | 1,670 | 7/12/27 | 2.355% | 3 Month LIBOR | Semi-Annual/Quarterly | 100,533 | ||||||||||||
USD | 2,160 | 3/28/28 | 2.920% | 3 Month LIBOR | Semi-Annual/Quarterly | 54,712 | ||||||||||||
NOK | 32,720 | 8/31/28 | 2.186% | 6 Month NIBOR | Annual/Semi-Annual | 27,484 | ||||||||||||
USD | 1,960 | 8/31/28 | 3 Month LIBOR | 2.986% | Quarterly/ Semi-Annual | (40,479 | ) | |||||||||||
|
| |||||||||||||||||
$ | 388,300 | |||||||||||||||||
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional | 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 | 0.30 | % | USD | 452 | $ | (16,136 | ) | $ | (3,516 | ) | $ | (12,620 | ) | ||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | ) | Quarterly | 0.30 | USD | 518 | (18,492 | ) | (4,178 | ) | (14,314 | ) | ||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 57 | (148 | ) | 714 | (862 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 892 | 68,431 | 64,482 | 3,949 |
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 October 31, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | )% | Monthly | 4.43 | % | USD | 723 | $ | 55,466 | $ | 54,091 | $ | 1,375 | |||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 180 | 13,809 | 12,661 | 1,148 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 179 | 13,732 | 12,590 | 1,142 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 171 | 13,118 | 12,297 | 821 | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 723 | 55,467 | 55,998 | (531 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 9, 9/17/58* | (3.00 | ) | Monthly | 4.43 | USD | 362 | 27,771 | 29,778 | (2,007 | ) | ||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 20 | (52 | ) | 181 | (233 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 2,085 | (5,415 | ) | 25,950 | (31,365 | ) | |||||||||||||||
CDX-CMBX.NA.BBB- Series 7, 1/17/47* | (3.00 | ) | Monthly | 4.52 | USD | 2,150 | 133,551 | 136,417 | (2,866 | ) | ||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 777 | (2,018 | ) | 8,110 | (10,128 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 695 | (1,805 | ) | 9,326 | (11,131 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 2,592 | (6,732 | ) | 27,288 | (34,020 | ) | |||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 169 | (439 | ) | 1,594 | (2,033 | ) | |||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.46 | USD | 762 | (1,979 | ) | 10,141 | (12,120 | ) | |||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 297 | (41,170 | ) | (46,797 | ) | 5,627 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 269 | (37,288 | ) | (41,146 | ) | 3,858 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 41 | (5,683 | ) | (6,778 | ) | 1,095 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 85 | (11,782 | ) | (11,845 | ) | 63 | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 36 | (4,990 | ) | (4,758 | ) | (232 | ) |
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 October 31, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 201 | $ | (27,862 | ) | $ | (27,360 | ) | $ | (502 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 178 | (24,674 | ) | (23,943 | ) | (731 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 153 | (21,208 | ) | (19,924 | ) | (1,284 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 180 | (24,951 | ) | (23,440 | ) | (1,511 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 252 | (34,931 | ) | (32,816 | ) | (2,115 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 252 | (34,931 | ) | (29,610 | ) | (5,321 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 200 | (27,723 | ) | (22,087 | ) | (5,636 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 362 | (50,179 | ) | (42,535 | ) | (7,644 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 504 | (69,862 | ) | (57,912 | ) | (11,950 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 504 | (69,863 | ) | (56,775 | ) | (13,088 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 540 | (74,853 | ) | (59,711 | ) | (15,142 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 723 | (100,220 | ) | (83,077 | ) | (17,143 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 724 | (100,358 | ) | (81,558 | ) | (18,800 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 891 | (123,508 | ) | (98,024 | ) | (25,484 | ) | |||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 291 | (40,337 | ) | (44,309 | ) | 3,972 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 155 | (21,485 | ) | (10,999 | ) | (10,486 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 509 | (70,556 | ) | (33,796 | ) | (36,760 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 2,150 | (298,026 | ) | (127,707 | ) | (170,319 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,882 | (260,851 | ) | (78,968 | ) | (181,883 | ) | |||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 5/11/63* | 2.00 | Monthly | 2.69 | USD | 850 | (19,135 | ) | (17,066 | ) | (2,069 | ) |
46 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 52 | $ | (7,208 | ) | $ | (6,256 | ) | $ | (952 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 322 | (44,634 | ) | (41,645 | ) | (2,989 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 46 | (6,376 | ) | (2,710 | ) | (3,666 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 179 | (24,813 | ) | (21,015 | ) | (3,798 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 181 | (25,090 | ) | (21,241 | ) | (3,849 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 530 | (73,467 | ) | (58,603 | ) | (14,864 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 531 | (73,605 | ) | (44,828 | ) | (28,777 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 745 | (103,269 | ) | (53,590 | ) | (49,679 | ) | |||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 313 | (43,387 | ) | (53,262 | ) | 9,875 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 224 | (31,050 | ) | (37,577 | ) | 6,527 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 325 | (45,050 | ) | (51,276 | ) | 6,226 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 20 | (2,773 | ) | (3,118 | ) | 345 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 260 | (36,040 | ) | (36,318 | ) | 278 | ||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 90 | (12,475 | ) | (11,846 | ) | (629 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 26 | (3,604 | ) | (2,391 | ) | (1,213 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 574 | (79,566 | ) | (78,107 | ) | (1,459 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 52 | (7,209 | ) | (5,272 | ) | (1,937 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 52 | (7,208 | ) | (4,871 | ) | (2,337 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 104 | (14,416 | ) | (11,523 | ) | (2,893 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 356 | (49,347 | ) | (38,928 | ) | (10,419 | ) |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 219 | $ | (30,357 | ) | $ | (14,902 | ) | $ | (15,455 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 311 | (43,109 | ) | (27,582 | ) | (15,527 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 760 | (105,349 | ) | (62,099 | ) | (43,250 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,125 | (155,944 | ) | (88,272 | ) | (67,672 | ) | |||||||||||||||||
JPMorgan Securities LLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 61 | (8,455 | ) | (7,989 | ) | (466 | ) | |||||||||||||||||
Morgan Stanley & Co. International PLC |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 800 | (110,893 | ) | (121,347 | ) | 10,454 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (2,412,991 | ) | $ | (1,535,585 | ) | $ | (877,406 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
VARIANCE SWAPS (see Note D)
Swap Referenced | Volatility Strike Rate | 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 | 48 | $ | 8,702 | $ | – 0 | – | $ | 8,702 | ||||||||||||
AUD/JPY 3/03/20* | 12.75 | Maturity | AUD | 24 | (5,350 | ) | – 0 | – | (5,350 | ) | ||||||||||||||
Goldman Sachs Bank USA | ||||||||||||||||||||||||
AUD/JPY 3/10/20* | 12.90 | Maturity | AUD | 11 | (2,811 | ) | – 0 | – | (2,811 | ) | ||||||||||||||
AUD/JPY 3/11/20* | 12.80 | Maturity | AUD | 13 | (2,953 | ) | – 0 | – | (2,953 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (2,412 | ) | $ | – 0 | – | $ | (2,412 | ) | ||||||||||||||||
|
|
|
|
|
|
* | Termination date |
** | Principal amount less than 500. |
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2018, the aggregate market value of these securities amounted to $63,184,763 or 19.4% of net assets. |
(b) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(c) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2018. |
(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. |
48 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(g) | Illiquid security. |
(h) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.20% of net assets as of October 31, 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 | ||||||||||||
JP Morgan Madison Avenue Securities Trust | 11/06/15 | $ | 82,059 | $ | 90,157 | 0.03 | % | |||||||||
Virgolino de Oliveira Finance SA | 1/24/14 | 365,927 | 40,227 | 0.01 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 360,992 | 406,246 | 0.12 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 102,712 | 119,670 | 0.04 | % |
(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. | 1/02/14-12/30/14 | $ | 626,000 | $ | 627,844 | 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
CNY – Chinese Yuan Renminbi
EUR – Euro
GBP – Great British Pound
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
MXN – Mexican Peso
MYR – Malaysian Ringgit
NOK – Norwegian Krone
NZD – New Zealand Dollar
PLN – Polish Zloty
SEK – Swedish Krona
TWD – New Taiwan Dollar
USD – United States Dollar
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Glossary:
ABS – Asset-Backed Securities
ARLLMONP – Argentina Blended Policy Rate
ARMs – Adjustable Rate Mortgages
BBSW – Bank Bill Swap Reference Rate (Australia)
BOBL – Bundesobligationen
CBT – Chicago Board of Trade
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
NIBOR – Norwegian Interbank Offered Rate
OSE – Osaka Securities Exchange
REMICs – Real Estate Mortgage Investment Conduits
TBA – To Be Announced
TIPS – Treasury Inflation Protected Security
See notes to financial statements.
50 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2018
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $334,480,167) | $ | 326,757,863 | ||
Affiliated issuers (cost $2,051,158) | 2,051,158 | |||
Cash | 37,412 | |||
Cash collateral due from broker | 766,516 | |||
Receivable for investment securities sold | 4,374,928 | |||
Interest receivable | 1,845,316 | |||
Receivable for capital stock sold | 1,367,064 | |||
Market value on credit default swaps (net premiums paid $378,314) | 381,345 | |||
Unrealized appreciation on forward currency exchange contracts | 309,071 | |||
Market value on variance swaps | 8,702 | |||
Affiliated dividends receivable | 4,220 | |||
|
| |||
Total assets | 337,903,595 | |||
|
| |||
Liabilities | ||||
Due to custodian | 2,401 | |||
Payable for investment securities purchased | 6,999,599 | |||
Market value on credit default swaps (net premiums received $1,913,899) | 2,794,336 | |||
Payable for capital stock redeemed | 727,638 | |||
Unrealized depreciation on forward currency exchange contracts | 452,213 | |||
Dividends payable | 165,259 | |||
Payable for variation margin on centrally cleared swaps | 134,933 | |||
Payable for variation margin on futures | 124,542 | |||
Distribution fee payable | 59,079 | |||
Advisory fee payable | 43,549 | |||
Administrative fee payable | 25,985 | |||
Transfer Agent fee payable | 25,020 | |||
Market value on variance swaps | 11,114 | |||
Directors’ fees payable | 2,071 | |||
Accrued expenses and other liabilities | 289,619 | |||
|
| |||
Total liabilities | 11,857,358 | |||
|
| |||
Net Assets | $ | 326,046,237 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 30,614 | ||
Additional paid-in capital | 340,950,446 | |||
Accumulated loss | (14,934,823 | ) | ||
|
| |||
$ | 326,046,237 | |||
|
|
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 51 |
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 | $ | 216,949,754 | 20,372,735 | $ | 10.65 | * | ||||||
| ||||||||||||
B | $ | 511,267 | 47,993 | $ | 10.65 | |||||||
| ||||||||||||
C | $ | 11,334,167 | 1,066,702 | $ | 10.63 | |||||||
| ||||||||||||
Advisor | $ | 76,406,399 | 7,171,885 | $ | 10.65 | |||||||
| ||||||||||||
R | $ | 2,813,603 | 264,296 | $ | 10.65 | |||||||
| ||||||||||||
K | $ | 7,863,280 | 737,792 | $ | 10.66 | |||||||
| ||||||||||||
I | $ | 2,893,485 | 271,353 | $ | 10.66 | |||||||
| ||||||||||||
Z | $ | 7,274,282 | 681,632 | $ | 10.67 | |||||||
|
* | The maximum offering price per share for Class A shares was $11.12 which reflects a sales charge of 4.25%. |
See notes to financial statements.
52 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Interest | $ | 10,962,268 | ||||||
Dividends | ||||||||
Affiliated issuers | 55,742 | |||||||
Unaffiliated issuers | 26,717 | |||||||
Other income | 343 | $ | 11,045,070 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 1,617,102 | |||||||
Distribution fee—Class A | 573,473 | |||||||
Distribution fee—Class B | 6,265 | |||||||
Distribution fee—Class C | 135,936 | |||||||
Distribution fee—Class R | 13,045 | |||||||
Distribution fee—Class K | 15,608 | |||||||
Transfer agency—Class A | 308,036 | |||||||
Transfer agency—Class B | 1,120 | |||||||
Transfer agency—Class C | 18,454 | |||||||
Transfer agency—Advisor Class | 104,369 | |||||||
Transfer agency—Class R | 5,759 | |||||||
Transfer agency—Class K | 12,487 | |||||||
Transfer agency—Class I | 2,574 | |||||||
Transfer agency—Class Z | 5,254 | |||||||
Custodian | 189,299 | |||||||
Registration fees | 118,118 | |||||||
Audit and tax | 97,856 | |||||||
Administrative | 73,345 | |||||||
Printing | 54,812 | |||||||
Legal | 50,970 | |||||||
Directors’ fees | 25,382 | |||||||
Miscellaneous | 25,122 | |||||||
|
| |||||||
Total expenses | 3,454,386 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (847,891 | ) | ||||||
|
| |||||||
Net expenses | 2,606,495 | |||||||
|
| |||||||
Net investment income | 8,438,575 | |||||||
|
|
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 53 |
STATEMENT OF OPERATIONS (continued)
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions(a) | $ | (4,219,138 | ) | |||||
Forward currency exchange contracts | (30,602 | ) | ||||||
Futures | (1,362,044 | ) | ||||||
Swaps | 543,483 | |||||||
Swaptions written | 41,400 | |||||||
Foreign currency transactions | 238,826 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments(b) | (10,114,049 | ) | ||||||
Forward currency exchange contracts | (102,831 | ) | ||||||
Futures | (200,361 | ) | ||||||
Swaps | 783,804 | |||||||
Foreign currency denominated assets and liabilities | 14,786 | |||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (14,406,726 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (5,968,151 | ) | |||||
|
|
(a) | Net of foreign capital gains taxes of $65,835. |
(b) | Net of increase in accrued foreign capital gains taxes of $2,158. |
See notes to financial statements.
54 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 8,438,575 | $ | 7,729,869 | ||||
Net realized loss on investment and foreign currency transactions | (4,788,075 | ) | (1,713,043 | ) | ||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (9,618,651 | ) | (403,213 | ) | ||||
Contributions from Affiliates (see Note B) | – 0 | – | 848 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (5,968,151 | ) | 5,614,461 | |||||
Distributions to Shareholders* | ||||||||
Class A | (5,639,033 | ) | (5,802,507 | ) | ||||
Class B | (10,588 | ) | (15,980 | ) | ||||
Class C | (230,790 | ) | (545,435 | ) | ||||
Advisor Class | (2,116,445 | ) | (1,609,616 | ) | ||||
Class R | (58,255 | ) | (62,302 | ) | ||||
Class K | (154,794 | ) | (126,481 | ) | ||||
Class I | (74,462 | ) | (71,905 | ) | ||||
Class Z | (691,696 | ) | (498,902 | ) | ||||
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 decrease | (19,128,300 | ) | (9,872,834 | ) | ||||
|
|
|
| |||||
Total decrease | (34,072,514 | ) | (14,100,649 | ) | ||||
Net Assets | ||||||||
Beginning of period | 360,118,751 | 374,219,400 | ||||||
|
|
|
| |||||
End of period | $ | 326,046,237 | $ | 360,118,751 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note I, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 55 |
NOTES TO FINANCIAL STATEMENTS
October 31, 2018
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 0% 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
56 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
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 used to adjust, on a daily basis, a recently obtained quoted price on a
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 57 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
58 | AB INTERMEDIATE BOND PORTFOLIO | 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.
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 INTERMEDIATE BOND PORTFOLIO | 59 |
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 October 31, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
| |||||||||||||||
Corporates – Investment Grade | $ | – 0 | – | $ | 73,348,303 | $ | – 0 | – | $ | 73,348,303 | ||||||
Mortgage Pass-Throughs | – 0 | – | 54,749,012 | – 0 | – | 54,749,012 | ||||||||||
Governments – Treasuries | – 0 | – | 52,179,760 | – 0 | – | 52,179,760 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 34,273,729 | 6,195,563 | 40,469,292 | |||||||||||
Asset-Backed Securities | – 0 | – | 20,903,484 | 8,563,828 | 29,467,312 | |||||||||||
Collateralized Mortgage Obligations | – 0 | – | 22,914,212 | 716,264 | 23,630,476 | |||||||||||
Inflation-Linked Securities | – 0 | – | 15,167,370 | – 0 | – | 15,167,370 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 11,785,238 | – 0 | – | 11,785,238 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 1,644,423 | 40,227 | 1,684,650 | |||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 1,374,645 | – 0 | – | 1,374,645 | ||||||||||
Quasi-Sovereigns | – 0 | – | 991,602 | – 0 | – | 991,602 | ||||||||||
Common Stocks | – 0 | – | – 0 | – | 627,844 | 627,844 | ||||||||||
Governments – Sovereign Bonds | – 0 | – | 521,640 | – 0 | – | 521,640 | ||||||||||
Emerging Markets – Sovereigns | – 0 | – | 232,062 | – 0 | – | 232,062 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 205,128 | – 0 | – | 205,128 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Agency Discount Notes | – 0 | – | 10,573,693 | – 0 | – | 10,573,693 | ||||||||||
Governments – Treasuries | – 0 | – | 9,749,836 | – 0 | – | 9,749,836 | ||||||||||
Investment Companies | 2,051,158 | – 0 | – | – 0 | – | 2,051,158 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 2,051,158 | 310,614,137 | 16,143,726 | 328,809,021 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Forward Currency Exchange Contracts | – 0 | – | 309,071 | – 0 | – | 309,071 | ||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 662,480 | – 0 | – | 662,480 | (b) | |||||||||
Credit Default Swaps | – 0 | – | 381,345 | – 0 | – | 381,345 | ||||||||||
Variance Swaps | – 0 | – | 8,702 | – 0 | – | 8,702 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (409,023 | ) | – 0 | – | – 0 | – | (409,023 | )(b) | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (452,213 | ) | – 0 | – | (452,213 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (90,405 | ) | – 0 | – | (90,405 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (274,180 | ) | – 0 | – | (274,180 | )(b) | ||||||||
Credit Default Swaps | – 0 | – | (2,794,336 | ) | – 0 | – | (2,794,336 | ) | ||||||||
Variance Swaps | – 0 | – | (11,114 | ) | – 0 | – | (11,114 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 1,642,135 | $ | 308,353,487 | $ | 16,143,726 | $ | 326,139,348 | ||||||||
|
|
|
|
|
|
|
|
(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. |
60 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
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) | 2,318 | 318 | – 0 | – | ||||||||
Realized gain (loss) | (160,531 | ) | (10,967 | ) | – 0 | – | ||||||
Change in unrealized appreciation/depreciation | (12,788 | ) | (82,985 | ) | 448 | |||||||
Purchases/Payups | 1,330,000 | 4,155,752 | 655,000 | |||||||||
Sales/Paydowns | (1,287,314 | ) | (3,697,350 | ) | – 0 | – | ||||||
Transfers in to Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (550,000 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 6,195,563 | $ | 8,563,828 | $ | 716,264 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(a) | $ | (85,963 | ) | $ | (86,220 | ) | $ | 448 | ||||
|
|
|
|
|
| |||||||
Emerging Markets - Corporate Bonds | Common Stocks | Total | ||||||||||
Balance as of 10/31/17 | $ | – 0 | – | $ | 652,741 | $ | 15,786,495 | |||||
Accrued discounts/(premiums) | – 0 | – | – 0 | – | 2,636 | |||||||
Realized gain (loss) | – 0 | – | – 0 | – | (171,498 | ) | ||||||
Change in unrealized appreciation/depreciation | 6,403 | (24,897 | ) | (113,819 | ) | |||||||
Purchases/Payups | – 0 | – | – 0 | – | 6,140,752 | |||||||
Sales/Paydowns | – 0 | – | – 0 | – | (4,984,664 | ) | ||||||
Transfers in to Level 3 | 33,824 | – 0 | – | 33,824 | ||||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | (550,000 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 40,227 | $ | 627,844 | $ | 16,143,726 | (b) | |||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(a) | $ | 6,403 | $ | (24,897 | ) | $ | (190,229 | ) | ||||
|
|
|
|
|
|
(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. |
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 61 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at October 31, 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 10/31/18 | Valuation Technique | Unobservable Input | Input | |||||||
Common Stocks | $ | 627,844 | Market Approach | NAV Equivalent | $1,002.95 / 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.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance
62 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 63 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, such reimbursements/waivers amounted to $840,486.
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During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the November 14, 2018 meeting, shareholders approved the new and future investment advisory agreements.
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On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
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 year ended October 31, 2018, the Adviser voluntarily agreed to waive such fees in the amount of $73,345.
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 $198,178 for the year ended October 31, 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 $3,835 from the sale of Class A shares and received $1,600, $491 and $1,717 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A, Class B and Class C shares, respectively, for the year ended October 31, 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. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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
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acquired fund fee and expense. For the year ended October 31, 2018, such waiver amounted to $7,405.
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 617 | $ | 209,947 | $ | 208,513 | $ | 2,051 | $ | 56 |
Brokerage commissions paid on investment transactions for the year ended October 31, 2018 amounted to $17,760, 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 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, $1,194,892, $138,090 and $54,308 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 114,811,142 | $ | 98,621,239 | ||||
U.S. government securities | 561,620,087 | 566,529,579 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 336,535,304 | ||
|
| |||
Gross unrealized appreciation | $ | 5,722,809 | ||
Gross unrealized depreciation | (13,134,226 | ) | ||
|
| |||
Net unrealized depreciation | $ | (7,411,417 | ) | |
|
|
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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 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 year ended October 31, 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”
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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 asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
During the year ended October 31, 2018, the Fund held purchased and written swaptions for non-hedging purposes.
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NOTES TO FINANCIAL STATEMENTS (continued)
• | 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 the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on
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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).
During the year ended October 31, 2018, the Fund held interest rate swaps for hedging and non-hedging purposes.
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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 October 31, 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
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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 year ended October 31, 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 year ended October 31, 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended October 31, 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 | Receivable/Payable for variation margin on futures | $ | 409,023 | * | ||||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 11,373 | * | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | | 662,480 | * | Receivable/Payable for variation margin on centrally cleared swaps | | 274,180 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 309,071 |
| Unrealized depreciation on forward currency exchange contracts |
| 452,213 |
| ||||
Credit contracts | Market value on credit default swaps | 381,345 | Market value on credit default swaps | 2,794,336 | ||||||||
Equity contracts | Market value on variance swaps | 8,702 | Market value on variance swaps | 11,114 | ||||||||
|
|
|
| |||||||||
Total | $ | 1,372,971 | $ | 3,940,866 | ||||||||
|
|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) on Derivatives 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 | $ | (1,362,044 | ) | $ | (200,361 | ) | |||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | (30,602 | ) | (102,831 | ) |
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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 investment transactions; Net change in unrealized appreciation/depreciation of investments | $ | (64,787 | ) | $ | – 0 | – | |||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 41,400 | – 0 | – | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 301,466 | 435,142 | |||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 242,017 | 351,074 | |||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | – 0 | – | (2,412 | ) | |||||
|
|
|
| |||||||
Total | $ | (872,550 | ) | $ | 480,612 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 64,188,535 | ||
Average original value of sale contracts | $ | 55,388,955 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 13,224,815 | ||
Average principal amount of sale contracts | $ | 51,466,547 | ||
Purchased Swaptions: | ||||
Average notional amount | $ | 20,060,000 | (a) | |
Swaptions Written: | ||||
Average notional amount | $ | 48,175,000 | (a) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 92,759,598 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 10,733,154 | ||
Average notional amount of sale contracts | $ | 16,157,122 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 5,620,000 | (b) | |
Average notional amount of sale contracts | $ | 1,890,000 | (a) | |
Variance Swaps: | ||||
Average notional amount | $ | 766,932 | (c) |
(a) | Positions were open for one month during the year. |
(b) | Positions were open for seven months during the year. |
(c) | Positions were open for ten months during the year. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Barclays Bank PLC | $ | 98 | $ | (98 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
BNP Paribas SA | 11,304 | (10,223 | ) | – 0 | – | – 0 | – | 1,081 | ||||||||||||
Citibank, NA | 7,058 | (7,058 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citigroup Global Markets, Inc. | 247,794 | (247,794 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 149,806 | (149,806 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 8,702 | (8,702 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 6,421 | (6,421 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA/JPMorgan Securities LLC | 113,536 | (39,554 | ) | – 0 | – | – 0 | – | 73,982 | ||||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley & Co., Inc. | 2,694 | (2,694 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank | 38,924 | (38,924 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
State Street Bank & Trust Co. | 112,781 | (64,513 | ) | – 0 | – | – 0 | – | 48,268 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 699,118 | $ | (575,787 | ) | $ | – 0 | – | $ | – 0 | – | $ | 123,331 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 77 |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 53,877 | $ | (98 | ) | $ | – 0 | – | $ | – 0 | – | $ | 53,779 | |||||||
BNP Paribas SA | 10,223 | (10,223 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 181,067 | (7,058 | ) | – 0 | – | – 0 | – | 174,009 | ||||||||||||
Citigroup Global Markets, Inc. | 886,184 | (247,794 | ) | – 0 | – | (571,431 | ) | 66,959 | ||||||||||||
Credit Suisse International | 727,560 | (149,806 | ) | – 0 | – | (519,679 | ) | 58,075 | ||||||||||||
Deutsche Bank AG | 397,520 | (8,702 | ) | – 0 | – | (261,408 | ) | 127,410 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 686,082 | – 0 | – | – 0 | – | (508,603 | ) | 177,479 | ||||||||||||
HSBC Bank USA | 11,347 | (6,421 | ) | – 0 | – | – 0 | – | 4,926 | ||||||||||||
JPMorgan Chase Bank, NA/JPMorgan Securities LLC | 39,554 | (39,554 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley & Co. International PLC/Morgan Stanley & Co., Inc. | 127,481 | (2,694 | ) | – 0 | – | – 0 | – | 124,787 | ||||||||||||
Natwest Markets PLC | 6,066 | – 0 | – | – 0 | – | – 0 | – | 6,066 | ||||||||||||
Standard Chartered Bank | 66,189 | (38,924 | ) | – 0 | – | – 0 | – | 27,265 | ||||||||||||
State Street Bank & Trust Co. | 64,513 | (64,513 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 3,257,663 | $ | (575,787 | ) | $ | – 0 | – | $ | (1,861,121 | ) | $ | 820,755 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | 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).
78 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 year ended October 31, 2018, the Fund earned drop income of $587,142 which is included in interest income in the accompanying statement of operations.
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 | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 1,900,750 | 1,441,055 | $ | 20,786,544 | $ | 15,957,028 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 392,243 | 448,010 | 4,268,076 | 4,947,934 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class B | 19,162 | 26,419 | 208,829 | 292,232 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 95,759 | 1,790,738 | 1,042,120 | 19,828,064 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,680,073 | ) | (3,936,642 | ) | (40,132,053 | ) | (43,496,748 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (1,272,159 | ) | (230,420 | ) | $ | (13,826,484 | ) | $ | (2,471,490 | ) | ||||||||||||||
|
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class B | ||||||||||||||||||||||||
Shares sold | 8,240 | 10,541 | $ | 90,220 | $ | 116,178 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 913 | 1,521 | 9,944 | 16,789 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (19,161 | ) | (26,411 | ) | (208,829 | ) | (292,232 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (8,863 | ) | (17,214 | ) | (97,281 | ) | (189,992 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (18,871 | ) | (31,563 | )�� | $ | (205,946 | ) | $ | (349,257 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 196,263 | 235,175 | $ | 2,149,441 | $ | 2,598,185 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 15,167 | 41,607 | 164,703 | 457,225 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (95,980 | ) | (1,794,039 | ) | (1,042,120 | ) | (19,828,064 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (463,399 | ) | (804,733 | ) | (5,051,190 | ) | (8,862,049 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (347,949 | ) | (2,321,990 | ) | $ | (3,779,166 | ) | $ | (25,634,703 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 4,494,203 | 3,558,736 | $ | 49,172,690 | $ | 39,217,553 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 103,975 | 100,138 | 1,131,720 | 1,107,548 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,488,497 | ) | (2,587,093 | ) | (37,974,997 | ) | (28,536,859 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,109,681 | 1,071,781 | $ | 12,329,413 | $ | 11,788,242 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||
Shares sold | 83,027 | 100,402 | $ | 902,891 | $ | 1,108,586 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 5,353 | 6,274 | 58,173 | 69,262 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (67,197 | ) | (132,743 | ) | (736,750 | ) | (1,467,549 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | 21,183 | (26,067 | ) | $ | 224,314 | $ | (289,701 | ) | ||||||||||||||||
|
80 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Shares sold | 343,565 | 158,517 | $ | 3,718,375 | $ | 1,764,118 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 14,176 | 12,863 | 154,252 | 142,184 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (148,580 | ) | (150,357 | ) | (1,621,568 | ) | (1,656,583 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 209,161 | 21,023 | $ | 2,251,059 | $ | 249,719 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||
Shares sold | 109,622 | 44,879 | $ | 1,187,631 | $ | 493,946 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 6,777 | 7,290 | 73,786 | 80,647 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (90,384 | ) | (39,277 | ) | (988,521 | ) | (433,148 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 26,015 | 12,892 | $ | 272,896 | $ | 141,445 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class Z | ||||||||||||||||||||||||
Shares sold | 2,375,250 | 1,172,124 | $ | 26,160,476 | $ | 13,024,067 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends and distributions | 56,077 | 50,947 | 613,861 | 564,384 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (3,964,619 | ) | (619,318 | ) | (43,168,723 | ) | (6,895,540 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (1,533,292 | ) | 603,753 | $ | (16,394,386 | ) | $ | 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 rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 81 |
NOTES TO FINANCIAL STATEMENTS (continued)
to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, generally 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-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-Related and/or Other Asset-Backed Securities Risk—Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by nongovernmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
82 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
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 INTERMEDIATE BOND PORTFOLIO | 83 |
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 $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 8,976,063 | $ | 8,551,774 | ||||
Net long-term capital gains | – 0 | – | 181,353 | |||||
|
|
|
| |||||
Total taxable distributions | 8,976,063 | 8,733,127 | ||||||
Return of capital | – 0 | – | 1,109,149 | |||||
|
|
|
| |||||
Total distributions paid | $ | 8,976,063 | $ | 9,842,276 | ||||
|
|
|
|
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 996,758 | ||
Accumulated capital and other losses | (7,963,213 | )(a) | ||
Unrealized appreciation/(depreciation) | (7,396,885 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (14,363,340 | )(c) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $ 7,963,213. |
(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) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to dividends payable, the accrual of foreign capital gains tax, 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, 2018, the Fund had a net short-term capital loss carryforward of $4,340,047 and a net long-term capital loss carryforward of $3,623,166, which may be carried forward for an indefinite period.
84 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the current fiscal year, there were no permanent differences that resulted in adjustments to accumulated loss or additional paid-in capital.
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 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 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 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.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements 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.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 85 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .25 | .24 | † | .26 | .28 | .35 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.44 | ) | (.06 | ) | .27 | (.12 | ) | .23 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.19 | ) | .18 | .53 | .16 | .58 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.27 | ) | (.23 | ) | (.36 | ) | (.34 | ) | (.34 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
Tax return of capital | – 0 | – | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.27 | ) | (.30 | ) | (.36 | ) | (.34 | ) | (.34 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.65 | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (1.75 | )% | 1.68 | %† | 4.93 | % | 1.45 | % | 5.34 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $216,950 | $240,386 | $245,683 | $252,965 | $273,962 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .77 | % | .79 | % | .85 | % | .88 | % | .90 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.01 | % | 1.03 | % | 1.03 | % | 1.06 | % | 1.06 | % | ||||||||||
Net investment income(b) | 2.29 | % | 2.16 | %† | 2.35 | % | 2.51 | % | 3.15 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
86 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class B | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .17 | .15 | † | .18 | .20 | .28 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.44 | ) | (.05 | ) | .27 | (.12 | ) | .22 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.27 | ) | .10 | .45 | .08 | .50 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.19 | ) | (.16 | ) | (.28 | ) | (.26 | ) | (.26 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
Tax return of capital | – 0 | – | (.02 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.19 | ) | (.22 | ) | (.28 | ) | (.26 | ) | (.26 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.65 | $ 11.11 | $ 11.23 | $ 11.06 | $ 11.24 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (2.48 | )% | .92 | %† | 4.15 | % | .72 | % | 4.61 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $511 | $743 | $1,106 | $1,692 | $3,017 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.52 | % | 1.54 | % | 1.60 | % | 1.60 | % | 1.60 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.80 | % | 1.81 | % | 1.81 | % | 1.80 | % | 1.78 | % | ||||||||||
Net investment income(b) | 1.53 | % | 1.38 | %† | 1.59 | % | 1.77 | % | 2.48 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 87 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.08 | $ 11.21 | $ 11.04 | $ 11.22 | $ 10.98 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .17 | .15 | † | .18 | .20 | .27 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.43 | ) | (.06 | ) | .27 | (.12 | ) | .23 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.26 | ) | .09 | .45 | .08 | .50 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.19 | ) | (.16 | ) | (.28 | ) | (.26 | ) | (.26 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
Tax return of capital | – 0 | – | (.02 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.19 | ) | (.22 | ) | (.28 | ) | (.26 | ) | (.26 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.63 | $ 11.08 | $ 11.21 | $ 11.04 | $ 11.22 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (2.40 | )% | .83 | %† | 4.16 | % | .73 | % | 4.63 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $11,334 | $15,676 | $41,886 | $40,928 | $42,690 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.52 | % | 1.55 | % | 1.60 | % | 1.60 | % | 1.60 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.76 | % | 1.78 | % | 1.78 | % | 1.78 | % | 1.77 | % | ||||||||||
Net investment income(b) | 1.54 | % | 1.38 | %† | 1.60 | % | 1.79 | % | 2.46 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
88 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.24 | $ 11.06 | $ 11.24 | $ 11.00 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .28 | .27 | † | .29 | .31 | .39 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.44 | ) | (.07 | ) | .28 | (.12 | ) | .22 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.16 | ) | .20 | .57 | .19 | .61 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.25 | ) | (.39 | ) | (.37 | ) | (.37 | ) | ||||||||||
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 | (.30 | ) | (.33 | ) | (.39 | ) | (.37 | ) | (.37 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.65 | $ 11.11 | $ 11.24 | $ 11.06 | $ 11.24 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (1.50 | )% | 1.84 | %† | 5.29 | % | 1.73 | % | 5.65 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $76,406 | $67,357 | $56,068 | $22,705 | $26,352 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .52 | % | .54 | % | .60 | % | .60 | % | .60 | % | ||||||||||
Expenses, before waivers/reimbursements | .76 | % | .78 | % | .78 | % | .77 | % | .75 | % | ||||||||||
Net investment income(b) | 2.55 | % | 2.41 | %† | 2.60 | % | 2.78 | % | 3.51 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 89 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class R | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.10 | $ 11.23 | $ 11.06 | $ 11.24 | $ 11.00 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .23 | .21 | † | .23 | .26 | .33 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.44 | ) | (.06 | ) | .28 | (.12 | ) | .23 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.21 | ) | .15 | .51 | .14 | .56 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.24 | ) | (.21 | ) | (.34 | ) | (.32 | ) | (.32 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
Tax return of capital | – 0 | – | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.24 | ) | (.28 | ) | (.34 | ) | (.32 | ) | (.32 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.65 | $ 11.10 | $ 11.23 | $ 11.06 | $ 11.24 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (1.90 | )% | 1.34 | %† | 4.67 | % | 1.23 | % | 5.13 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,814 | $2,699 | $3,023 | $2,936 | $2,368 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.02 | % | 1.04 | % | 1.10 | % | 1.10 | % | 1.10 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.35 | % | 1.39 | % | 1.38 | % | 1.38 | % | 1.36 | % | ||||||||||
Net investment income(b) | 2.07 | % | 1.91 | %† | 2.10 | % | 2.29 | % | 2.94 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
90 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class K | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.11 | $ 11.24 | $ 11.07 | $ 11.24 | $ 11.01 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .25 | .24 | † | .26 | .28 | .35 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.43 | ) | (.07 | ) | .27 | (.10 | ) | .22 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.18 | ) | .17 | .53 | .18 | .57 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.27 | ) | (.23 | ) | (.36 | ) | (.35 | ) | (.34 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | (.04 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
Tax return of capital | – 0 | – | (.03 | ) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.27 | ) | (.30 | ) | (.36 | ) | (.35 | ) | (.34 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.66 | $ 11.11 | $ 11.24 | $ 11.07 | $ 11.24 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (1.66 | )% | 1.59 | %† | 4.93 | % | 1.57 | % | 5.30 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $7,863 | $5,876 | $5,706 | $3,922 | $4,515 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .77 | % | .79 | % | .85 | % | .85 | % | .85 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.08 | % | 1.09 | % | 1.09 | % | 1.08 | % | 1.03 | % | ||||||||||
Net investment income(b) | 2.32 | % | 2.15 | %† | 2.34 | % | 2.53 | % | 3.17 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 91 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class I | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 11.12 | $ 11.24 | $ 11.07 | $ 11.25 | $ 11.01 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .28 | .27 | † | .28 | .31 | .36 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.44 | ) | (.06 | ) | .28 | (.12 | ) | .25 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.16 | ) | .21 | .56 | .19 | .61 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.25 | ) | (.39 | ) | (.37 | ) | (.37 | ) | ||||||||||
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 | (.30 | ) | (.33 | ) | (.39 | ) | (.37 | ) | (.37 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.66 | $ 11.12 | $ 11.24 | $ 11.07 | $ 11.25 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d)* | (1.50 | )% | 1.93 | %† | 5.20 | % | 1.73 | % | 5.65 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $2,894 | $2,729 | $2,613 | $511 | $107 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .52 | % | .54 | % | .60 | % | .60 | % | .60 | % | ||||||||||
Expenses, before waivers/reimbursements | .72 | % | .75 | % | .76 | % | .75 | % | .75 | % | ||||||||||
Net investment income(b) | 2.57 | % | 2.41 | %† | 2.56 | % | 2.74 | % | 3.22 | % | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
92 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class Z | ||||||||||||||||||||
Year Ended October 31, | April 28, 2014(e) to October 31, 2014 | |||||||||||||||||||
2018 | 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) | .27 | .27 | † | .28 | .32 | .19 | ||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.43 | ) | (.07 | ) | .29 | (.13 | ) | .10 | ||||||||||||
Contributions from Affiliates | – 0 | – | .00 | (c) | – 0 | – | – 0 | – | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.16 | ) | .20 | .57 | .19 | .29 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.30 | ) | (.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 | (.30 | ) | (.33 | ) | (.39 | ) | (.37 | ) | (.18 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.67 | $ 11.13 | $ 11.26 | $ 11.08 | $ 11.26 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.49 | )% | 1.84 | %† | 5.28 | % | 1.72 | % | 2.61 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $7,274 | $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) | 2.48 | % | 2.42 | %† | 2.52 | % | 2.91 | % | 3.29 | %^ | ||||||||||
Portfolio turnover rate** | 195 | % | 209 | % | 128 | % | 198 | % | 221 | % |
See footnote summary on page 94.
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 93 |
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 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 ended October 31, 2014 by .01%. |
** | The Fund accounts for dollar roll transactions as purchases and sales. |
^ | Annualized. |
See notes to financial statements.
94 | AB INTERMEDIATE BOND PORTFOLIO | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of AB Intermediate Bond Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Intermediate Bond Portfolio (the “Fund”), (one of the Funds constituting the AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of October 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the Funds constituting AB Bond Fund, Inc.) at October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
abfunds.com | AB INTERMEDIATE BOND PORTFOLIO | 95 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 27, 2018
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2018 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended October 31, 2018. For foreign shareholders, 85.28% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2019.
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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 Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company 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. |
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MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,+ 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,# Chairman of the Board 77 (2005) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Michael J. Downey,# 74 (2005) | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 | |||||
William H. Foulk, Jr.,# ^ 86 (1998) | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,# 70 (2006) | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Carol C. McMullen,# 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016 and Managing Director of The Crossland Group (consulting) from 2012 to 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS* AND AGE (YEAR FIRST ELECTED**) | PRINCIPAL DURING PAST FIVE YEARS | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody,# 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,# 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
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MANAGEMENT OF THE FUND (continued)
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Dept. -Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
+ | Mr. Keith is an “interested person” of the Fund as defined in the “40 Act”, due to his position as a Senior Vice President of the Adviser. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is set forth below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Michael Canter 49 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Director of US Multi-Sector and Securitized Assets. | ||
Shawn E. Keegan 47 | Vice President | Vice President of the Adviser**, with which he has been associated since prior to 2013. | ||
Douglas J. Peebles 53 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of Fixed Income. | ||
Janaki Rao 48 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since March 2013. Previously, he was a Vice President with Morgan Stanley from 2005 to March 2013. | ||
Greg J. Wilensky 51 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Director of US Multi-Sector Fixed Income, US Inflation- Linked Fixed Income and Stable Value Investments. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. | ||
Phyllis J. Clarke 57 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser ** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-800-227-4618, or visit www.abfunds.com, for a free prospectus or SAI.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB Intermediate Bond Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds,
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actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of the investment research capabilities of the Adviser and the other resources
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it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed Agreements 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
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the Adviser’s relationship with each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by
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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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional,
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offshore fund and sub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current 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”).
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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 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
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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 relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by
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the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed 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 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.
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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 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,
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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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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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AB INTERMEDIATE BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
IB-0151-1018
OCT 10.31.18
ANNUAL REPORT
AB MUNICIPAL BOND INFLATION STRATEGY
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
ANNUAL REPORT
December 19, 2018
This report provides management’s discussion of fund performance for AB Municipal Bond Inflation Strategy for the annual period ended October 31, 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 OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB MUNICIPAL BOND INFLATION STRATEGY | ||||||||
Class 1 Shares1 | -0.24% | -0.32% | ||||||
Class 2 Shares1 | -0.19% | -0.12% | ||||||
Class A Shares | -0.33% | -0.42% | ||||||
Class C Shares | -0.71% | -1.09% | ||||||
Advisor Class Shares2 | -0.21% | -0.17% | ||||||
Bloomberg Barclays 1-10 Year TIPS Index | -0.45% | -0.61% |
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 October 31, 2018.
All share classes except Class C outperformed the benchmark for both periods, before sales charges. The Fund invests in municipal bonds, uses derivatives for inflation protection and takes a more diversified approach than a typical municipal bond fund. Outperformance over both periods was driven by the Fund’s lower interest-rate risk as interest rates rose. An overweight to credit contributed, relative to the benchmark, as lower credit quality bonds outperformed the benchmark, which is exclusively comprised of Treasuries.
For the 12-month period, holding consumer price index (“CPI”) swaps contributed to performance, while security selection in municipal bonds
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and the special tax sector detracted. During the six-month period, security selection in municipal bonds contributed, while holding CPI swaps detracted. Yield-curve positioning in seven- to 10-year duration municipals also detracted.
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, which detracted from performance for the 12-month period and added for the six-month period.
MARKET REVIEW AND INVESTMENT STRATEGY
Economic growth and inflation expectations continued to rise throughout the 12-month period. Forty-six states realized positive growth during the third quarter, while state and local tax collections were at all-time highs. The US Federal Reserve increased its federal funds target rate to 2.00%-2.25% at the end of September, the third rate increase in 2018. Performance of municipal issues was mixed during the 12-month period, reaching historically expensive valuations versus US Treasuries in July. However, municipals retreated to more normal levels versus US Treasuries toward the end of the reporting period.
The Fund’s Senior Investment Management Team (the “Team”) maintained 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 company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of October 31, 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 3.92% and 0.06%, respectively.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 3 |
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 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.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays 1-10 Year TIPS Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays 1-10 Year TIPS Index represents the performance of inflation-protected securities issued by the US Treasury. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the 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.
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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.
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 volumes, large positions and heavy redemptions of Fund shares. Over recent years, liquidity risk has also increased because the capacity of
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DISCLOSURES AND RISKS (continued)
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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 7 |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
1/26/20101 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB Municipal Bond Inflation Strategy Class A shares (from 1/26/20101 to 10/31/2018) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 3.00% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
1 | Inception date: 1/26/2010. |
8 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
CLASS 1 SHARES2 | 2.25% | |||||||||||
1 Year | -0.32% | -0.32% | ||||||||||
5 Years | 1.22% | 1.22% | ||||||||||
Since Inception3 | 1.79% | 1.79% | ||||||||||
CLASS 2 SHARES2 | 2.35% | |||||||||||
1 Year | -0.12% | -0.12% | ||||||||||
5 Years | 1.34% | 1.34% | ||||||||||
Since Inception3 | 1.90% | 1.90% | ||||||||||
CLASS A SHARES | 1.99% | |||||||||||
1 Year | -0.42% | -3.42% | ||||||||||
5 Years | 1.05% | 0.43% | ||||||||||
Since Inception3 | 1.62% | 1.26% | ||||||||||
CLASS C SHARES | 1.30% | |||||||||||
1 Year | -1.09% | -2.07% | ||||||||||
5 Years | 0.32% | 0.32% | ||||||||||
Since Inception3 | 0.90% | 0.90% | ||||||||||
ADVISOR CLASS SHARES4 | 2.30% | |||||||||||
1 Year | -0.17% | -0.17% | ||||||||||
5 Years | 1.33% | 1.33% | ||||||||||
Since Inception3 | 1.90% | 1.90% |
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 section since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended October 31, 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
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
CLASS 1 SHARES1 | ||||
1 Year | 1.15% | |||
5 Years | 1.56% | |||
Since Inception2 | 1.95% | |||
CLASS 2 SHARES1 | ||||
1 Year | 1.26% | |||
5 Years | 1.68% | |||
Since Inception2 | 2.06% | |||
CLASS A SHARES | ||||
1 Year | -2.09% | |||
5 Years | 0.77% | |||
Since Inception2 | 1.42% | |||
CLASS C SHARES | ||||
1 Year | -0.72% | |||
5 Years | 0.66% | |||
Since Inception2 | 1.05% | |||
ADVISOR CLASS SHARES3 | ||||
1 Year | 1.20% | |||
5 Years | 1.68% | |||
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 May 1, 2018 | Ending Account Value October 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 996.70 | $ | 3.77 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 992.90 | $ | 7.53 | 1.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.64 | $ | 7.63 | 1.50 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 997.90 | $ | 2.52 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.68 | $ | 2.55 | 0.50 | % | ||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000 | $ | 997.60 | $ | 3.02 | 0.60 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.18 | $ | 3.06 | 0.60 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000 | $ | 998.10 | $ | 2.52 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.68 | $ | 2.55 | 0.50 | % |
* | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
12 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,028.4
1 | All data are as of October 31, 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 the S&P Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the Pre-refunded category includes bonds which are secured by US 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
October 31, 2018
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 100.7% | ||||||||
Long-Term Municipal Bonds – 100.7% | ||||||||
Alabama – 3.5% | ||||||||
Alabama Special Care Facilities Financing Authority-Birmingham AL | $ | 3,905 | $ | 4,338,611 | ||||
Infirmary Health System Special Care Facilities Financing Authority of Mobile | 2,110 | 2,349,949 | ||||||
Southeast Alabama Gas District (The) | 17,025 | 17,751,116 | ||||||
Special Care Facilities Financing Authority of the City of Pell City Alabama | 11,235 | 11,949,097 | ||||||
|
| |||||||
36,388,773 | ||||||||
|
| |||||||
Arizona – 1.8% | ||||||||
Arizona State University COP | 8,345 | 8,988,360 | ||||||
City of Phoenix Civic Improvement Corp. | 3,330 | 3,558,271 | ||||||
County of Pima AZ Sewer System Revenue | 630 | 659,282 | ||||||
5.00%, 7/01/21 | 1,135 | 1,187,755 | ||||||
Salt River Project Agricultural Improvement & Power District | 3,140 | 3,383,884 | ||||||
Tempe Industrial Development Authority | 1,200 | 1,200,408 | ||||||
|
| |||||||
18,977,960 | ||||||||
|
|
14 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
California – 2.2% | ||||||||
Golden State Tobacco Securitization Corp. | $ | 2,040 | $ | 1,999,037 | ||||
San Francisco City & County Airport Comm-San Francisco International Airport | 450 | 457,344 | ||||||
State of California | 5,000 | 5,285,050 | ||||||
Series 2012 | 9,305 | 9,814,356 | ||||||
Series 2014 | 4,250 | 4,800,033 | ||||||
|
| |||||||
22,355,820 | ||||||||
|
| |||||||
Colorado – 4.7% | ||||||||
Centerra Metropolitan District No. 1 | 1,510 | 1,588,943 | ||||||
City & County of Denver CO Airport System Revenue | 375 | 394,642 | ||||||
Series 2012A | 10,395 | 11,315,789 | ||||||
Series 2018A | 16,555 | 18,863,935 | ||||||
City & County of Denver CO Airport System Revenue | 3,000 | 3,253,770 | ||||||
Denver City & County School District No. 1 | 4,730 | 5,319,642 | ||||||
Denver Urban Renewal Authority | 5,655 | 5,932,338 | ||||||
Plaza Metropolitan District No. 1 | 1,310 | 1,364,588 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Regional Transportation District | $ | 440 | $ | 449,887 | ||||
|
| |||||||
48,483,534 | ||||||||
|
| |||||||
Connecticut – 2.7% | ||||||||
City of New Haven CT | 1,920 | 2,082,643 | ||||||
State of Connecticut | 5,035 | 5,478,282 | ||||||
Series 2014A | 2,230 | 2,402,513 | ||||||
Series 2014F | 1,275 | 1,392,007 | ||||||
Series 2015B | 4,330 | 4,794,219 | ||||||
Series 2016A | 5,000 | 5,392,300 | ||||||
Series 2018B | 1,440 | 1,603,958 | ||||||
State of Connecticut | 4,360 | 4,840,559 | ||||||
|
| |||||||
27,986,481 | ||||||||
|
| |||||||
District of Columbia – 0.9% | ||||||||
Metropolitan Washington Airports Authority | 8,565 | 9,668,489 | ||||||
|
| |||||||
Florida – 6.6% | ||||||||
Citizens Property Insurance Corp. | 7,315 | 7,963,694 | ||||||
City of Jacksonville FL | 1,720 | 1,803,454 | ||||||
City of Jacksonville FL | 10,190 | 11,155,889 |
16 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
City of Tampa FL Water & Wastewater System Revenue | $ | 1,565 | $ | 1,682,485 | ||||
County of Miami-Dade FL | 18,500 | 20,603,881 | ||||||
County of Miami-Dade FL Spl Tax | 1,500 | 1,641,900 | ||||||
Florida Department of Environmental Protection | 3,775 | 3,949,179 | ||||||
Series 2013A | 2,000 | 2,039,180 | ||||||
Florida Municipal Power Agency | 2,890 | 3,093,456 | ||||||
Series 2015B | 1,500 | 1,672,365 | ||||||
Greater Orlando Aviation Authority | 4,000 | 4,394,840 | ||||||
Martin County Industrial Development Authority | 1,900 | 1,926,087 | ||||||
Mid-Bay Bridge Authority | 1,000 | 1,102,350 | ||||||
South Miami Health Facilities Authority | 4,500 | 5,113,755 | ||||||
|
| |||||||
68,142,515 | ||||||||
|
| |||||||
Georgia – 2.8% | ||||||||
Augusta Development Authority | 9,555 | 10,307,052 | ||||||
Cherokee County Board of Education | 1,000 | 1,048,940 | ||||||
Main Street Natural Gas, Inc. | 9,370 | 9,770,942 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2018C | $ | 6,850 | $ | 7,163,867 | ||||
|
| |||||||
28,290,801 | ||||||||
|
| |||||||
Illinois – 7.0% | ||||||||
Chicago Board of Education | 1,200 | 1,240,656 | ||||||
Chicago Housing Authority | 8,760 | 9,556,395 | ||||||
Chicago O’Hare International Airport | 5,000 | 5,505,500 | ||||||
Series 2016C | 5,000 | 5,451,500 | ||||||
Series 2017B | 1,475 | 1,612,234 | ||||||
Chicago O’Hare International Airport | 2,500 | 2,717,525 | ||||||
5.50%, 1/01/25 | 2,250 | 2,514,330 | ||||||
Illinois Finance Authority | 6,355 | 6,694,415 | ||||||
Sangamon County Water Reclamation District | 2,170 | 2,262,051 | ||||||
State of Illinois | 1,040 | 1,053,666 | ||||||
Series 2013 | 1,670 | 1,739,606 | ||||||
Series 2013A | 4,080 | 4,186,325 | ||||||
Series 2014 | 4,180 | 4,260,381 | ||||||
Series 2017B | 5,050 | 5,256,393 | ||||||
Series 2017D | 12,420 | 12,903,386 | ||||||
Series 2018A | 2,785 | 2,902,973 | ||||||
Series 2018B | 1,730 | 1,803,283 | ||||||
|
| |||||||
71,660,619 | ||||||||
|
|
18 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Indiana – 0.5% | ||||||||
Indiana Municipal Power Agency | $ | 2,860 | $ | 2,956,125 | ||||
5.00%, 1/01/23 (Pre-refunded/ETM) | 2,105 | 2,259,465 | ||||||
|
| |||||||
5,215,590 | ||||||||
|
| |||||||
Iowa – 0.2% | ||||||||
Iowa Finance Authority | 2,250 | 2,389,320 | ||||||
|
| |||||||
Kentucky – 0.8% | ||||||||
Kentucky Municipal Power Agency | 4,875 | 5,310,371 | ||||||
Kentucky Turnpike Authority | 2,275 | �� | 2,491,262 | |||||
|
| |||||||
7,801,633 | ||||||||
|
| |||||||
Louisiana – 4.5% | ||||||||
Jefferson Sales Tax District | 1,800 | 2,015,874 | ||||||
State of Louisiana | 30,210 | 34,105,291 | ||||||
State of Louisiana Gasoline & Fuels Tax Revenue | 2,860 | 3,122,090 | ||||||
5.00%, 5/01/27 | 6,225 | 6,734,329 | ||||||
|
| |||||||
45,977,584 | ||||||||
|
| |||||||
Maryland – 3.4% | ||||||||
State of Maryland | 26,600 | 28,596,330 | ||||||
Series 2017B | 5,790 | 6,576,803 | ||||||
|
| |||||||
35,173,133 | ||||||||
|
| |||||||
Massachusetts – 4.4% | ||||||||
Commonwealth of Massachusetts | 9,575 | 9,601,331 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Commonwealth of Massachusetts | $ | 3,450 | $ | 3,503,475 | ||||
Commonwealth of Massachusetts Transportation Fund Revenue | 10,960 | 12,659,491 | ||||||
Massachusetts Bay Transportation Authority | 3,330 | 3,595,768 | ||||||
Series 2004C | 2,650 | 2,650,371 | ||||||
Massachusetts Clean Water Trust (The) | 3,240 | 3,273,113 | ||||||
Massachusetts Development Finance Agency | 1,655 | 1,924,831 | ||||||
Massachusetts School Building Authority | 2,475 | 2,717,773 | ||||||
Metropolitan Boston Transit Parking Corp. | 5,025 | 5,364,620 | ||||||
|
| |||||||
45,290,773 | ||||||||
|
| |||||||
Michigan – 2.5% | ||||||||
City of Detroit MI Sewage Disposal System Revenue | 3,750 | 3,971,100 | ||||||
Michigan Finance Authority | 2,735 | 3,058,183 |
20 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Michigan Finance Authority | $ | 10,545 | $ | 11,845,831 | ||||
Michigan Finance Authority | 1,785 | 1,967,177 | ||||||
University of Michigan | 4,000 | 4,533,680 | ||||||
|
| |||||||
25,375,971 | ||||||||
|
| |||||||
Minnesota – 0.1% | ||||||||
Minnesota Higher Education Facilities Authority | 1,295 | 1,329,266 | ||||||
|
| |||||||
Mississippi – 0.4% | ||||||||
Mississippi Development Bank | 1,500 | 1,507,350 | ||||||
Mississippi Development Bank | 1,000 | 1,004,900 | ||||||
Mississippi Hospital Equipment & Facilities Authority | 1,500 | 1,578,270 | ||||||
|
| |||||||
4,090,520 | ||||||||
|
| |||||||
Missouri – 0.2% | ||||||||
Lees Summit Industrial Development Authority | 1,675 | 1,691,013 | ||||||
|
| |||||||
Montana – 0.3% | ||||||||
Montana Facility Finance Authority | 3,275 | 3,589,242 | ||||||
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Nevada – 1.0% | ||||||||
City of Reno NV | $ | 1,000 | $ | 1,016,860 | ||||
Series 2013B | 2,210 | 2,247,261 | ||||||
County of Clark Department of Aviation | 775 | 799,503 | ||||||
Las Vegas Valley Water District | 1,500 | 1,566,780 | ||||||
Series 2015B | 4,250 | 4,491,527 | ||||||
|
| |||||||
10,121,931 | ||||||||
|
| |||||||
New Jersey – 6.9% | ||||||||
New Jersey Economic Development Authority | 1,150 | 1,215,607 | ||||||
Series 2017B | 1,000 | 1,045,420 | ||||||
New Jersey Economic Development Authority | 3,810 | 4,144,088 | ||||||
New Jersey Transportation Trust Fund Authority | 4,390 | 4,793,134 | ||||||
Series 2018A | 21,670 | 23,686,185 | ||||||
New Jersey Transportation Trust Fund Authority | 10,000 | 10,546,400 | ||||||
Series 2014C | 2,960 | 3,158,942 | ||||||
New Jersey Turnpike Authority | 1,600 | 1,767,200 | ||||||
5.00%, 1/01/23 | 200 | 219,982 | ||||||
Series 2014A | 4,785 | 5,335,323 |
22 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2014C | $ | 1,590 | $ | 1,748,857 | ||||
Series 2017A | 7,300 | 8,131,762 | ||||||
Tobacco Settlement Financing Corp./NJ | 4,750 | 5,232,077 | ||||||
|
| |||||||
71,024,977 | ||||||||
|
| |||||||
New York – 12.5% | ||||||||
City of New York NY | 4,250 | 4,546,608 | ||||||
Series 2014J | 6,100 | 6,551,034 | ||||||
Metropolitan Transportation Authority | 4,065 | 4,508,898 | ||||||
5.00%, 11/15/25 (Pre-refunded/ETM) | 5,000 | 5,546,000 | ||||||
Series 2012F | 3,635 | 3,942,485 | ||||||
Series 2013A | 2,300 | 2,577,610 | ||||||
Series 2013E | 8,510 | 9,618,257 | ||||||
New York City Municipal Water Finance Authority | 3,875 | 4,134,276 | ||||||
New York City Transitional Finance Authority Future Tax Secured Revenue | 6,830 | 7,464,780 | ||||||
New York State Dormitory Authority | 3,000 | 3,186,390 | ||||||
Series 2012A | 14,610 | 16,145,511 | ||||||
Series 2012B | 7,900 | 8,217,264 | ||||||
Series 2014A | 6,565 | 7,303,957 | ||||||
New York State Environmental Facilities Corp. | 3,000 | 3,208,650 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New York State Thruway Authority | $ | 17,025 | $ | 18,164,313 | ||||
New York Transportation Development Corp. | 4,000 | 4,063,240 | ||||||
New York Transportation Development Corp. | 9,255 | 10,216,473 | ||||||
Triborough Bridge & Tunnel Authority | 4,360 | 4,497,078 | ||||||
Series 2013B | 4,100 | 4,337,431 | ||||||
|
| |||||||
128,230,255 | ||||||||
|
| |||||||
North Carolina – 1.4% | ||||||||
North Carolina Eastern Municipal Power Agency | 6,700 | 7,105,819 | ||||||
State of North Carolina | 6,710 | 7,606,456 | ||||||
|
| |||||||
14,712,275 | ||||||||
|
| |||||||
Ohio – 2.9% | ||||||||
American Municipal Power, Inc. | 5,000 | 5,414,850 | ||||||
City of Chillicothe/OH | 3,385 | 3,606,007 | ||||||
City of Cleveland OH Airport System Revenue | 2,585 | 2,848,449 | ||||||
City of Cleveland OH Income Tax Revenue | 7,585 | 8,695,401 | ||||||
Series 2017B-2 | 1,485 | 1,698,157 | ||||||
County of Cuyahoga/OH | 5,600 | 5,830,832 |
24 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Ohio Air Quality Development Authority | $ | 235 | $ | 227,950 | ||||
Ohio Water Development Authority Water Pollution Control Loan Fund | 420 | 407,400 | ||||||
Series 2016B | 825 | 800,250 | ||||||
|
| |||||||
29,529,296 | ||||||||
|
| |||||||
Oregon – 0.8% | ||||||||
Deschutes County Hospital Facilities Authority | 1,000 | 1,007,400 | ||||||
Tri-County Metropolitan Transportation District of Oregon | 4,605 | 4,942,638 | ||||||
Series 2018A | 1,910 | 2,182,481 | ||||||
|
| |||||||
8,132,519 | ||||||||
|
| |||||||
Pennsylvania – 6.3% | ||||||||
Allegheny County Sanitary Authority | 2,250 | 2,287,935 | ||||||
City of Philadelphia PA | 12,990 | 14,550,489 | ||||||
City of Philadelphia PA Water & Wastewater Revenue | 2,135 | 2,398,076 | ||||||
Commonwealth of Pennsylvania | 10,025 | 11,253,163 | ||||||
Montgomery County Higher Education & Health Authority | 1,500 | 1,658,100 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Montgomery County Industrial Development Authority/PA | $ | 475 | $ | 485,645 | ||||
Moon Industrial Development Authority | 2,060 | 2,130,905 | ||||||
Pennsylvania Economic Development Financing Authority | 3,085 | 3,100,764 | ||||||
Series 2012B | 1,350 | 1,362,447 | ||||||
Pennsylvania Turnpike Commission | 4,250 | 4,578,397 | ||||||
Series 2017B | 7,580 | 8,163,957 | ||||||
School District of Philadelphia (The) | 1,800 | 1,880,712 | ||||||
Series 2016F | 5,000 | 5,409,900 | ||||||
State Public School Building Authority | 5,150 | 5,470,036 | ||||||
|
| |||||||
64,730,526 | ||||||||
|
| |||||||
Puerto Rico – 0.1% | ||||||||
Puerto Rico Highway & Transportation Authority | 1,035 | 1,145,331 | ||||||
NATL Series 2007N | 180 | 190,823 | ||||||
|
| |||||||
1,336,154 | ||||||||
|
| |||||||
South Carolina – 1.1% | ||||||||
Renewable Water Resources | 1,425 | 1,537,646 | ||||||
5.00%, 1/01/24 | 1,145 | 1,235,512 | ||||||
South Carolina Public Service Authority | 2,535 | 2,690,692 | ||||||
Series 2016B | 5,040 | 5,352,732 |
26 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2016C | $ | 930 | $ | 990,999 | ||||
|
| |||||||
11,807,581 | ||||||||
|
| |||||||
Tennessee – 0.4% | ||||||||
Bristol Industrial Development Board | 1,410 | 1,309,044 | ||||||
Metropolitan Government of Nashville & Davidson County TN | 455 | 498,252 | ||||||
5.00%, 7/01/23 | 1,930 | 2,115,608 | ||||||
|
| |||||||
3,922,904 | ||||||||
|
| |||||||
Texas – 7.0% | ||||||||
Austin Community College District Public Facility Corp. | 1,000 | 1,022,490 | ||||||
Birdville Independent School District | 3,825 | 4,151,196 | ||||||
Central Texas Regional Mobility Authority | 2,085 | 2,136,729 | ||||||
City of Corpus Christi TX Utility System Revenue | 5,675 | 6,077,187 | ||||||
City of Garland TX | 500 | 517,640 | ||||||
City of Houston TX Airport System Revenue | 2,105 | 2,143,985 | ||||||
City of Houston TX Airport System Revenue | 2,150 | 2,284,762 | ||||||
City of Houston TX Combined Utility System Revenue | 2,735 | 2,956,180 | ||||||
Series 2014C | 1,100 | 1,238,919 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
City of Lubbock TX | $ | 1,740 | $ | 1,755,051 | ||||
Conroe Independent School District | 255 | 264,328 | ||||||
5.00%, 2/15/24-2/15/26 | 4,955 | 5,131,613 | ||||||
5.00%, 2/15/26 (Pre-refunded/ETM) | 1,030 | 1,067,677 | ||||||
Harris County-Houston Sports Authority | 4,220 | 4,535,529 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 1,000 | 1,035,430 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 35 | 34,589 | ||||||
New Hope Cultural Education Facilities Finance Corp. | 1,000 | 1,073,630 | ||||||
North Texas Tollway Authority | 3,625 | 3,914,239 | ||||||
North Texas Tollway Authority | 3,000 | 3,206,400 | ||||||
San Antonio Independent School District/TX | 1,710 | 1,814,549 | ||||||
Spring Branch Independent School District | 3,485 | 3,696,888 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 900 | 752,022 |
28 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Tarrant County Cultural Education Facilities Finance Corp. | $ | 1,550 | $ | 1,532,594 | ||||
Tarrant County Cultural Education Facilities Finance Corp. | 13,405 | 14,937,502 | ||||||
Texas Transportation Commission State Highway Fund | 2,865 | 3,293,575 | ||||||
University of Texas System (The) | 1,070 | 1,109,836 | ||||||
|
| |||||||
71,684,540 | ||||||||
|
| |||||||
Virginia – 0.6% | ||||||||
Fairfax County Economic Development Authority | 2,000 | 2,081,200 | ||||||
5.00%, 4/01/26 (Pre-refunded/ETM) | 4,000 | 4,162,400 | ||||||
|
| |||||||
6,243,600 | ||||||||
|
| |||||||
Washington – 5.5% | ||||||||
Central Puget Sound Regional Transit Authority | 7,815 | 8,464,046 | ||||||
Chelan County Public Utility District No. 1 | 3,305 | 3,549,140 | ||||||
City of Seattle WA Water System Revenue | 4,020 | 4,491,908 | ||||||
City of Tacoma WA Electric System Revenue | 2,720 | 2,768,519 | ||||||
5.00%, 1/01/20 (Pre-refunded/ETM)(a) | 1,280 | 1,321,971 | ||||||
Energy Northwest | 4,200 | 4,284,252 | ||||||
Port of Seattle WA | 4,820 | 5,280,455 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
State of Washington | $ | 710 | $ | 733,366 | ||||
Series 2015R | 13,325 | 15,078,303 | ||||||
Series 2017D | 9,985 | 10,603,471 | ||||||
|
| |||||||
56,575,431 | ||||||||
|
| |||||||
West Virginia – 3.1% | ||||||||
State of West Virginia | 27,530 | 31,785,074 | ||||||
|
| |||||||
Wisconsin – 1.6% | ||||||||
Wisconsin Department of Transportation | 9,520 | 10,611,013 | ||||||
5.00%, 7/01/24 (Pre-refunded/ETM)(a) | 2,480 | 2,765,150 | ||||||
Wisconsin Public Finance Authority | 2,550 | 2,576,291 | ||||||
|
| |||||||
15,952,454 | ||||||||
|
| |||||||
Total Municipal Obligations | 1,035,668,554 | |||||||
|
| |||||||
GOVERNMENTS – TREASURIES – 1.5% | ||||||||
United States – 1.5% | ||||||||
U.S. Treasury Notes | 15,000 | 14,920,313 | ||||||
|
| |||||||
Total Investments – 102.2% | 1,050,588,867 | |||||||
Other assets less liabilities – (2.2)% | (22,141,254 | ) | ||||||
|
| |||||||
Net Assets – 100.0% | $ | 1,028,447,613 | ||||||
|
|
30 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 69 | $ | (9,564 | ) | $ | (7,069 | ) | $ | (2,495 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 598 | (82,893 | ) | (79,043 | ) | (3,850 | ) | |||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 708 | (98,141 | ) | (71,414 | ) | (26,727 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 38 | (5,267 | ) | (3,929 | ) | (1,338 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,216 | (168,558 | ) | (154,842 | ) | (13,716 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 471 | (65,289 | ) | (48,761 | ) | (16,528 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 40 | (5,544 | ) | (5,127 | ) | (417 | ) | |||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 231 | (32,021 | ) | (30,406 | ) | (1,615 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 614 | (85,111 | ) | (60,113 | ) | (24,998 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (552,388 | ) | $ | (460,704 | ) | $ | (91,684 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
* | 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 | $ | 452,407 | ||||||||||||||||
Bank of America, NA | USD | 25,000 | 2/02/32 | 2.403% | CPI# | Maturity | (370,537 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 5,500 | 6/02/19 | 2.580% | CPI# | Maturity | (466,183 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 4,000 | 6/15/20 | 2.480% | CPI# | Maturity | (310,015 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 35,000 | 7/02/20 | 2.256% | CPI# | Maturity | (1,537,879 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 1,500 | 8/04/20 | 2.308% | CPI# | Maturity | (80,434 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 21,528 | 8/31/20 | 2.235% | CPI# | Maturity | (98,364 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 21,528 | 9/04/20 | 2.248% | CPI# | Maturity | (98,002 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 25,256 | 9/20/20 | 2.263% | CPI# | Maturity | (111,061 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 24,320 | 10/15/20 | 2.208% | CPI# | Maturity | (66,463 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 12,934 | 10/15/20 | 2.210% | CPI# | Maturity | (35,973 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 2,000 | 11/10/20 | 2.500% | CPI# | Maturity | (143,552 | ) |
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 | 1,000 | 5/04/21 | 2.845% | CPI# | Maturity | $ | (119,973 | ) | |||||||||||||||
Barclays Bank PLC | USD | 3,000 | 5/12/21 | 2.815% | CPI# | Maturity | (353,131 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 14,000 | 4/03/22 | 2.663% | CPI# | Maturity | (1,416,426 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 16,700 | 10/05/22 | 2.765% | CPI# | Maturity | (1,753,360 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 25,000 | 8/07/24 | 2.573% | CPI# | Maturity | (1,834,698 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 19,000 | 5/05/25 | 2.125% | CPI# | Maturity | (5,433 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 5,400 | 3/06/27 | 2.695% | CPI# | Maturity | (666,605 | ) | ||||||||||||||||
Barclays Bank PLC | USD | 20,000 | 6/06/32 | 2.145% | CPI# | Maturity | 441,617 | |||||||||||||||||
Barclays Bank PLC | USD | 14,000 | 9/01/32 | 2.128% | CPI# | Maturity | 383,077 | |||||||||||||||||
Barclays Bank PLC | USD | 22,000 | 8/29/33 | 2.368% | CPI# | Maturity | (208,388 | ) | ||||||||||||||||
Citibank, NA | USD | 17,690 | 10/17/20 | 2.220% | CPI# | Maturity | (50,292 | ) | ||||||||||||||||
Citibank, NA | USD | 15,600 | 12/14/20 | 1.548% | CPI# | Maturity | 398,660 | |||||||||||||||||
Citibank, NA | USD | 35,000 | 7/03/21 | 2.283% | CPI# | Maturity | (161,117 | ) | ||||||||||||||||
Citibank, NA | USD | 9,000 | 6/29/22 | 2.398% | CPI# | Maturity | (663,894 | ) | ||||||||||||||||
Citibank, NA | USD | 5,400 | 7/19/22 | 2.400% | CPI# | Maturity | (386,934 | ) | ||||||||||||||||
Citibank, NA | USD | 4,000 | 8/10/22 | 2.550% | CPI# | Maturity | (342,811 | ) | ||||||||||||||||
Citibank, NA | USD | 15,500 | 12/07/22 | 2.748% | CPI# | Maturity | (1,685,368 | ) | ||||||||||||||||
Citibank, NA | USD | 47,000 | 5/24/23 | 2.533% | CPI# | Maturity | (3,735,795 | ) | ||||||||||||||||
Citibank, NA | USD | 30,000 | 10/29/23 | 2.524% | CPI# | Maturity | (2,138,210 | ) | ||||||||||||||||
Citibank, NA | USD | 30,000 | 9/19/24 | 2.070% | CPI# | Maturity | 444,233 | |||||||||||||||||
Citibank, NA | USD | 25,000 | 7/03/25 | 2.351% | CPI# | Maturity | (234,227 | ) | ||||||||||||||||
Citibank, NA | USD | 15,800 | 2/08/28 | 2.940% | CPI# | Maturity | (2,467,805 | ) | ||||||||||||||||
Deutsche Bank AG | USD | 11,000 | 6/20/21 | 2.655% | CPI# | Maturity | (1,143,537 | ) | ||||||||||||||||
Deutsche Bank AG | USD | 9,800 | 9/07/21 | 2.400% | CPI# | Maturity | (729,591 | ) | ||||||||||||||||
Deutsche Bank AG | USD | 25,000 | 9/02/25 | 1.880% | CPI# | Maturity | 498,581 | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,000 | 7/29/20 | 2.305% | CPI# | Maturity | (53,834 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 22,064 | 8/30/20 | 2.210% | CPI# | Maturity | (88,961 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 19,000 | 8/17/22 | 2.523% | CPI# | Maturity | (1,553,112 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,400 | 6/30/26 | 2.890% | CPI# | Maturity | (230,837 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 3,300 | 7/21/26 | 2.935% | CPI# | Maturity | (575,350 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 2,400 | 10/03/26 | 2.485% | CPI# | Maturity | (221,805 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 5,400 | 11/14/26 | 2.488% | CPI# | Maturity | (504,804 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 4,850 | 12/23/26 | 2.484% | CPI# | Maturity | (438,961 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 13,000 | 3/01/27 | 2.279% | CPI# | Maturity | (64,752 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 21,350 | 2/20/28 | 2.899% | CPI# | Maturity | (3,166,139 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 12,000 | 3/26/28 | 2.880% | CPI# | Maturity | (1,719,875 | ) | ||||||||||||||||
JPMorgan Chase Bank, NA | USD | 10,000 | 7/03/28 | 2.356% | CPI# | Maturity | (90,711 | ) |
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 | 18,000 | 4/17/30 | 2.378% | CPI# | Maturity | $ | (222,046 | ) | |||||||||||||||
JPMorgan Chase Bank, NA | USD | 24,000 | 11/17/32 | 2.183% | CPI# | Maturity | 444,956 | |||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 2,000 | 10/14/20 | 2.370% | CPI# | Maturity | (114,116 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 13,000 | 5/23/21 | 2.680% | CPI# | Maturity | (1,342,853 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 10,000 | 4/16/23 | 2.690% | CPI# | Maturity | (966,033 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 5,000 | 8/15/26 | 2.885% | CPI# | Maturity | (821,213 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | (32,527,929 | ) | ||||||||||||||||||||||
|
|
# | 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 October 31, 2018, the aggregate market value of these securities amounted to $9,965,361 or 1.0% of net assets. |
(c) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(d) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2018. |
(e) | When-Issued or delayed delivery security. |
(f) | Illiquid security. |
As of October 31, 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 3.9% and 0.1%, respectively.
Glossary:
AGC – Assured Guaranty Corporation
AGM – Assured Guaranty Municipal
COP – Certificate of Participation
CPI – Consumer Price Index
DOT – Department of Transportation
ETM – Escrowed to Maturity
NATL – National Interstate Corporation
SRF – State Revolving Fund
See notes to financial statements.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 33 |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2018
Assets |
| |||
Investments in securities, at value (cost $1,053,401,234) | $ | 1,050,588,867 | ||
Cash | 1,604,568 | |||
Interest receivable | 13,403,197 | |||
Receivable for capital stock sold | 4,495,882 | |||
Unrealized appreciation on inflation swaps | 3,063,531 | |||
Affiliated dividends receivable | 35,993 | |||
|
| |||
Total assets | 1,073,192,038 | |||
|
| |||
Liabilities | ||||
Unrealized depreciation on inflation swaps | 35,591,460 | |||
Payable for investment securities purchased | 5,761,877 | |||
Payable for capital stock redeemed | 2,178,405 | |||
Market value on credit default swaps (net premiums received $460,704) | 552,388 | |||
Advisory fee payable | 344,324 | |||
Distribution fee payable | 66,923 | |||
Administrative fee payable | 25,215 | |||
Transfer Agent fee payable | 11,271 | |||
Directors’ fees payable | 2,071 | |||
Accrued expenses | 210,491 | |||
|
| |||
Total liabilities | 44,744,425 | |||
|
| |||
Net Assets | $ | 1,028,447,613 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 102,861 | ||
Additional paid-in capital | 1,076,614,968 | |||
Accumulated loss | (48,270,216 | ) | ||
|
| |||
$ | 1,028,447,613 | |||
|
|
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 75,127,025 | 7,494,404 | $ | 10.02 | * | ||||||
| ||||||||||||
C | $ | 10,680,858 | 1,067,361 | $ | 10.01 | |||||||
| ||||||||||||
Advisor | $ | 226,144,651 | 22,545,769 | $ | 10.03 | |||||||
| ||||||||||||
1 | $ | 485,386,091 | 48,619,116 | $ | 9.98 | |||||||
| ||||||||||||
2 | $ | 231,108,988 | 23,134,312 | $ | 9.99 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.33 which reflects a sales charge of 3.00%. |
See notes to financial statements.
34 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Interest | $ | 27,516,626 | ||||||
Dividends—Affiliated issuers | 142,976 | |||||||
Other income | 1,564 | $ | 27,661,166 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 4,816,432 | |||||||
Distribution fee—Class A | 172,633 | |||||||
Distribution fee—Class C | 116,965 | |||||||
Distribution fee—Class 1 | 454,568 | |||||||
Transfer agency—Class A | 30,420 | |||||||
Transfer agency—Class C | 5,277 | |||||||
Transfer agency—Advisor Class | 93,180 | |||||||
Transfer agency—Class 1 | 23,570 | |||||||
Transfer agency—Class 2 | 11,260 | |||||||
Custodian | 193,428 | |||||||
Registration fees | 125,011 | |||||||
Audit and tax | 85,269 | |||||||
Administrative | 73,722 | |||||||
Legal | 53,185 | |||||||
Printing | 47,733 | |||||||
Directors’ fees | 25,437 | |||||||
Miscellaneous | 37,437 | |||||||
|
| |||||||
Total expenses | 6,365,527 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (812,786 | ) | ||||||
|
| |||||||
Net expenses | 5,552,741 | |||||||
|
| |||||||
Net investment income | 22,108,425 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized loss on: | ||||||||
Investment transactions | (1,419,859 | ) | ||||||
Swaps | (2,946,136 | ) | ||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (31,240,696 | ) | ||||||
Swaps | 10,244,754 | |||||||
|
| |||||||
Net loss on investment transactions | (25,361,937 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (3,253,512 | ) | |||||
|
|
See notes to financial statements.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 35 |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 22,108,425 | $ | 17,074,726 | ||||
Net realized loss on investment transactions | (4,365,995 | ) | (2,767,495 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | (20,995,942 | ) | 2,734,873 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (3,253,512 | ) | 17,042,104 | |||||
Distributions to Shareholders | ||||||||
Class A | (1,468,127 | ) | (1,019,585 | ) | ||||
Class C | (160,562 | ) | (135,480 | ) | ||||
Advisor Class | (5,042,775 | ) | (3,944,867 | ) | ||||
Class 1 | (10,641,296 | ) | (7,492,362 | ) | ||||
Class 2 | (5,309,014 | ) | (4,032,613 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 145,553,515 | 204,460,858 | ||||||
|
|
|
| |||||
Total increase | 119,678,229 | 204,878,055 | ||||||
Net Assets | ||||||||
Beginning of period | 908,769,384 | 703,891,329 | ||||||
|
|
|
| |||||
End of period | $ | 1,028,447,613 | $ | 908,769,384 | ||||
|
|
|
|
See notes to financial statements.
36 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
October 31, 2018
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”).
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 37 |
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
38 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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 rates, coupon rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 39 |
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 October 31, 2018:
Investments in Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
| |||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 1,007,083,399 | $ | 28,585,155 | $ | 1,035,668,554 | |||||||
Governments – Treasuries | – 0 | – | 14,920,313 | – 0 | – | 14,920,313 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | – 0 | – | 1,022,003,712 | 28,585,155 | 1,050,588,867 | |||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Inflation (CPI) Swaps | – 0 | – | 3,063,531 | – 0 | – | 3,063,531 | ||||||||||
Liabilities: | ||||||||||||||||
Credit Default Swaps | – 0 | – | (552,388 | ) | – 0 | – | (552,388 | ) | ||||||||
Inflation (CPI) Swaps | – 0 | – | (35,591,460 | ) | – 0 | – | (35,591,460 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(b) | $ | – 0 | – | $ | 988,923,395 | $ | 28,585,155 | $ | 1,017,508,550 | |||||||
|
|
|
|
|
|
|
|
(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.
40 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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) | (293,872 | ) | (293,872 | ) | ||||
Realized gain (loss) | 36,813 | 36,813 | ||||||
Change in unrealized appreciation/depreciation | (568,613 | ) | (568,613 | ) | ||||
Purchases | 7,929,371 | 7,929,371 | ||||||
Sales | (1,797,590 | ) | (1,797,590 | ) | ||||
Transfers in to Level 3 | 4,150,988 | 4,150,988 | (a) | |||||
Transfers out of Level 3 | – 0 | – | – 0 | – | ||||
|
|
|
| |||||
Balance as of 10/31/18 | $ | 28,585,155 | $ | 28,585,155 | ||||
|
|
|
| |||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(b) | $ | (556,435 | ) | $ | (556,435 | ) | ||
|
|
|
|
(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 October 31, 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,
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 41 |
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.
42 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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 year ended October 31, 2018, such reimbursements/waivers amounted to $797,968.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the November 14, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
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 year ended October 31, 2018, the reimbursement for such services amounted to $73,722.
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 $62,473 for the year ended October 31, 2018.
44 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 $35 from the sale of Class A shares and received $11,116 and $4,133 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended October 31, 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. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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 year ended October 31, 2018, such waiver amounted to $14,818.
A summary of the Fund’s transactions in AB mutual funds for the year ended October 31, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 11,054 | $ | 264,908 | $ | 275,962 | $ | – 0 | – | $ | 143 |
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 $404,348 and $1,638,377
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 315,562,748 | $ | 105,730,186 | ||||
U.S. government securities | 19,967,188 | 43,223,340 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 1,053,401,234 | ||
|
| |||
Gross unrealized appreciation | $ | 12,170,367 | ||
Gross unrealized depreciation | (47,510,663 | ) | ||
|
| |||
Net unrealized depreciation | $ | (35,340,296 | ) | |
|
|
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.
46 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
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 year ended October 31, 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.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 October 31, 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 year ended October 31, 2018, the Fund held credit default swaps for non-hedging purposes.
48 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
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 year ended October 31, 2018, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of Assets and | Fair Value | ||||||||
Interest rate contracts | Unrealized appreciation on inflation swaps | $ | 3,063,531 |
| Unrealized depreciation on inflation swaps | $ | 35,591,460 |
| ||||
Credit contracts | Market value on credit default swaps | 552,388 | ||||||||||
|
|
|
| |||||||||
Total | $ | 3,063,531 | $ | 36,143,848 | ||||||||
|
|
|
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 49 |
NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of 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 | $ | (3,244,324 | ) | $ | 10,336,438 | ||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 298,188 | (91,684 | ) | ||||||
|
|
|
| |||||||
Total | $ | (2,946,136 | ) | $ | 10,244,754 | |||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018:
Inflation Swaps: | ||||
Average notional amount | $ | 673,193,538 | ||
Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 3,435,333 |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 452,407 | $ | (370,537 | ) | $ | – 0 | – | $ | (81,870 | ) | $ | – 0 | – | ||||||
Barclays Bank PLC | 824,694 | (824,694 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 842,893 | (842,893 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 498,581 | (498,581 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 444,956 | (444,956 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 3,063,531 | $ | (2,981,661 | ) | $ | – 0 | – | $ | (81,870 | ) | $ | 0 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
50 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 370,537 | $ | (370,537 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Barclays Bank PLC | 9,305,940 | (824,694 | ) | – 0 | – | (8,481,246 | ) | – 0 | – | |||||||||||
Citibank, NA | 11,866,453 | (842,893 | ) | – 0 | – | (11,023,560 | ) | – 0 | – | |||||||||||
Citigroup Global Markets, Inc. | 92,457 | – 0 | – | – 0 | – | – 0 | – | 92,457 | ||||||||||||
Credit Suisse International | 342,799 | – 0 | – | – 0 | – | (326,556 | ) | 16,243 | ||||||||||||
Deutsche Bank AG | 1,873,128 | (498,581 | ) | – 0 | – | (942,168 | ) | 432,379 | ||||||||||||
Goldman Sachs International | 117,132 | – 0 | – | – 0 | – | – 0 | – | 117,132 | ||||||||||||
JPMorgan Chase Bank, NA | 8,931,187 | (444,956 | ) | – 0 | – | (8,181,305 | ) | 304,926 | ||||||||||||
Morgan Stanley Capital Services LLC | 3,244,215 | – 0 | – | – 0 | – | (3,165,394 | ) | 78,821 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 36,143,848 | $ | (2,981,661 | ) | $ | – 0 | – | $ | (32,120,229 | ) | $ | 1,041,958 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | 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 | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class A | ||||||||||||||||||||||||
Shares sold | 3,546,849 | 3,860,338 | $ | 36,220,307 | $ | 39,389,359 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 105,427 | 68,587 | 1,076,579 | 702,584 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted from Class C | 3,304 | 18,459 | 33,609 | 189,571 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,827,174 | ) | (1,910,262 | ) | (18,606,245 | ) | (19,554,001 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 1,828,406 | 2,037,122 | $ | 18,724,250 | $ | 20,727,513 | ||||||||||||||||||
|
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 51 |
NOTES TO FINANCIAL STATEMENTS (continued)
Shares | Amount | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended 2017 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Class C | ||||||||||||||||||||||||
Shares sold | 244,709 | 482,829 | $ | 2,490,307 | $ | 4,914,367 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 11,513 | 9,794 | 117,437 | 100,174 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares converted to Class A | (3,309 | ) | (18,496 | ) | (33,609 | ) | (189,571 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (422,304 | ) | (289,370 | ) | (4,302,036 | ) | (2,958,533 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (169,391 | ) | 184,757 | $ | (1,727,901 | ) | $ | 1,866,437 | ||||||||||||||||
| ||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 10,492,451 | 12,317,124 | $ | 107,067,984 | $ | 125,893,746 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 341,322 | 272,759 | 3,487,216 | 2,795,556 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (7,688,911 | ) | (7,978,907 | ) | (78,417,257 | ) | (81,741,861 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 3,144,862 | 4,610,976 | $ | 32,137,943 | $ | 46,947,441 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||
Shares sold | 13,032,916 | 13,846,820 | $ | 132,399,166 | $ | 141,531,447 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 841,883 | 581,371 | 8,565,451 | 5,936,458 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (6,661,275 | ) | (5,516,471 | ) | (67,633,874 | ) | (56,316,601 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 7,213,524 | 8,911,720 | $ | 73,330,743 | $ | 91,151,304 | ||||||||||||||||||
| ||||||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||
Shares sold | 4,141,669 | 5,861,015 | $ | 42,068,510 | $ | 59,930,076 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 391,427 | 301,058 | 3,983,832 | 3,075,422 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (2,257,711 | ) | (1,881,524 | ) | (22,963,862 | ) | (19,237,335 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 2,275,385 | 4,280,549 | $ | 23,088,480 | $ | 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. Investments
52 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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, generally 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
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 53 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are
54 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 619,937 | $ | 719,132 | ||||
|
|
|
| |||||
Total taxable distributions | 619,937 | 719,132 | ||||||
Tax-exempt distributions | 22,001,837 | 15,905,775 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 22,621,774 | $ | 16,624,907 | ||||
|
|
|
|
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital and other losses | $ | (12,929,920 | )(a) | |
Unrealized appreciation/(depreciation) | (35,340,296 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (48,270,216 | ) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $12,929,920. |
(b) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax treatment of swaps. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of October 31, 2018, the Fund had a net short-term capital loss carryforward of $1,296,110 and a net long-term capital loss carryforward of $11,633,810, which may be carried forward for an indefinite period.
During the current fiscal year, permanent differences primarily due to a dividend overdistribution resulted in a net decrease in accumulated loss and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
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 which amends the amortization period for certain purchased callable debt securities held at a premium, shortening
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
such period to the earliest call date. The ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 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.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements 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 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.28 | $ 10.29 | $ 10.14 | $ 10.48 | $ 10.35 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .22 | .19 | .18 | .15 | .13 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.26 | ) | (.01 | ) | .16 | (.34 | ) | .12 | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.04 | ) | .18 | .34 | (.19 | ) | .25 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.22 | ) | (.19 | ) | (.19 | ) | (.15 | ) | (.12 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.22 | ) | (.19 | ) | (.19 | ) | (.15 | ) | (.12 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.02 | $ 10.28 | $ 10.29 | $ 10.14 | $ 10.48 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.42 | )% | 1.75 | % | 3.38 | % | (1.83 | )% | 2.44 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $75,127 | $58,270 | $37,345 | $41,122 | $60,016 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .75 | % | .75 | % | .75 | % | .76 | % | .80 | % | ||||||||||
Expenses, before waivers/reimbursements | .86 | % | .86 | % | .86 | % | .87 | % | .90 | % | ||||||||||
Net investment income(b) | 2.13 | % | 1.90 | % | 1.78 | % | 1.49 | % | 1.24 | % | ||||||||||
Portfolio turnover rate | 15 | % | 9 | % | 9 | % | 17 | % | 18 | % |
See footnote summary on page 62.
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 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.26 | $ 10.27 | $ 10.12 | $ 10.46 | $ 10.33 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .14 | .12 | .10 | .08 | .06 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.25 | ) | (.02 | ) | .16 | (.35 | ) | .12 | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.11 | ) | .10 | .26 | (.27 | ) | .18 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.14 | ) | (.11 | ) | (.11 | ) | (.07 | ) | (.05 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.14 | ) | (.11 | ) | (.11 | ) | (.07 | ) | (.05 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.01 | $ 10.26 | $ 10.27 | $ 10.12 | $ 10.46 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.09 | )% | .99 | % | 2.61 | % | (2.56 | )% | 1.72 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $10,681 | $12,693 | $10,805 | $13,154 | $20,873 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.61 | % | 1.61 | % | 1.61 | % | 1.61 | % | 1.60 | % | ||||||||||
Net investment income(b) | 1.37 | % | 1.15 | % | 1.03 | % | .75 | % | .54 | % | ||||||||||
Portfolio turnover rate | 15 | % | 9 | % | 9 | % | 17 | % | 18 | % |
See footnote summary on page 62.
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 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.29 | $ 10.30 | $ 10.14 | $ 10.48 | $ 10.35 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .24 | .22 | .21 | .18 | .16 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.26 | ) | (.02 | ) | .17 | (.34 | ) | .12 | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.02 | ) | .20 | .38 | (.16 | ) | .28 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.24 | ) | (.21 | ) | (.22 | ) | (.18 | ) | (.15 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.24 | ) | (.21 | ) | (.22 | ) | (.18 | ) | (.15 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.03 | $ 10.29 | $ 10.30 | $ 10.14 | $ 10.48 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.17 | )% | 2.00 | % | 3.74 | % | (1.56 | )% | 2.75 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $226,145 | $199,635 | $152,275 | $171,789 | $185,106 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||
Expenses, before waivers/reimbursements | .61 | % | .61 | % | .61 | % | .61 | % | .60 | % | ||||||||||
Net investment income(b) | 2.37 | % | 2.15 | % | 2.03 | % | 1.76 | % | 1.55 | % | ||||||||||
Portfolio turnover rate | 15 | % | 9 | % | 9 | % | 17 | % | 18 | % |
See footnote summary on page 62.
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 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.25 | $ 10.26 | $ 10.11 | $ 10.45 | $ 10.33 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .23 | .21 | .20 | .17 | .15 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.26 | ) | (.01 | ) | .16 | (.34 | ) | .12 | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.03 | ) | .20 | .36 | (.17 | ) | .27 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.24 | ) | (.21 | ) | (.21 | ) | (.17 | ) | (.15 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.24 | ) | (.21 | ) | (.21 | ) | (.17 | ) | (.15 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 9.98 | $ 10.25 | $ 10.26 | $ 10.11 | $ 10.45 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.32 | )% | 1.94 | % | 3.58 | % | (1.62 | )% | 2.60 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $485,386 | $424,291 | $333,311 | $386,448 | $408,307 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .60 | % | .60 | % | .60 | % | .60 | % | .60 | % | ||||||||||
Expenses, before waivers/reimbursements | .67 | % | .67 | % | .68 | % | .67 | % | .66 | % | ||||||||||
Net investment income(b) | 2.27 | % | 2.05 | % | 1.93 | % | 1.66 | % | 1.44 | % | ||||||||||
Portfolio turnover rate | 15 | % | 9 | % | 9 | % | 17 | % | 18 | % |
See footnote summary on page 62.
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 | ||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.25 | $ 10.26 | $ 10.12 | $ 10.46 | $ 10.33 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(a)(b) | .24 | .22 | .21 | .18 | .16 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.25 | ) | (.01 | ) | .15 | (.34 | ) | .13 | ||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.01 | ) | .21 | .36 | (.16 | ) | .29 | |||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.25 | ) | (.22 | ) | (.22 | ) | (.18 | ) | (.16 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.00 | )(c) | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.25 | ) | (.22 | ) | (.22 | ) | (.18 | ) | (.16 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 9.99 | $ 10.25 | $ 10.26 | $ 10.12 | $ 10.46 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.12 | )% | 2.04 | % | 3.58 | % | (1.52 | )% | 2.79 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $231,109 | $213,880 | $170,155 | $176,066 | $185,904 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .50 | % | .50 | % | .50 | % | .50 | % | .50 | % | ||||||||||
Expenses, before waivers/reimbursements | .57 | % | .57 | % | .58 | % | .57 | % | .56 | % | ||||||||||
Net investment income(b) | 2.37 | % | 2.14 | % | 2.03 | % | 1.76 | % | 1.54 | % | ||||||||||
Portfolio turnover rate. | 15 | % | 9 | % | 9 | % | 17 | % | 18 | % |
See footnote summary on page 62.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 61 |
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 portfolio distributions or the redemption of portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
See notes to financial statements.
62 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AB Municipal Bond Inflation Strategy:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Municipal Bond Inflation Strategy (the “Fund”), (one of the funds constituting AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of October 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Bond Fund, Inc.) at October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 63 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 28, 2018
64 | 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 Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company 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 | 65 |
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None |
66 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 74 (2005) | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 67 |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
William H. Foulk, Jr.,##,^ 86 (1998) | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None | |||||
68 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 69 |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
70 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 71 |
MANAGEMENT OF THE FUND (continued)
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund as defined in the “40 Act,” due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
72 | AB MUNICIPAL BOND INFLATION STRATEGY | abfunds.com |
MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Robert “Guy” B. Davidson III 57 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Terrance T. Hults 52 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Matthew J. Norton 35 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Andrew D. Potter 33 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2013. | ||
Phyllis J. Clarke 57 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-800-227-4618, or visit www.abfunds.com, for a free prospectus or SAI.
abfunds.com | AB MUNICIPAL BOND INFLATION STRATEGY | 73 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB Municipal Bond Inflation Strategy (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds,
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actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of the investment research capabilities of the Adviser and the other resources
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it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed Agreements 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
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the Adviser’s relationship with each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by
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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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional,
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offshore fund and sub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current 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
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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 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
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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 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.
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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 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.
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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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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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AB MUNICIPAL BOND INFLATION STRATEGY
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
MBIS-0151-1018
OCT 10.31.18
ANNUAL REPORT
AB TAX-AWARE FIXED INCOME PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports 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 |
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Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
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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 |
ANNUAL REPORT
December 19, 2018
This report provides management’s discussion of fund performance for AB Tax-Aware Fixed Income Portfolio for the annual reporting period ended October 31, 2018.
The investment objective of the Fund is to seek to maximize after-tax return and income.
NAV RETURNS AS OF OCTOBER 31, 2018 (unaudited)
6 Months | 12 Months | |||||||
AB TAX-AWARE FIXED INCOME PORTFOLIO | ||||||||
Class A Shares | 0.34% | -0.55% | ||||||
Class C Shares | -0.04% | -1.29% | ||||||
Advisor Class Shares1 | 0.47% | -0.30% | ||||||
Bloomberg Barclays Municipal Bond Index | 0.46% | -0.51% |
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 October 31, 2018.
During both periods, all share classes except Advisor Class underperformed the benchmark, before sales charges. Yield-curve positioning in seven- to 10-year duration municipals detracted, relative to the benchmark. Exposure to Treasuries and consumer price index (“CPI”) swaps detracted, as did security selection within the public higher education sector. Sector selection in the taxable municipal sector and security selection within miscellaneous revenue contributed. For the 12-month period, yield-curve positioning in over 10-year duration municipals contributed, as did security selection within the state general obligation bond sector. For the six-month period, yield-curve positioning in five- to six-year duration municipals contributed, as did an overweight to senior living.
The Fund utilized derivatives in the form of CPI swaps for hedging purposes and interest rate swaps and credit default swaps for investment purposes, which had no material impact on absolute returns during either period.
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MARKET REVIEW AND INVESTMENT STRATEGY
Economic growth and inflation expectations continued to rise throughout the 12-month period. Forty-six states realized positive growth during the third quarter, while state and local tax collections were at all-time highs. The US Federal Reserve increased its federal funds target rate to 2.00%-2.25% at the end of September, the third rate increase in 2018. Performance of municipal issues was mixed during the 12-month period, reaching historically expensive valuations versus US Treasuries in July. However, municipals retreated to more normal levels versus US Treasuries toward the end of the reporting period.
The Fund’s Senior Investment Management Team (the “Team”) maintained the Fund’s underweight to the longest maturity municipal bonds and a modest overweight to municipal credit, finding these positions 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 October 31, 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 1.24% and 0.00%, respectively.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in a national portfolio of both municipal and taxable fixed-income securities. The Fund invests, under normal circumstances, at least 80% of its net 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
(continued on next page)
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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.
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 more or less than their original cost. Performance shown in this
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DISCLOSURES AND RISKS (continued)
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
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
12/11/20131 TO 10/31/2018
This chart illustrates the total value of an assumed $10,000 investment in AB Tax-Aware Fixed Income Portfolio Class A shares (from 12/11/20131 to 10/31/2018) as compared to the performance of its benchmark. The chart reflects the deduction of the maximum 3.00% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
1 | Inception date: 12/11/2013. |
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HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2018 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
CLASS A SHARES | ||||||||
1 Year | -0.55% | -3.50% | ||||||
Since Inception1 | 2.90% | 2.26% | ||||||
CLASS C SHARES | ||||||||
1 Year | -1.29% | -2.26% | ||||||
Since Inception1 | 2.15% | 2.15% | ||||||
ADVISOR CLASS SHARES2 | ||||||||
1 Year | -0.30% | -0.30% | ||||||
Since Inception1 | 3.17% | 3.17% |
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
SEPTEMBER 30, 2018 (unaudited)
SEC Returns (reflects applicable | ||||
CLASS A SHARES | ||||
1 Year | -2.48% | |||
Since Inception1 | 2.49% | |||
CLASS C SHARES | ||||
1 Year | -1.23% | |||
Since Inception1 | 2.39% | |||
ADVISOR CLASS SHARES2 | ||||
1 Year | 0.66% | |||
Since Inception1 | 3.41% |
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. |
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EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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EXPENSE EXAMPLE (continued)
Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,003.40 | $ | 3.79 | 0.75 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||
Class C | ||||||||||||||||
Actual | $ | 1,000 | $ | 999.60 | $ | 7.56 | 1.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,017.64 | $ | 7.63 | 1.50 | % | ||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,004.70 | $ | 2.53 | 0.50 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,022.68 | $ | 2.55 | 0.50 | % |
* | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
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PORTFOLIO SUMMARY
October 31, 2018 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $63.9
1 | All data are as of October 31, 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 the S&P Global Ratings (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the Pre-refunded category includes bonds which are secured by US 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 1.6% in 19 different states. |
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PORTFOLIO OF INVESTMENTS
October 31, 2018
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
MUNICIPAL OBLIGATIONS – 91.5% | ||||||||
Long-Term Municipal Bonds – 90.6% | ||||||||
Alabama – 1.4% | ||||||||
County of Jefferson AL Sewer Revenue | $ | 110 | $ | 124,197 | ||||
Water Works Board of the City of Birmingham (The) | 680 | 762,110 | ||||||
|
| |||||||
886,307 | ||||||||
|
| |||||||
Arizona – 3.7% | ||||||||
City of Phoenix Civic Improvement Corp. | 2,000 | 2,169,560 | ||||||
Industrial Development Authority of the City of Phoenix (The) | 100 | 102,923 | ||||||
Salt Verde Financial Corp. | 100 | 113,398 | ||||||
|
| |||||||
2,385,881 | ||||||||
|
| |||||||
California – 3.9% | ||||||||
Alameda Corridor Transportation Authority | 175 | 188,487 | ||||||
California Health Facilities Financing Authority | 850 | 948,727 | ||||||
California Pollution Control Financing Authority | 250 | 257,398 | ||||||
California Statewide Communities Development Authority | 250 | 262,325 | ||||||
Golden State Tobacco Securitization Corp. | 885 | 861,725 | ||||||
|
| |||||||
2,518,662 | ||||||||
|
|
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Colorado – 0.6% | ||||||||
Colorado Health Facilities Authority | $ | 170 | $ | 178,733 | ||||
Colorado Health Facilities Authority | 200 | 219,478 | ||||||
|
| |||||||
398,211 | ||||||||
|
| |||||||
Connecticut – 2.9% | ||||||||
City of New Haven CT | 615 | 660,541 | ||||||
State of Connecticut | 1,000 | 1,105,290 | ||||||
Series 2018A | 100 | 100,297 | ||||||
|
| |||||||
1,866,128 | ||||||||
|
| |||||||
District of Columbia – 0.2% | ||||||||
District of Columbia | 100 | 104,880 | ||||||
|
| |||||||
Florida – 9.3% | ||||||||
Bexley Community Development District | 100 | 96,931 | ||||||
Brevard County School District COP | 290 | 330,609 | ||||||
Citizens Property Insurance Corp. | 560 | 591,492 | ||||||
City of Gainesville FL Utilities System Revenue | 2,250 | 2,614,905 | ||||||
County of Miami-Dade FL | 780 | 865,628 | ||||||
County of Miami-Dade FL Aviation Revenue | 265 | 288,537 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
North Broward Hospital District | $ | 270 | $ | 281,334 | ||||
Orange County Convention Center/Orlando | 435 | 468,930 | ||||||
School District of Broward County/FL | 365 | 418,268 | ||||||
|
| |||||||
5,956,634 | ||||||||
|
| |||||||
Georgia – 1.8% | ||||||||
City of Atlanta Department of Aviation | 310 | 332,543 | ||||||
Main Street Natural Gas, Inc. | 760 | 792,521 | ||||||
|
| |||||||
1,125,064 | ||||||||
|
| |||||||
Illinois – 8.8% | ||||||||
Chicago Board of Education | 240 | 236,030 | ||||||
Chicago O’Hare International Airport | 335 | 360,896 | ||||||
Series 2017B | 725 | 792,454 | ||||||
City of Chicago IL | 100 | 100,318 | ||||||
Illinois Finance Authority | 85 | 77,608 | ||||||
Series 2016C | 15 | 746 | ||||||
Illinois Finance Authority | 100 | 101,322 | ||||||
Illinois Finance Authority | 250 | 265,478 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Illinois Municipal Electric Agency | $ | 465 | $ | 500,721 | ||||
Metropolitan Pier & Exposition Authority | 600 | 618,072 | ||||||
State of Illinois | 100 | 101,710 | ||||||
Series 2013 | 270 | 289,435 | ||||||
Series 2014 | 130 | 131,494 | ||||||
Series 2016 | 375 | 389,689 | ||||||
Series 2017D | 625 | 643,712 | ||||||
Series 2018A | 1,000 | 1,037,830 | ||||||
|
| |||||||
5,647,515 | ||||||||
|
| |||||||
Indiana – 0.7% | ||||||||
Indiana Finance Authority | 160 | 165,851 | ||||||
Indiana Finance Authority | 190 | 200,524 | ||||||
Indiana Finance Authority | 100 | 104,992 | ||||||
|
| |||||||
471,367 | ||||||||
|
| |||||||
Iowa – 0.5% | ||||||||
Iowa Finance Authority | 325 | 332,013 | ||||||
|
| |||||||
Kentucky – 1.5% | ||||||||
Kentucky Economic Development Finance Authority | 175 | 184,135 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Kentucky Economic Development Finance Authority | $ | 65 | $ | 66,835 | ||||
Kentucky Economic Development Finance Authority | 425 | 438,749 | ||||||
Louisville/Jefferson County Metropolitan Government | 225 | 244,579 | ||||||
|
| |||||||
934,298 | ||||||||
|
| |||||||
Louisiana – 1.7% | ||||||||
City of New Orleans LA Water Revenue | 100 | 108,892 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Auth | 675 | 730,957 | ||||||
Louisiana Public Facilities Authority | 250 | 2 | ||||||
New Orleans Aviation Board | 215 | 228,453 | ||||||
|
| |||||||
1,068,304 | ||||||||
|
| |||||||
Maine – 0.4% | ||||||||
Finance Authority of Maine | 100 | 105,533 | ||||||
Maine Health & Higher Educational Facilities Authority | 165 | 180,053 | ||||||
|
| |||||||
285,586 | ||||||||
|
|
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Maryland – 0.5% | ||||||||
City of Baltimore MD | $ | 120 | $ | 130,685 | ||||
City of Baltimore MD | 150 | 156,517 | ||||||
|
| |||||||
287,202 | ||||||||
|
| |||||||
Massachusetts – 1.7% | ||||||||
Massachusetts Development Finance Agency | 620 | 652,110 | ||||||
Massachusetts Development Finance Agency | 325 | 271,030 | ||||||
Series 2017A | 140 | 132,817 | ||||||
|
| |||||||
1,055,957 | ||||||||
|
| |||||||
Michigan – 2.9% | ||||||||
City of Detroit MI Sewage Disposal System Revenue | 115 | 124,499 | ||||||
Great Lakes Water Authority Sewage Disposal System Revenue | 1,000 | 1,114,240 | ||||||
Michigan Finance Authority | 325 | 327,570 | ||||||
Michigan Finance Authority | 235 | 252,409 | ||||||
|
| |||||||
1,818,718 | ||||||||
|
|
20 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Minnesota – 0.3% | ||||||||
City of Minneapolis MN | $ | 200 | $ | 220,926 | ||||
|
| |||||||
Nebraska – 0.2% | ||||||||
Central Plains Energy Project | 100 | 107,445 | ||||||
|
| |||||||
Nevada – 2.2% | ||||||||
Clark County School District | 1,300 | 1,380,301 | ||||||
|
| |||||||
New Hampshire – 0.2% | ||||||||
New Hampshire Health and Education Facilities Authority Act | 115 | 121,177 | ||||||
|
| |||||||
New Jersey – 4.8% | ||||||||
New Jersey Economic Development Authority | 30 | 31,131 | ||||||
New Jersey Economic Development Authority | 260 | 268,169 | ||||||
Series 2014P | 200 | 211,410 | ||||||
New Jersey Economic Development Authority | 85 | 91,084 | ||||||
New Jersey Health Care Facilities Financing Authority | 280 | 306,107 | ||||||
New Jersey Transportation Trust Fund Authority | 550 | 600,507 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Jersey Transportation Trust Fund Authority | $ | 240 | $ | 249,031 | ||||
Series 2018A | 340 | 358,204 | ||||||
New Jersey Turnpike Authority | 315 | 345,760 | ||||||
Series 2017B | 540 | 609,784 | ||||||
|
| |||||||
3,071,187 | ||||||||
|
| |||||||
New York – 9.4% | ||||||||
City of New York NY | 340 | 365,140 | ||||||
Metropolitan Transportation Authority | 315 | 353,020 | ||||||
Series 2018C | 1,825 | 1,911,231 | ||||||
New York City Transitional Finance Authority Building Aid Revenue | 865 | 986,204 | ||||||
New York State Dormitory Authority | 200 | 215,452 | ||||||
New York State Dormitory Authority | 425 | 472,838 | ||||||
Series 2017B | 1,040 | 1,201,294 | ||||||
New York State Thruway Authority | 365 | 396,295 | ||||||
Ulster County Capital Resource Corp. | 120 | 111,011 | ||||||
|
| |||||||
6,012,485 | ||||||||
|
|
22 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
North Carolina – 0.9% | ||||||||
North Carolina Turnpike Authority | $ | 500 | $ | 550,970 | ||||
|
| |||||||
Ohio – 3.5% | ||||||||
Buckeye Tobacco Settlement Financing Authority | 235 | 228,183 | ||||||
City of Akron /OH | 445 | 481,121 | ||||||
City of Chillicothe /OH | 175 | 183,318 | ||||||
County of Cuyahoga /OH | 365 | 398,324 | ||||||
County of Cuyahoga /OH | 205 | 211,439 | ||||||
Dayton-Montgomery County Port Authority | 100 | 102,506 | ||||||
Ohio Air Quality Development Authority | 100 | 97,000 | ||||||
Series 2009D | 145 | 140,650 | ||||||
Ohio Air Quality Development Authority | 100 | 97,000 | ||||||
Ohio Air Quality Development Authority | 185 | 181,653 | ||||||
Ohio Water Development Authority Water Pollution Control Loan Fund | 140 | 135,800 | ||||||
|
| |||||||
2,256,994 | ||||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Pennsylvania – 9.8% | ||||||||
Beaver County Industrial Development Authority | $ | 130 | $ | 126,100 | ||||
City of Philadelphia PA | 1,000 | 1,106,570 | ||||||
Commonwealth of Pennsylvania | 2,000 | 2,262,940 | ||||||
Delaware River Joint Toll Bridge Commission | 1,500 | 1,696,770 | ||||||
Montour School District | 450 | 494,892 | ||||||
Moon Industrial Development Authority | 100 | 104,026 | ||||||
Pennsylvania Economic Development Financing Authority | 100 | 104,922 | ||||||
Pennsylvania Turnpike Commission | 200 | 214,248 | ||||||
Philadelphia Authority for Industrial Development | 150 | 152,628 | ||||||
|
| |||||||
6,263,096 | ||||||||
|
| |||||||
Puerto Rico – 3.3% | ||||||||
Commonwealth of Puerto Rico | 145 | 84,825 | ||||||
5.50%, 7/01/39(d)(f) | 180 | 105,300 | ||||||
5.75%, 7/01/28(d)(f) | 100 | 58,500 | ||||||
Series 2014A | 415 | 244,850 |
24 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Government Development Bank for Puerto Rico | $ | 300 | $ | 145,875 | ||||
Puerto Rico Commonwealth Aqueduct & Sewer Authority | 55 | 52,663 | ||||||
Series 2012A | 80 | 73,800 | ||||||
5.125%, 7/01/37 | 25 | 23,125 | ||||||
5.25%, 7/01/29-7/01/42 | 180 | 166,700 | ||||||
5.50%, 7/01/28 | 75 | 69,938 | ||||||
5.75%, 7/01/37 | 50 | 46,875 | ||||||
6.00%, 7/01/47 | 50 | 46,750 | ||||||
Puerto Rico Electric Power Authority | 45 | 28,575 | ||||||
Series 2010C | 25 | 15,875 | ||||||
Series 2010DDD | 15 | 9,525 | ||||||
Series 2012A | 130 | 82,550 | ||||||
Puerto Rico Highway & Transportation Authority | 110 | 121,726 | ||||||
NATL Series 2007N | 100 | 106,013 | ||||||
Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth | 390 | 379,762 | ||||||
Puerto Rico Sales Tax Financing Corp. | 215 | 175,762 | ||||||
Series 2011C | 100 | 81,250 | ||||||
|
| |||||||
2,120,239 | ||||||||
|
| |||||||
South Carolina – 1.3% | ||||||||
South Carolina Public Service Authority | 220 | 227,781 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Series 2014C | $ | 325 | $ | 337,929 | ||||
Series 2016A | 265 | 280,574 | ||||||
|
| |||||||
846,284 | ||||||||
|
| |||||||
Tennessee – 1.1% | ||||||||
Bristol Industrial Development Board | 370 | 343,508 | ||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facs Board | 135 | 130,713 | ||||||
Metropolitan Government Nashville & Davidson County Health & Educational Facs Board | 215 | 233,344 | ||||||
|
| |||||||
707,565 | ||||||||
|
| |||||||
Texas – 7.9% | ||||||||
Austin Convention Enterprises, Inc. | 500 | 545,785 | ||||||
Central Texas Regional Mobility Authority | 100 | 104,733 | ||||||
City of Houston TX | 260 | 283,980 | ||||||
Series 2015 | 160 | 174,757 | ||||||
Dallas Area Rapid Transit | 580 | 657,111 | ||||||
Dallas County Flood Control District No. 1 | 100 | 102,864 | ||||||
Love Field Airport Modernization Corp. | 500 | 548,795 |
26 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
New Hope Cultural Education Facilities Finance Corp. | $ | 100 | $ | 104,068 | ||||
North Texas Tollway Authority | 250 | 274,835 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 150 | 159,962 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 100 | 96,820 | ||||||
Tarrant County Cultural Education Facilities Finance Corp. | 100 | 104,201 | ||||||
Travis County Cultural Education Facilities Finance Corp. | 160 | 162,246 | ||||||
Travis County Health Facilities Development Corp. | 55 | 60,543 | ||||||
Trinity River Authority Central Regional Wastewater System Revenue | 230 | 252,165 | ||||||
Trinity River Authority LLC | 335 | 355,368 | ||||||
University of Houston System | 1,000 | 1,061,140 | ||||||
|
| |||||||
5,049,373 | ||||||||
|
| |||||||
Virginia – 0.3% | ||||||||
Tobacco Settlement Financing Corp./VA | 165 | 161,649 | ||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Washington – 1.7% | ||||||||
Pend Oreille County Public Utility District No. 1 Box Canyon | $ | 280 | $ | 288,915 | ||||
Port of Seattle WA | 510 | 553,651 | ||||||
Washington State Housing Finance Commission | 100 | 106,731 | ||||||
Washington State Housing Finance Commission | 100 | 113,059 | ||||||
|
| |||||||
1,062,356 | ||||||||
|
| |||||||
West Virginia – 0.2% | ||||||||
West Virginia Economic Development Authority | 140 | 134,183 | ||||||
|
| |||||||
Wisconsin – 1.0% | ||||||||
Wisconsin Public Finance Authority | 100 | 112,506 | ||||||
Wisconsin Public Finance Authority | 100 | 101,344 | ||||||
Wisconsin Public Finance Authority | 130 | 134,332 | ||||||
Wisconsin Public Finance Authority | 125 | 125,977 | ||||||
Wisconsin Public Finance Authority | 165 | 165,168 | ||||||
|
| |||||||
639,327 | ||||||||
|
| |||||||
Total Long-Term Municipal Bonds | 57,848,284 | |||||||
|
|
28 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Short-Term Municipal Notes – 0.9% |
| |||||||
Texas – 0.9% |
| |||||||
State of Texas | $ | 600 | $ | 609,492 | ||||
|
| |||||||
Total Municipal Obligations | 58,457,776 | |||||||
|
| |||||||
CORPORATES – INVESTMENT GRADE – 5.4% | ||||||||
Industrial – 2.9% | ||||||||
Basic – 0.1% | ||||||||
Glencore Funding LLC | 100 | 95,793 | ||||||
|
| |||||||
Capital Goods – 0.5% | ||||||||
John Deere Capital Corp. | 300 | 294,552 | ||||||
|
| |||||||
Communications - Telecommunications – 0.3% | ||||||||
AT&T, Inc. | 165 | 165,437 | ||||||
|
| |||||||
Consumer Cyclical - Automotive – 0.5% | ||||||||
General Motors Financial Co., Inc. | 150 | 150,005 | ||||||
Ford Motor Credit Co. LLC | 200 | 194,860 | ||||||
|
| |||||||
344,865 | ||||||||
|
| |||||||
Consumer Non-Cyclical – 1.1% | ||||||||
Allergan Funding SCS | 150 | 149,444 | ||||||
Amgen, Inc. | 150 | 147,636 | ||||||
CVS Health Corp. | 250 | 248,747 | ||||||
AbbVie, Inc. | 165 | 164,137 | ||||||
|
| |||||||
709,964 | ||||||||
|
| |||||||
Technology – 0.2% | ||||||||
Hewlett Packard Enterprise Co. | 105 | 103,972 | ||||||
|
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Transportation - Services – 0.2% | ||||||||
Ryder System, Inc. | $ | 160 | $ | 159,240 | ||||
|
| |||||||
1,873,823 | ||||||||
|
| |||||||
Financial Institutions – 2.3% | ||||||||
Banking – 1.6% | ||||||||
Bank of America Corp. | 305 | 299,141 | ||||||
Capital One Financial Corp. | 165 | 161,118 | ||||||
Morgan Stanley | 300 | 297,333 | ||||||
Regions Bank/Birmingham AL | 250 | 248,810 | ||||||
|
| |||||||
1,006,402 | ||||||||
|
| |||||||
Finance – 0.2% | ||||||||
AIG Global Funding | 150 | 146,823 | ||||||
|
| |||||||
Insurance – 0.5% | ||||||||
Halfmoon Parent, Inc. | 165 | 163,842 | ||||||
Metropolitan Life Global Funding I | 150 | 147,106 | ||||||
|
| |||||||
310,948 | ||||||||
|
| |||||||
1,464,173 | ||||||||
|
| |||||||
Utility – 0.2% | ||||||||
Electric – 0.2% | ||||||||
Duke Energy Florida LLC | 113 | 111,765 | ||||||
|
| |||||||
Total Corporates – Investment Grade | 3,449,761 | |||||||
|
| |||||||
ASSET-BACKED SECURITIES – 1.5% |
| |||||||
Autos - Fixed Rate – 0.5% | ||||||||
Ally Auto Receivables Trust | 100 | 99,151 | ||||||
CarMax Auto Owner Trust | 49 | 48,478 | ||||||
GM Financial Automobile Leasing Trust | 10 | 10,437 |
30 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
Hertz Vehicle Financing II LP | $ | 100 | $ | 99,735 | ||||
Mercedes-Benz Auto Lease Trust | 100 | 99,575 | ||||||
|
| |||||||
357,376 | ||||||||
|
| |||||||
Credit Cards - Fixed Rate – 0.7% | ||||||||
Synchrony Credit Card Master Note Trust | 100 | 99,737 | ||||||
World Financial Network Credit Card Master Trust | 335 | 334,270 | ||||||
|
| |||||||
434,007 | ||||||||
|
| |||||||
Other ABS - Fixed Rate – 0.3% | ||||||||
SoFi Consumer Loan Program Trust | 172 | 172,195 | ||||||
|
| |||||||
Total Asset-Backed Securities | 963,578 | |||||||
|
| |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.8% | ||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||
Citigroup Commercial Mortgage Trust | 96 | 95,194 | ||||||
|
| |||||||
Non-Agency Floating Rate CMBS – 0.6% | ||||||||
BAMLL Commercial Mortgage Securities Trust | 250 | 252,822 | ||||||
BX Trust | 150 | 150,000 | ||||||
|
| |||||||
402,822 | ||||||||
|
| |||||||
Total Commercial Mortgage-Backed Securities | 498,016 | |||||||
|
| |||||||
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||
| ||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 0.6% | ||||||||
Risk Share Floating Rate – 0.6% | ||||||||
Bellemeade Re Ltd. | $ | 200 | $ | 200,828 | ||||
Federal National Mortgage Association Connecticut Avenue Securities | 140 | 168,120 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations | 368,948 | |||||||
|
| |||||||
COLLATERALIZED LOAN OBLIGATIONS – 0.4% | ||||||||
CLO - Floating Rate – 0.4% | ||||||||
THL Credit Wind River CLO Ltd. | 250 | 250,027 | ||||||
|
| |||||||
CORPORATES – NON-INVESTMENT GRADE – 0.2% | ||||||||
Industrial – 0.2% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 130 | 123,734 | ||||||
|
| |||||||
Shares | ||||||||
SHORT-TERM INVESTMENTS – 2.7% | ||||||||
Investment Companies – 2.7% | ||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 2.08%(i)(j)(k) | 1,731,857 | 1,731,857 | ||||||
|
| |||||||
Total Investments – 103.1% | 65,843,697 | |||||||
Other assets less liabilities – (3.1)% | (1,976,520 | ) | ||||||
|
| |||||||
Net Assets – 100.0% | $ | 63,867,177 | ||||||
|
|
32 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 4,560 | 9/11/22 | 3 Month LIBOR | 2.952% | Quarterly/ Semi-Annual | $ | (24,509 | ) | $ | – 0 | – | $ | (24,509 | ) | ||||||||||||
USD | 790 | 9/11/48 | 3.031% | 3 Month LIBOR | Semi-Annual/ Quarterly | 38,977 | – 0 | – | 38,977 | |||||||||||||||||
USD | 9,110 | 9/30/52 | 2.454% | 3 Month LIBOR | Semi-Annual/ Quarterly | 1,669,722 | – 0 | – | 1,669,722 | |||||||||||||||||
USD | 9,110 | 9/30/52 | 3 Month LIBOR | 2.454% | Quarterly/ Semi-Annual | (1,651,068 | ) | (475,525 | ) | (1,175,543 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | 33,122 | $ | (475,525 | ) | $ | 508,647 | ||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at October 31, 2018 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 7.42 | % | USD | 17 | $ | (2,357 | ) | $ | (1,742 | ) | $ | (615 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 515 | (71,387 | ) | (63,088 | ) | (8,299 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 1,000 | (138,617 | ) | (134,575 | ) | (4,042 | ) | |||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 171 | (23,703 | ) | (17,248 | ) | (6,455 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 9 | (1,248 | ) | (931 | ) | (317 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 114 | (15,803 | ) | (11,802 | ) | (4,001 | ) | |||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 7.42 | USD | 149 | (20,654 | ) | (14,588 | ) | (6,066 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (273,769 | ) | $ | (243,974 | ) | $ | (29,795 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Bank of America, NA | USD | 7,000 | 8/24/20 | 2.168% | CPI# | Maturity | $ | (21,926 | ) | |||||||||||||||
Barclays Bank PLC | USD | 1,737 | 10/15/20 | 2.208% | CPI# | Maturity | (4,748 | ) | ||||||||||||||||
Citibank, NA | USD | 1,260 | 10/17/20 | 2.220% | CPI# | Maturity | (3,582 | ) | ||||||||||||||||
Citibank, NA | USD | 5,000 | 10/29/21 | 2.125% | CPI# | Maturity | (723 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | (30,979 | ) | ||||||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
(a) | When-Issued or delayed delivery security. |
(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 October 31, 2018, the aggregate market value of these securities amounted to $4,769,287 or 7.5% of net assets. |
(c) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(d) | Defaulted. |
(e) | Illiquid security. |
(f) | Non-income producing 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 | $ | 2 | 0.00 | % |
(h) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at October 31, 2018. |
(i) | Affiliated investments. |
(j) | The rate shown represents the 7-day yield as of period end. |
(k) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
As of October 31, 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 1.2% and 0.0%, respectively.
Glossary:
ABS – Asset-Backed Securities
AGC – Assured Guaranty Corporation
AGM – Assured Guaranty Municipal
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CMBS – Commercial Mortgage-Backed Securities
COP – Certificate of Participation
ETM – Escrowed to Maturity
LIBOR – London Interbank Offered Rates
NATL – National Interstate Corporation
See notes to financial statements.
34 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
October 31, 2018
Assets |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $64,411,950) | $ | 64,111,840 | ||
Affiliated issuers (cost $1,731,857) | 1,731,857 | |||
Cash collateral due from broker | 54,426 | |||
Interest receivable | 779,777 | |||
Receivable for capital stock sold | 35,596 | |||
Receivable for variation margin on centrally cleared swaps | 19,498 | |||
Receivable due from Adviser | 5,080 | |||
Affiliated dividends receivable | 2,691 | |||
|
| |||
Total assets | 66,740,765 | |||
|
| |||
Liabilities |
| |||
Payable for investment securities purchased | 2,296,648 | |||
Market value on credit default swaps (net premiums received $243,974) | 273,769 | |||
Payable for capital stock redeemed | 110,466 | |||
Unrealized depreciation on inflation swaps | 30,979 | |||
Dividends payable | 28,478 | |||
Directors’ fees payable | 2,071 | |||
Distribution fee payable | 1,909 | |||
Transfer Agent fee payable | 1,524 | |||
Accrued expenses | 127,744 | |||
|
| |||
Total liabilities | 2,873,588 | |||
|
| |||
Net Assets | $ | 63,867,177 | ||
|
| |||
Composition of Net Assets |
| |||
Capital stock, at par | $ | 6,106 | ||
Additional paid-in capital | 64,145,224 | |||
Accumulated loss | (284,153 | ) | ||
|
| |||
$ | 63,867,177 | |||
|
|
Net Asset Value Per Share—21 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
A | $ | 5,666,039 | 541,761 | $ | 10.46 | * | ||||||
| ||||||||||||
C | $ | 768,992 | 73,522 | $ | 10.46 | |||||||
| ||||||||||||
Advisor | $ | 57,432,146 | 5,490,940 | $ | 10.46 | |||||||
|
* | The maximum offering price per share for Class A shares was $10.78 which reflects a sales charge of 3.00%. |
See notes to financial statements.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 35 |
STATEMENT OF OPERATIONS
Year Ended October 31, 2018
Investment Income | ||||||||
Interest | $ | 2,088,629 | ||||||
Dividends—Affiliated issuers | 13,582 | $ | 2,102,211 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 312,885 | |||||||
Distribution fee—Class A | 16,348 | |||||||
Distribution fee—Class C | 9,072 | |||||||
Transfer agency—Class A | 3,178 | |||||||
Transfer agency—Class C | 458 | |||||||
Transfer agency—Advisor Class | 30,371 | |||||||
Custodian | 91,890 | |||||||
Audit and tax | 63,486 | |||||||
Administrative | 55,897 | |||||||
Registration fees | 51,526 | |||||||
Legal | 50,671 | |||||||
Directors’ fees | 25,384 | |||||||
Printing | 16,386 | |||||||
Miscellaneous | 9,260 | |||||||
|
| |||||||
Total expenses | 736,812 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (363,067 | ) | ||||||
|
| |||||||
Net expenses | 373,745 | |||||||
|
| |||||||
Net investment income | 1,728,466 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (328,165 | ) | ||||||
Swaps | 45,022 | |||||||
Net change in unrealized appreciation/depreciation of: | ||||||||
Investments | (1,749,435 | ) | ||||||
Swaps | 17,989 | |||||||
|
| |||||||
Net loss on investment transactions | (2,014,589 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (286,123 | ) | |||||
|
|
See notes to financial statements.
36 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 1,728,466 | $ | 1,245,617 | ||||
Net realized gain (loss) on investment transactions | (283,143 | ) | 80,734 | |||||
Net change in unrealized appreciation/depreciation of investments | (1,731,446 | ) | 5,094 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (286,123 | ) | 1,331,445 | |||||
Distributions to shareholders* |
| |||||||
Class A | (153,312 | ) | (167,984 | ) | ||||
Class C | (14,560 | ) | (17,586 | ) | ||||
Advisor Class | (1,621,088 | ) | (1,058,874 | ) | ||||
Capital Stock Transactions |
| |||||||
Net increase (decrease) | (2,960,722 | ) | 26,741,682 | |||||
|
|
|
| |||||
Total increase (decrease) | (5,035,805 | ) | 26,828,683 | |||||
Net Assets |
| |||||||
Beginning of period | 68,902,982 | 42,074,299 | ||||||
|
|
|
| |||||
End of period | $ | 63,867,177 | $ | 68,902,982 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note I, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 37 |
NOTES TO FINANCIAL STATEMENTS
October 31, 2018
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
38 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 39 |
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.
40 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
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 October 31, 2018:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long-Term Municipal Bonds | $ | – 0 | – | $ | 53,435,277 | $ | 4,413,007 | $ | 57,848,284 | |||||||
Short-Term Municipal Notes | – 0 | – | 609,492 | – 0 | – | 609,492 | ||||||||||
Corporates – Investment Grade | – 0 | – | 3,449,761 | – 0 | – | 3,449,761 | ||||||||||
Asset-Backed Securities | – 0 | – | 791,383 | 172,195 | 963,578 | |||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 245,194 | 252,822 | 498,016 | |||||||||||
Collateralized Mortgage Obligations | – 0 | – | 368,948 | – 0 | – | 368,948 | ||||||||||
Collateralized Loan Obligations | – 0 | – | – 0 | – | 250,027 | 250,027 | ||||||||||
Corporates – Non-Investment Grade | – 0 | – | 123,734 | – 0 | – | 123,734 | ||||||||||
Short-Term Investments | 1,731,857 | – 0 | – | – 0 | – | 1,731,857 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 1,731,857 | 59,023,789 | 5,088,051 | 65,843,697 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 1,708,699 | – 0 | – | 1,708,699 | (b) |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 41 |
NOTES TO FINANCIAL STATEMENTS (continued)
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Liabilities: | ||||||||||||||||
Centrally Cleared Interest Rate Swaps | $ | – 0 | – | $ | (1,675,577 | ) | $ | – 0 | – | $ | (1,675,577 | )(b) | ||||
Credit Default Swaps | – 0 | – | (273,769 | ) | – 0 | – | (273,769 | ) | ||||||||
Inflation (CPI) Swaps | – 0 | – | (30,979 | ) | – 0 | – | (30,979 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 1,731,857 | $ | 58,752,163 | $ | 5,088,051 | $ | 65,572,071 | ||||||||
|
|
|
|
|
|
|
|
(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.
Long-Term Municipal Bonds | Asset- Backed Securities | Commercial Mortgage- Backed Securities | ||||||||||
Balance as of 10/31/17 | $ | 2,546,184 | $ | – 0 | – | $ | – 0 | – | ||||
Accrued discounts/(premiums) | 3,705 | – 0 | – | – 0 | – | |||||||
Realized gain (loss) | (25,955 | ) | – 0 | – | – 0 | – | ||||||
Change in unrealized appreciation/depreciation | (82,226 | ) | 212 | 2,822 | ||||||||
Purchases | 2,837,309 | 171,983 | 250,000 | |||||||||
Sales | (1,009,360 | ) | – 0 | – | – 0 | – | ||||||
Transfers in to Level 3 | 143,350 | – 0 | – | – 0 | – | |||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | – 0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 10/31/18 | $ | 4,413,007 | $ | 172,195 | $ | 252,822 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(a) | $ | (95,771 | ) | $ | 212 | $ | 2,822 | |||||
|
|
|
|
|
|
42 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Collateralized Loan Obligations | Total | |||||||||||
Balance as of 10/31/17 | $ | – 0 | – | $ | 2,546,184 | |||||||
Accrued discounts/(premiums) | – 0 | – | 3,705 | |||||||||
Realized gain (loss) | – 0 | – | (25,955 | ) | ||||||||
Change in unrealized appreciation/depreciation | 27 | (79,165 | ) | |||||||||
Purchases | 250,000 | 3,509,292 | ||||||||||
Sales | – 0 | – | (1,009,360 | ) | ||||||||
Transfers in to Level 3 | – 0 | – | 143,350 | (b) | ||||||||
Transfers out of Level 3 | – 0 | – | – 0 | – | ||||||||
|
|
|
| |||||||||
Balance as of 10/31/18 | $ | 250,027 | $ | 5,088,051 | ||||||||
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 10/31/18(a) | $ | 27 | $ | (92,710 | ) | |||||||
|
|
|
|
(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. |
As of October 31, 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, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 43 |
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
44 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
daily average net assets for the Class A, Class C and the Advisor Class shares, respectively. For the year ended October 31, 2018, such reimbursements/waivers amounted to $305,597. The Expense Caps may not be terminated before January 31, 2019.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Fund’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Fund to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders
46 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
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 year ended October 31, 2018, the Adviser voluntarily agreed to waive such fees in the amount of $55,897.
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 $18,221 for the year ended October 31, 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 $42 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 year ended October 31, 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
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 47 |
NOTES TO FINANCIAL STATEMENTS (continued)
bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Fund in 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 year ended October 31, 2018, such waiver amounted to $1,573.
A summary of the Fund’s transactions in AB mutual funds for the year ended October 31, 2018 is as follows:
Fund | Market Value 10/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 10/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 837 | $ | 48,588 | $ | 47,693 | $ | 1,732 | $ | 14 |
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 $10,573 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.
48 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended October 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding | $ | 37,537,994 | $ | 27,555,185 | ||||
U.S. government securities | 9,036,581 | 18,333,540 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 66,143,807 | ||
|
| |||
Gross unrealized appreciation | $ | 2,429,962 | ||
Gross unrealized depreciation | (2,274,071 | ) | ||
|
| |||
Net unrealized appreciation | $ | 155,891 | ||
|
|
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 for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
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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 year ended October 31, 2018, the Fund held interest rate swaps for non-hedging purposes.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Fund against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the year ended October 31, 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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 October 31, 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.
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NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended October 31, 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, 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 year ended October 31, 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 centrally cleared swaps | $ | 1,708,699 | * | Receivable/Payable for variation margin on centrally cleared swaps | $ | 1,200,052 | * | ||||
Interest rate contracts | Unrealized depreciation on inflation swaps | 30,979 | ||||||||||
Credit contracts | Market value on credit default swaps | 273,769 | ||||||||||
|
|
|
| |||||||||
Total | $ | 1,708,699 | $ | 1,504,800 | ||||||||
|
|
|
|
* | 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 TAX-AWARE FIXED INCOME PORTFOLIO | 53 |
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 | $ | (37,348 | ) | $ | 46,745 | ||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 82,370 | (28,756 | ) | ||||||
|
|
|
| |||||||
Total | $ | 45,022 | $ | 17,989 | ||||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended October 31, 2018:
Inflation Swaps: | ||||
Average notional amount | $ | 11,665,667 | (a) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 19,618,571 | (b) | |
Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 1,053,000 |
(a) | Positions were open for three months during the year. |
(b) | Positions were open for six months during the year. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 21,926 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 21,926 | |||||||
Barclays Bank PLC | 4,748 | – 0 | – | – 0 | – | – 0 | – | 4,748 | ||||||||||||
Citibank, NA | 4,305 | – 0 | – | – 0 | – | – 0 | – | 4,305 |
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NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Citigroup Global Markets, Inc. | $ | 212,361 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 212,361 | |||||||
Credit Suisse International | 40,754 | – 0 | – | – 0 | – | – 0 | – | 40,754 | ||||||||||||
Goldman Sachs International | 20,654 | – 0 | – | – 0 | – | – 0 | – | 20,654 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 304,748 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 304,748 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | 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 | |||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended 2017 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Class A |
| |||||||||||||||||||||||
Shares sold | 105,320 | 573,430 | $ | 1,124,788 | $ | 6,009,085 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 4,541 | 4,866 | 48,227 | 51,860 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (317,112 | ) | (416,871 | ) | (3,364,356 | ) | (4,428,970 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (207,251 | ) | 161,425 | $ | (2,191,341 | ) | $ | 1,631,975 | ||||||||||||||||
| ||||||||||||||||||||||||
Class C |
| |||||||||||||||||||||||
Shares sold | 10,739 | 4,987 | $ | 114,475 | $ | 53,215 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Shares issued in reinvestment of dividends | 976 | 1,249 | 10,368 | 13,263 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (36,269 | ) | (94,163 | ) | (386,481 | ) | (998,573 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net decrease | (24,554 | ) | (87,927 | ) | $ | (261,638 | ) | $ | (932,095 | ) | ||||||||||||||
| ||||||||||||||||||||||||
Advisor Class |
| |||||||||||||||||||||||
Shares sold | 2,355,130 | 4,007,921 | $ | 25,187,837 | $ | 42,642,565 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Shares issued in reinvestment of dividends | 70,796 | 42,423 | 752,252 | 452,915 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Shares redeemed | (2,486,447 | ) | (1,596,583 | ) | (26,447,832 | ) | (17,053,678 | ) | ||||||||||||||||
|
|
| ||||||||||||||||||||||
Net increase (decrease) | (60,521 | ) | 2,453,761 | $ | (507,743 | ) | $ | 26,041,802 | ||||||||||||||||
|
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 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 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
56 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 U.S. Government and the U.S. Congress consider changes in federal tax law that could limit or eliminate the federal tax exemption for municipal bond income, which would in effect reduce the income received by shareholders from the Fund by increasing taxes on that income. In such event, the Fund’s 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.
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, generally 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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—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.
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 $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended October 31, 2018.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE H
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, 2018 and October 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 251,841 | $ | 153,454 | ||||
|
|
|
| |||||
Total taxable distributions | 251,841 | 153,454 | ||||||
Tax-exempt distributions | 1,537,119 | 1,090,990 | ||||||
|
|
|
| |||||
Total distributions paid | $ | 1,788,960 | $ | 1,244,444 | ||||
|
|
|
|
As of October 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed tax-exempt income | $ | 8,106 | ||
Accumulated capital and other losses | (419,672 | )(a) | ||
Unrealized appreciation/(depreciation) | 155,891 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (255,675 | )(c) | |
|
|
(a) | As of October 31, 2018, the Fund had a net capital loss carryforward of $419,672. |
(b) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax treatment of swaps. |
(c) | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable. |
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, 2018, the Fund had a net short-term capital loss carryforward of $419,672, which may be carried forward for an indefinite period.
During the current fiscal year, there were no permanent differences that resulted in adjustments to accumulated loss or additional paid-in capital.
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 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 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 59 |
NOTES TO FINANCIAL STATEMENTS (continued)
years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU 2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in Regulation S-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to Regulation S-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has evaluated the impact of the amendments and determined the effect of the adoption of the rules simplifies certain disclosure requirements 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.
60 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class A | ||||||||||||||||||||
Year Ended October 31, | December 11, 2013(a) to October 31, | |||||||||||||||||||
2018 | 2017 | 2016 | 2015 | |||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.51 | $ 10.00 | |||||||||||||||
|
| |||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income(b)(c) | .24 | .21 | .22 | .18 | .14 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.30 | ) | (.10 | )† | .28 | .09 | .50 | |||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.06 | ) | .11 | .50 | .27 | .64 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.25 | ) | (.21 | ) | (.22 | ) | (.18 | ) | (.13 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.25 | ) | (.21 | ) | (.22 | ) | (.19 | ) | (.13 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.46 | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.51 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.55 | )% | 1.09 | % | 4.69 | % | 2.64 | % | 6.44 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $5,666 | $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) | 1.27 | % | 1.40 | % | 1.72 | % | 2.19 | % | 3.59 | %^ | ||||||||||
Net investment income(c) | 2.26 | % | 2.01 | % | 1.98 | % | 1.75 | % | 1.57 | %^ | ||||||||||
Portfolio turnover rate | 68 | % | 34 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 64.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 61 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Class C | ||||||||||||||||||||
Year Ended October 31, | December 11, 2013(a) to October 31, | |||||||||||||||||||
2018 | 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) | .16 | .13 | .13 | .10 | .07 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.30 | ) | (.10 | )† | .28 | .09 | .52 | |||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.14 | ) | .03 | .41 | .19 | .59 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.17 | ) | (.13 | ) | (.13 | ) | (.11 | ) | (.07 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.17 | ) | (.13 | ) | (.13 | ) | (.12 | ) | (.07 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.46 | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.52 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (1.29 | )% | .33 | % | 3.91 | % | 1.78 | % | 5.92 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $769 | $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) | 2.02 | % | 2.18 | % | 2.47 | % | 2.85 | % | 4.33 | %^ | ||||||||||
Net investment income(c) | 1.52 | % | 1.25 | % | 1.23 | % | .99 | % | .82 | %^ | ||||||||||
Portfolio turnover rate | 68 | % | 34 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 64.
62 | 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 | ||||||||||||||||||||
Year Ended October 31, | December 11, 2013(a) to October 31, | |||||||||||||||||||
2018 | 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) | .27 | .24 | .24 | .21 | .16 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.30 | ) | (.10 | )† | .28 | .08 | .52 | |||||||||||||
|
| |||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.03 | ) | .14 | .52 | .29 | .68 | ||||||||||||||
|
| |||||||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.28 | ) | (.24 | ) | (.24 | ) | (.21 | ) | (.16 | ) | ||||||||||
Distributions from net realized gain on investment transactions | – 0 | – | – 0 | – | – 0 | – | (.01 | ) | – 0 | – | ||||||||||
|
| |||||||||||||||||||
Total dividends and distributions | (.28 | ) | (.24 | ) | (.24 | ) | (.22 | ) | (.16 | ) | ||||||||||
|
| |||||||||||||||||||
Net asset value, end of period | $ 10.46 | $ 10.77 | $ 10.87 | $ 10.59 | $ 10.52 | |||||||||||||||
|
| |||||||||||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value(d) | (.30 | )% | 1.34 | % | 4.96 | % | 2.81 | % | 6.84 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $57,432 | $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) | 1.02 | % | 1.15 | % | 1.47 | % | 1.92 | % | 3.82 | %^ | ||||||||||
Net investment income(c) | 2.52 | % | 2.26 | % | 2.24 | % | 1.99 | % | 1.76 | %^ | ||||||||||
Portfolio turnover rate | 68 | % | 34 | % | 36 | % | 35 | % | 42 | % |
See footnote summary on page 64.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 63 |
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 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, such waiver amounted to .01%. |
† | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accordance with the Fund’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
^ | Annualized. |
See notes to financial statements.
64 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of AB Tax-Aware Fixed Income Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Tax-Aware Fixed Income Portfolio (the “Fund”), (one of the portfolios constituting AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of October 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the four years in the period then ended and for the period December 11, 2013 to October 31, 2014 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the portfolios constituting AB Bond Fund, Inc.) at October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the four years in the period then ended and for the period December 11, 2013 to October 31, 2014, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 65 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
December 28, 2018
66 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
2018 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended October 31, 2018. For foreign shareholders, 55.29% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2019.
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 67 |
RESULTS OF SHAREHOLDERS MEETING
(unaudited)
A Special Meeting of Shareholders of AB Bond Fund, Inc. (the “Company”)—AB Tax-Aware Fixed Income Portfolio (the “Fund”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal numbers shown below correspond to the proposal numbers in the Fund’s proxy statement):
1: | To approve and vote upon the election of the Directors of the Company, each such Director to serve a term of indefinite duration and until his or her successor is duly elected and qualifies: |
Director: | Voted For | Withheld Authority | ||
Michael J. Downey | 568,159,897 | 6,636,404 | ||
William H. Foulk, Jr. | 567,840,093 | 6,956,208 | ||
Nancy P. Jacklin | 568,944,215 | 5,852,087 | ||
Robert M. Keith | 569,042,667 | 5,753,635 | ||
Carol C. McMullen | 569,162,511 | 5,633,791 | ||
Garry L. Moody | 568,383,443 | 6,412,859 | ||
Marshall C. Turner, Jr. | 568,160,864 | 6,635,437 | ||
Earl D. Weiner | 567,806,291 | 6,990,010 |
2: | To vote upon the approval of new advisory agreements for the Fund with AllianceBernstein L.P. |
Voted For | Voted Against | Abstained | Broker-Non Votes | |||
3,524,172 | 5,832 | 839 | 1,272,600 |
68 | 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 | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent State Street Bank and Trust Company 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 Tax-Aware Investment 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 | 69 |
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None |
70 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## (2005) | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 71 |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
William H. Foulk, Jr.,##,^ 86 (1998) | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | 95 | None |
72 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 73 |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Carol C. McMullen,## 63 | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
74 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
MANAGEMENT OF THE FUND (continued)
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Garry L. Moody,## (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
abfunds.com | AB TAX-AWARE FIXED INCOME PORTFOLIO | 75 |
MANAGEMENT OF THE FUND (continued)
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
^ | Mr. Foulk is expected to retire on or about December 31, 2018. |
76 | AB TAX-AWARE FIXED INCOME PORTFOLIO | abfunds.com |
MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below.
NAME, ADDRESS* AND AGE | POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST 5 YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Robert “Guy” 57 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Terrance T. Hults 52 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Shawn E. Keegan 47 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Matthew Norton 35 | Vice President | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2013. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser,** with which he has been associated since prior to 2013. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2013. | ||
Phyllis J. Clarke 57 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2013. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-800-227-4618, or visit www.abfunds.com, for a free prospectus of SAI.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
As described in more detail in the Proxy Statement for the AB Funds dated August 20, 2018, the Boards of the AB Funds, at a meeting held on July 31-August 2, 2018, approved new advisory agreements with the Adviser (the “Proposed Agreements”) for the AB Funds, including AB Bond Fund, Inc. in respect of AB Tax-Aware Fixed Income Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreements for the AB Funds, including the Fund’s Advisory Agreement, resulting in the automatic termination of such advisory agreements.
At the same meeting, the AB Boards also considered and approved interim advisory agreements with the Adviser (the “Interim Advisory Agreements”) for the AB Funds, including the Fund, to be effective only in the event that stockholder approval of a Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreements, resulting in the automatic termination of such advisory agreements.
The shareholders of the Fund subsequently approved the Proposed Agreements at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreements.
A discussion regarding the basis for the Boards’ approvals is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the AB Boards held on July 31-August 2, 2018, the Adviser presented its recommendation that the Boards consider and approve the Proposed Agreements. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement and current sub-advisory agreement, as applicable, will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves them. Each of the Current Agreements had been approved by a Board within the one-year period prior to approval of its related Proposed Agreement, except that the Current Agreements for certain FlexFee funds were approved in February 2017. In connection with their approval of the Proposed Agreements, the Boards considered their conclusions in connection with their most recent approvals of the Current Agreements, in particular in cases where the last approval of a Current Agreement was relatively recent, including the Boards’ general satisfaction with the nature and quality of
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services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreements, the Boards considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Boards since their most recent approvals of the Current Agreements that would be a material consideration to the Boards in connection with their consideration of the Proposed Agreements, except for matters disclosed to the Boards by the Adviser. The Directors considered the fact that each Proposed Agreement would have corresponding terms and conditions identical to those of the corresponding Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of 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 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 each 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 management fees of the Funds they oversee. 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 Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreements, including the management fees, were fair and reasonable in light of the services performed under the Current Agreements and to be performed under the Proposed Agreements, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreements, including the quality of
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the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each 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 each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that certain Proposed Agreements, similar to the corresponding Current Agreements, provide that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds 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 Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors of each Fund concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement for the Fund.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed Agreements 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
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the Adviser’s relationship with each Fund before taxes and distribution expenses, as applicable. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable. The Directors were unable to consider historical information about the profitability of certain Funds that had recently commenced operations and for which historical profitability information was not available. The Adviser agreed to provide the Directors with profitability information in connection with future proposed continuances of the Proposed Agreements.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds; 12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the shares of most of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by most of the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a 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 Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreements were approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by
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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 each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year. In the case of the ACS Funds, the Directors noted that the management fee rate is zero but also were cognizant that the Adviser is indirectly compensated by the wrap fee program sponsors that use the ACS Funds as an investment vehicle for their clients.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. 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 also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows (in the case of open-end Funds); (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional,
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offshore fund and sub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that many of the Funds 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, in some cases pending purchases of underlying securities, that each Fund’s 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 each Fund’s management fee, the Directors considered the total expense ratio of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. 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 a Fund by others.
The Boards’ consideration of each Proposed Agreement was informed by their most recent approval of the related Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
The Directors did not consider comparative expense information for the ACS Funds because those Funds do not bear ordinary expenses.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do 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 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
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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 each 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 asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
The Directors did not consider the extent to which fee levels in the Advisory Agreement for the ACS Funds reflect economies of scale because that Advisory Agreement does not provide for any compensation to be paid to the Adviser by the ACS Funds and the expense ratio of each of those Funds is zero.
Interim Advisory Agreements
In approving the Interim Advisory Agreements, the Boards, with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreements. The Interim Advisory Agreements approved by the Boards are identical to the Proposed Agreements, as well as the Current Agreements, in all material respects except for their proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreements, the Adviser would continue to manage a Fund pursuant to an Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the 150-day period, whichever would occur earlier. All fees earned by the Adviser under an Interim Advisory Agreement would be held in escrow pending shareholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current 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,
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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 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
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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.
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
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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 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.
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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.
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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
FlexFee™ International Strategic Core Portfolio
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
FlexFee™ Emerging Markets Growth Portfolio
INTERNATIONAL/ GLOBAL EQUITY (continued)
Sustainable International Thematic Fund1
INTERNATIONAL/ GLOBAL VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income 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 Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to 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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AB TAX-AWARE FIXED INCOME PORTFOLIO
1345 Avenue of the Americas
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800 221 5672
TAFI-0151-1018
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the registrant’s code of ethics is filed herewith as Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant’s Board of Directors has determined that independent directors Garry L. Moody, William H. Foulk, Jr. and Marshall C. Turner, Jr. qualify as audit committee financial experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the independent registered public accounting firm Ernst & Young LLP, for the Fund’s last two fiscal years for professional services rendered for: (i) the audit of the Fund’s annual financial statements included in the Fund’s annual report to stockholders; (ii) assurance and related services that are reasonably related to the performance of the audit of the Fund’s financial statements and are not reported under (i), which include advice and education related to accounting and auditing issues and quarterly press release review (for those Funds which issue press releases), and preferred stock maintenance testing (for those Funds that issue preferred stock); and (iii) tax compliance, tax advice and tax return preparation.
Audit-Related | ||||||||||||||||
Audit Fees | Fees | Tax Fees | ||||||||||||||
AB Intermediate Bond | 2017 | $ | 75,281 | $ | 45 | $ | 19,210 | |||||||||
2018 | $ | 75,281 | $ | (1) | $ | 31,075 | ||||||||||
AB Bond Inflation Strategy | 2017 | $ | 86,472 | $ | 60 | $ | 19,256 | |||||||||
2018 | $ | 86,472 | $ | 2 | $ | 30,776 | ||||||||||
AB Municipal Bond Inflation Strategy | 2017 | $ | 66,207 | $ | 113 | $ | 17,886 | |||||||||
2018 | $ | 66,207 | $ | 1 | $ | 29,516 | ||||||||||
AB All Market Real Return | 2017 | $ | 79,481 | $ | 47 | $ | 40,467 | |||||||||
2018 | $ | 82,106 | $ | 4,429 | $ | 58,757 | ||||||||||
AB Credit Long/Short* | 2017 | $ | 96,890 | $ | — | $ | 29,101 | |||||||||
2018 | $ | — | $ | — | $ | — | ||||||||||
AB Flex Fee High Yield | 2017 | $ | 114,071 | $ | — | $ | 35,656 | |||||||||
2018 | $ | 112,671 | $ | — | $ | 41,164 | ||||||||||
AB Tax Aware Fixed Income | 2017 | $ | 36,060 | $ | — | $ | 23,996 | |||||||||
2018 | $ | 36,060 | $ | — | $ | 39,168 | ||||||||||
AB Income | 2017 | $ | 111,185 | $ | 158 | $ | 27,883 | |||||||||
2018 | $ | 114,685 | $ | 52 | $ | 38,825 |
* | Fund liquidated. |
(d) Not applicable.
(e) (1) Beginning with audit and non-audit service contracts entered into on or after May 6, 2003, the Fund’s Audit Committee policies and procedures require the pre-approval of all audit and non-audit services provided to the Fund by the Fund’s independent registered public accounting firm. The Fund’s Audit Committee policies and procedures also require pre-approval of all audit and non-audit services provided to the Adviser and Service Affiliates to the extent that these services are directly related to the operations or financial reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in the table under Item 4 (a) – (c) are for services pre-approved by the Fund’s Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregate non-audit services provided to the Fund, the Fund’s Adviser and entities that control, are controlled by or under common control with the Adviser that provide ongoing services to the Fund:
All Fees for Non-Audit Services Provided to the Portfolio, the Adviser and Service Affiliates | Total Amount of Foregoing Column Pre- approved by the Audit Committee (Portion Comprised of Audit Related Fees) (Portion Comprised of Tax Fees) | |||||||||||
AB Intermediate Bond | 2017 | $ | 742,370 | $ | 19,255 | |||||||
$ | (45 | ) | ||||||||||
$ | (19,210 | ) | ||||||||||
2018 | $ | 588,653 | $ | 31,074 | ||||||||
$ | 1 | |||||||||||
$ | (31,075 | ) | ||||||||||
AB Bond Inflation Strategy | 2017 | $ | 742,431 | $ | 19,316 | |||||||
$ | (60 | ) | ||||||||||
$ | (19,256 | ) | ||||||||||
2018 | $ | 588,357 | $ | 30,778 | ||||||||
$ | (2 | ) | ||||||||||
$ | (30,776 | ) | ||||||||||
AB Municipal Bond Inflation Strategy | 2017 | $ | 741,114 | $ | 17,999 | |||||||
$ | (113 | ) | ||||||||||
$ | (17,886 | ) | ||||||||||
2018 | $ | 528,064 | $ | (29,515 | ) | |||||||
$ | (1 | ) | ||||||||||
$ | 29,516 | |||||||||||
AB All Market Real Return | 2017 | $ | 763,629 | $ | 40,514 | |||||||
$ | (47 | ) | ||||||||||
$ | (40,467 | ) | ||||||||||
2018 | $ | 620,765 | $ | 63,186 | ||||||||
$ | (4,429 | ) | ||||||||||
$ | (58,757 | ) | ||||||||||
AB Credit Long/Short* | 2017 | $ | 752,216 | $ | 29,101 | |||||||
$ | — | |||||||||||
$ | (29,101 | ) | ||||||||||
2018 | $ | — | $ | — | ||||||||
$ | — | |||||||||||
$ | — | |||||||||||
AB Flex Fee High Yield | 2017 | $ | 758,771 | $ | 35,656 | |||||||
$ | — | |||||||||||
$ | (35,656 | ) | ||||||||||
2018 | $ | 598,743 | $ | 41,164 | ||||||||
$ | — | |||||||||||
$ | (41,164 | ) | ||||||||||
AB Tax Aware Fixed Income | 2017 | $ | 747,111 | $ | 23,996 | |||||||
$ | — | |||||||||||
$ | (23,996 | ) | ||||||||||
2018 | $ | 596,747 | $ | 39,168 | ||||||||
$ | — | |||||||||||
$ | (39,168 | ) | ||||||||||
AB Income | 2017 | $ | 751,156 | $ | 28,041 | |||||||
$ | (158 | ) | ||||||||||
$ | (27,883 | ) | ||||||||||
2018 | $ | 596,456 | $ | 38,877 | ||||||||
$ | (52 | ) | ||||||||||
$ | (38,825 | ) |
* | Fund liquidated. |
(h) The Audit Committee of the Fund has considered whether the provision of any non-audit services not pre-approved by the Audit Committee provided by the Fund’s independent registered public accounting firm to the Adviser and Service Affiliates is compatible with maintaining the auditor’s independence.
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-3 (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 (a) (1) | Code of Ethics that is subject to the disclosure of Item 2 hereof | |
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: | December 28, 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: | December 28, 2018 | |
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer | ||
Date: | December 28, 2018 |