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: December 31, 2020
Date of reporting period: December 31, 2020
ITEM 1. REPORTS TO STOCKHOLDERS.
DEC 12.31.20
ANNUAL REPORT
AB FLEXFEETM HIGH YIELD PORTFOLIO
As of January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports are no longer sent by mail, unless you specifically requested paper copies of the reports. Instead, the reports are made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT |
Dear Shareholder,
We’re pleased to provide this report for the 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
February 11, 2021
This report provides management’s discussion of fund performance for AB FlexFee High Yield Portfolio for the annual reporting period ended December 31, 2020.
At a special meeting of the shareholders of the Fund held on January 20, 2021, the shareholders approved the amendment of the investment advisory agreement (the “Agreement”) of the Fund to implement an advisory fee with breakpoints at specific asset levels (based on the Fund’s average daily net assets) and eliminate the current performance-based, or “fulcrum,” advisory fee.
Under the Agreement as currently in place, for its services the Adviser receives an investment advisory fee that consists of a base fee (fulcrum fee) and a performance adjustment. The Fund’s fulcrum fee increases or decreases up to 0.20% from a mid-point or fulcrum fee of 0.40% of the Fund’s average daily net assets, resulting in a maximum advisory fee of 0.60% and a minimum advisory fee of 0.20%. A positive performance adjustment is earned when the Fund’s performance exceeds that of the Markit iBoxx USD Liquid High Yield Index plus 0.75%. Under the Agreement as it will be amended, the Fund will pay to the Adviser a fee for investment advisory services at the annual rate of 0.45% of the Fund’s average daily net assets up to $2.5 billion, 0.425% of average daily net assets in excess of $2.5 billion up to $5 billion, and 0.40% of average daily net assets in excess of $5 billion.
The Board of Directors of AB Bond Fund, Inc., has approved certain additional actions with respect to the Fund, including a change in the Fund’s name to “AB High Yield Portfolio.” The amended Agreement and other actions will take effect on or about May 1, 2021.
The Fund’s investment objective is to seek to maximize total return consistent with prudent investment management.
NAV RETURNS AS OF DECEMBER 31, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB FLEXFEE HIGH YIELD PORTFOLIO1 | ||||||||
Advisor Class Shares | 13.30% | 8.84% | ||||||
Markit iBoxx USD Liquid High Yield Index | 10.38% | 4.66% |
1 | 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. |
2 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
INVESTMENT RESULTS
The preceding table 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 December 31, 2020.
The Fund outperformed the benchmark for both periods. The Fund’s performance-based advisory fee was accrued at its maximum rate for the performance period from January 1, 2020, to December 31, 2020.
In the 12-month period, industry allocation was the primary contributor, relative to the benchmark, due to exposures in the energy, media, airlines and electric sectors, which more than offset losses in commercial mortgage-backed securities. The use of derivatives, including high-yield credit default swaps, added to returns. The Fund’s longer-than-benchmark duration and yield-curve positioning in the two- to five-year parts of the curve also added in a period of falling interest rates. Security selection contributed, as selections in consumer cyclicals–other, automotive, retailers, finance, capital goods and technology exceeded losses from media, transportation, energy and banking. Currency decisions did not have a material impact on overall performance.
In the six-month period, industry allocation was the primary contributor, mostly due to exposures to airlines and telecommunications, which more than offset losses in cash equivalents, treasuries and energy. The use of derivatives, including high-yield credit default swaps, added to returns. Security selection also contributed, as selections among energy, capital goods, consumer cyclicals and services exceeded detractors in airlines and transportation services. Duration and yield-curve positioning, along with currency decisions, were minor contributors to performance.
During both periods, the Fund utilized derivatives in the form of futures to hedge duration, and interest-rate risk 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.
MARKET REVIEW AND INVESTMENT STRATEGY
Global fixed-income market returns were positive yet volatile over the 12-month period ended December 31, 2020. Central banks and governments enacted an unprecedented amount of monetary and fiscal stimulus to combat market illiquidity and cushion the negative economic impact of COVID-19, setting the stage for a rebound in riskier assets following the initial sell-off in March. Government bonds rallied as interest rates were slashed. Risk assets rallied significantly in November when positive vaccine
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 3 |
news extended the credit rally. Developed-market and emerging-market investment-grade corporate bonds and commercial mortgage-backed securities led gains as investors searched for higher yields in a period of falling interest rates. Global developed-market high-yield corporate bonds also had strong returns, particularly in the US. Agency mortgage-backed securities, along with emerging-market local-currency debt and high-yield hard-currency sovereign bonds, had positive returns but trailed global treasuries. The US dollar declined against all major developed-market currencies and was mixed against emerging-market currencies. Brent crude oil prices were volatile and fell about 21% due to an uncertain oil industry outlook. Copper prices advanced more than 25%, and gold rose 24% as a perceived inflation hedge.
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, to a lesser extent, government bonds from developed and emerging markets, primarily focusing on lower-rated bonds (“junk bonds”), although it 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 and securities of emerging-market issuers. The Adviser may or may not hedge any foreign currency exposure through the use of currency-related derivatives.
(continued on next page)
4 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 5 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Markit iBoxx USD Liquid High Yield Index is unmanaged and does 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. 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, including public health crises (including the occurrence of a contagious disease or illness), 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. 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 may be more difficult to trade than other types of securities.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
6 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
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 difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Leverage Risk: To the extent the Fund uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, 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.
Illiquid Investments Risk: Illiquid investments risk exists when certain investments are or become difficult to purchase or sell. Difficulty in selling such investments may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of illiquid investments risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Illiquid investments 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. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 7 |
DISCLOSURES AND RISKS (continued)
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
Performance information prior to July 26, 2016 shown in this report reflects the historical performance of the AB High-Yield Portfolio, a series of The AB Pooling Portfolios (the “Accounting Survivor”), adjusted to reflect the expense ratio of Advisor Class shares of the Fund as of July 26, 2016. Upon completion of a reorganization of the Accounting Survivor into the Fund on July 26, 2016, the Fund assumed the performance and financial history of the Accounting Survivor. At the time of the reorganization, the Accounting Survivor and the Fund had substantially similar investment objectives and strategies.
Effective February 26, 2018, the Fund implemented a performance-based, or fulcrum, advisory fee. Accordingly, performance information shown prior to February 26, 2018 does not reflect performance fee adjustments and would have been different if the Fund had been managed under the performance (fulcrum) fee arrangement. Effective February 26, 2018, all previously offered shares of the Fund, including Class Z shares, were converted to Advisor Class shares.
All fees and expenses related to the operation of the Fund have been deducted. Performance assumes reinvestment of distributions and does not account for taxes.
8 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
12/31/2010 TO 12/31/2020
This chart illustrates the total value of an assumed $10,000 investment in AB FlexFee High Yield Portfolio Advisor Class shares (from 12/31/2010 to 12/31/2020) as compared to the performance of the Fund’s benchmark.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 9 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 2020 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
ADVISOR CLASS SHARES2 | 1.53% | |||||||||||
1 Year | 8.84% | 8.84% | ||||||||||
5 Years | 8.42% | 8.42% | ||||||||||
10 Years | 7.00% | 7.00% |
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
DECEMBER 31, 2020 (unaudited)
SEC Returns (reflects applicable | ||||
ADVISOR CLASS SHARES | ||||
1 Year | 8.84% | |||
5 Years | 8.42% | |||
10 Years | 7.00% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratio as 1.85% 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 April 30, 2021. Any fees waived and expenses borne by the Adviser through December 31, 2019 under the expense limitation 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 other expenses to exceed the expense limitation. 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 December 31, 2020. |
2 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. |
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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 7/1/2020 | Ending Account Value 12/31/2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,133.00 | $ | 4.07 | 0.76 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.32 | $ | 3.86 | 0.76 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
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PORTFOLIO SUMMARY
December 31, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $38.7
1 | All data are as of December 31, 2020. The Fund’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
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PORTFOLIO OF INVESTMENTS
December 31, 2020
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
CORPORATES – NON-INVESTMENT |
| |||||||||
Industrial – 70.1% |
| |||||||||
Basic – 5.5% |
| |||||||||
Advanced Drainage Systems, Inc. | U.S.$ | 28 | $ | 29,487 | ||||||
Arconic Corp. | 11 | 11,861 | ||||||||
Berry Global, Inc. | 3 | 3,043 | ||||||||
Big River Steel LLC/BRS Finance Corp. | 19 | 20,533 | ||||||||
CF Industries, Inc. | 64 | 67,070 | ||||||||
4.95%, 06/01/2043 | 27 | 33,246 | ||||||||
5.15%, 03/15/2034 | 23 | 28,258 | ||||||||
5.375%, 03/15/2044 | 73 | 92,242 | ||||||||
Cleveland-Cliffs, Inc. | 7 | 7,547 | ||||||||
9.875%, 10/17/2025(a) | 180 | 211,619 | ||||||||
Commercial Metals Co. | 50 | 52,658 | ||||||||
5.375%, 07/15/2027 | 45 | 47,458 | ||||||||
ERP Iron Ore, LLC | 5 | 4,250 | ||||||||
FMG Resources (August 2006) Pty Ltd. | 121 | 124,728 | ||||||||
5.125%, 03/15/2023-05/15/2024(a) | 100 | 108,079 | ||||||||
Freeport-McMoRan, Inc. | 104 | 115,603 | ||||||||
Graham Packaging Co., Inc. | 10 | 11,000 | ||||||||
Graphic Packaging International LLC | 26 | 26,010 | ||||||||
4.75%, 07/15/2027(a) | 28 | 30,941 | ||||||||
Grinding Media, Inc./Moly-Cop AltaSteel Ltd. | 106 | 108,072 | ||||||||
Illuminate Buyer LLC/Illuminate Holdings IV, Inc. | 37 | 40,886 | ||||||||
Intelligent Packaging Holdco Issuer LP | 39 | 39,461 | ||||||||
Intelligent Packaging Ltd. Finco, Inc./Intelligent Packaging Ltd. Co-Issuer LLC | 112 | 115,160 | ||||||||
Joseph T Ryerson & Son, Inc. | 72 | 81,619 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Kaiser Aluminum Corp. | U.S.$ | 21 | $ | 22,573 | ||||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp. | 35 | 35,709 | ||||||||||
7.00%, 04/15/2025(a) | 10 | 10,525 | ||||||||||
Magnetation LLC/Mag Finance Corp. | 60 | – 0 | – | |||||||||
NOVA Chemicals Corp. | 54 | 57,622 | ||||||||||
Olin Corp. | 57 | 61,797 | ||||||||||
Peabody Energy Corp. | 96 | 71,108 | ||||||||||
6.375%, 03/31/2025(a) | 30 | 16,425 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu | 4 | 4,049 | ||||||||||
Sealed Air Corp. | 35 | 37,119 | ||||||||||
5.50%, 09/15/2025(a) | 33 | 36,879 | ||||||||||
SPCM SA | 58 | 60,084 | ||||||||||
United States Steel Corp. | 165 | 190,981 | ||||||||||
Valvoline, Inc. | 87 | 92,319 | ||||||||||
WR Grace & Co.-Conn | 14 | 14,886 | ||||||||||
|
| |||||||||||
2,122,907 | ||||||||||||
|
| |||||||||||
Capital Goods – 7.1% | ||||||||||||
ARD Finance SA | EUR | 120 | 149,222 | |||||||||
Ball Corp. | U.S.$ | 50 | 51,845 | |||||||||
Bombardier, Inc. | 183 | 186,656 | ||||||||||
6.00%, 10/15/2022(a) | 98 | 96,139 | ||||||||||
6.125%, 01/15/2023(a) | 5 | 4,933 | ||||||||||
7.50%, 12/01/2024-03/15/2025(a) | 111 | 105,361 | ||||||||||
7.875%, 04/15/2027(a) | 10 | 9,194 | ||||||||||
Clean Harbors, Inc. | 11 | 12,028 | ||||||||||
Colfax Corp. | 69 | 71,502 | ||||||||||
6.375%, 02/15/2026(a) | 11 | 11,765 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Cornerstone Building Brands, Inc. | U.S.$ | 16 | $ | 16,808 | ||||||
Crown Cork & Seal Co., Inc. | 20 | 24,498 | ||||||||
EnerSys | 80 | 84,547 | ||||||||
Gates Global LLC/Gates Corp. | 162 | 170,100 | ||||||||
GFL Environmental, Inc. | 90 | 91,601 | ||||||||
4.00%, 08/01/2028(a) | 20 | 20,178 | ||||||||
8.50%, 05/01/2027(a) | 23 | 25,594 | ||||||||
Granite US Holdings Corp. | 18 | 20,011 | ||||||||
Griffon Corp. | 3 | 3,186 | ||||||||
JELD-WEN, Inc. | 6 | 6,153 | ||||||||
Mauser Packaging Solutions Holding Co. | 24 | 24,453 | ||||||||
Mueller Water Products, Inc. | 44 | 45,555 | ||||||||
RBS Global, Inc./Rexnord LLC | 97 | 99,117 | ||||||||
Signature Aviation US Holdings, Inc. | 65 | 65,379 | ||||||||
5.375%, 05/01/2026(a) | 50 | 51,552 | ||||||||
SPX FLOW, Inc. | 68 | 71,005 | ||||||||
Stevens Holding Co., Inc. | 20 | 21,633 | ||||||||
Summit Materials LLC/Summit Materials Finance Corp. | 13 | 13,654 | ||||||||
Terex Corp. | 73 | 75,206 | ||||||||
Tervita Corp. | 79 | 85,042 | ||||||||
TransDigm, Inc. | 214 | 225,101 | ||||||||
6.25%, 03/15/2026(a) | 110 | 117,220 | ||||||||
6.375%, 06/15/2026 | 27 | 27,948 | ||||||||
6.50%, 07/15/2024-05/15/2025 | 96 | 98,286 | ||||||||
8.00%, 12/15/2025(a) | 35 | 38,635 | ||||||||
Triumph Group, Inc. | 23 | 22,750 | ||||||||
7.75%, 08/15/2025 | 23 | 21,066 | ||||||||
8.875%, 06/01/2024(a) | 59 | 64,744 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Trivium Packaging Finance BV | EUR | 100 | $ | 125,557 | ||||||||
Vertical US Newco, Inc. | U.S.$ | 200 | 211,624 | |||||||||
Wesco Distribution, Inc. | 48 | 52,775 | ||||||||||
7.25%, 06/15/2028(a) | 33 | 37,491 | ||||||||||
|
| |||||||||||
2,757,114 | ||||||||||||
|
| |||||||||||
Communications - Media – 8.6% | ||||||||||||
Advantage Sales & Marketing, Inc. | 155 | 163,806 | ||||||||||
Altice Financing SA | 265 | 271,240 | ||||||||||
Arches Buyer, Inc. | 31 | 32,007 | ||||||||||
Cable One, Inc. | 17 | 17,673 | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 40 | 43,164 | ||||||||||
5.75%, 02/15/2026(a) | 596 | 615,489 | ||||||||||
Clear Channel Worldwide Holdings, Inc. | 86 | 87,943 | ||||||||||
CSC Holdings LLC | 208 | 205,108 | ||||||||||
5.50%, 05/15/2026(a) | 253 | 263,332 | ||||||||||
DISH DBS Corp. | 115 | 120,108 | ||||||||||
7.75%, 07/01/2026 | 161 | 180,228 | ||||||||||
DISH Network Corp. | 27 | 25,760 | ||||||||||
iHeartCommunications, Inc. | 35 | 35,910 | ||||||||||
6.375%, 05/01/2026 | 5 | 5,453 | ||||||||||
8.375%, 05/01/2027 | 65 | 69,592 | ||||||||||
Lamar Media Corp. | 8 | 8,515 | ||||||||||
5.75%, 02/01/2026 | 20 | 20,650 | ||||||||||
LCPR Senior Secured Financing DAC | 200 | 215,514 | ||||||||||
Meredith Corp. | 187 | 183,187 | ||||||||||
National CineMedia LLC | 21 | 15,111 | ||||||||||
5.875%, 04/15/2028(a) | 80 | 67,283 | ||||||||||
Scripps Escrow II, Inc. | 18 | 18,880 |
16 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Scripps Escrow, Inc. | U.S.$ | 23 | $ | 24,031 | ||||||||
Sinclair Television Group, Inc. | 9 | 9,183 | ||||||||||
5.50%, 03/01/2030(a) | 20 | 20,786 | ||||||||||
Sirius XM Radio, Inc. | 33 | 33,424 | ||||||||||
4.625%, 07/15/2024(a) | 116 | 120,245 | ||||||||||
5.375%, 07/15/2026(a) | 35 | 36,570 | ||||||||||
5.50%, 07/01/2029(a) | 82 | 90,403 | ||||||||||
Summer BC Holdco B SARL | EUR | 100 | 128,714 | |||||||||
TEGNA, Inc. | U.S.$ | 177 | 187,002 | |||||||||
Univision Communications, Inc. | 25 | 27,811 | ||||||||||
|
| |||||||||||
3,344,122 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 3.4% | ||||||||||||
CenturyLink, Inc. | ||||||||||||
Series G 6.875%, 01/15/2028 | 65 | 75,387 | ||||||||||
Series S 6.45%, 06/15/2021 | 34 | 34,681 | ||||||||||
Consolidated Communications, Inc. | 140 | 150,158 | ||||||||||
Embarq Corp. | 27 | 33,288 | ||||||||||
Frontier Communications Corp. | 29 | 31,233 | ||||||||||
6.75%, 05/01/2029(a) | 17 | 18,186 | ||||||||||
Hughes Satellite Systems Corp. | 30 | 33,925 | ||||||||||
7.625%, 06/15/2021 | 19 | 19,723 | ||||||||||
Intelsat Jackson Holdings SA | 158 | 107,293 | ||||||||||
8.50%, 10/15/2024(a)(d)(i) | 47 | 33,413 | ||||||||||
Intrado Corp. | 19 | 18,386 | ||||||||||
Level 3 Financing, Inc. | 53 | 53,515 | ||||||||||
Sprint Capital Corp. | 91 | 144,058 | ||||||||||
Sprint Communications, Inc. | 38 | 41,105 | ||||||||||
Sprint Corp. | 73 | 84,474 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
T-Mobile USA, Inc. | U.S.$ | 103 | $ | 105,438 | ||||||||
4.75%, 02/01/2028 | 4 | 4,298 | ||||||||||
Telecom Italia Capital SA | 200 | 247,102 | ||||||||||
Telesat Canada/Telesat LLC | 30 | 31,367 | ||||||||||
Zayo Group Holdings, Inc. | 36 | 36,185 | ||||||||||
6.125%, 03/01/2028(a) | 19 | 20,135 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc. | 1 | 892 | ||||||||||
|
| |||||||||||
1,324,242 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 5.9% |
| |||||||||||
Adient US LLC | 33 | 36,908 | ||||||||||
Allison Transmission, Inc. | 30 | 33,240 | ||||||||||
American Axle & Manufacturing, Inc. | 36 | 37,368 | ||||||||||
Clarios Global LP/Clarios US Finance Co. | 70 | 75,094 | ||||||||||
8.50%, 05/15/2027(a) | 23 | 24,954 | ||||||||||
Dana Financing Luxembourg SARL | 87 | 91,132 | ||||||||||
Dealer Tire LLC/DT Issuer LLC | 37 | 38,940 | ||||||||||
Exide Technologies | ||||||||||||
11.00%, 10/31/2024(b)(d)(e)(g) | 32 | – 0 | – | |||||||||
(First Lien) | ||||||||||||
11.00%, 10/31/2024(b)(d)(e)(g) | 13 | – 0 | – | |||||||||
Ford Motor Co. | 128 | 143,939 | ||||||||||
9.00%, 04/22/2025 | 36 | 44,145 | ||||||||||
Ford Motor Credit Co. LLC | ||||||||||||
3.096%, 05/04/2023 | 221 | 222,961 | ||||||||||
3.219%, 01/09/2022 | 221 | 223,674 | ||||||||||
4.00%, 11/13/2030 | 200 | 210,133 | ||||||||||
Garrett LX I SARL/Garrett Borrowing LLC | EUR | 200 | 244,366 | |||||||||
IHO Verwaltungs GmbH | 100 | 124,543 | ||||||||||
Jaguar Land Rover Automotive PLC | 100 | 124,245 | ||||||||||
6.875%, 11/15/2026(a) | 100 | 125,309 |
18 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Meritor, Inc. | U.S.$ | 78 | $ | 80,001 | ||||||||
6.25%, 02/15/2024 | 11 | 11,220 | ||||||||||
6.25%, 06/01/2025(a) | 8 | 8,636 | ||||||||||
Navistar International Corp. | 107 | 112,137 | ||||||||||
PM General Purchaser LLC | 81 | 89,650 | ||||||||||
Tenneco, Inc. | 70 | 64,261 | ||||||||||
7.875%, 01/15/2029(a) | 35 | 39,298 | ||||||||||
Titan International, Inc. | 38 | 35,225 | ||||||||||
Truck Hero, Inc. | 47 | 49,782 | ||||||||||
|
| |||||||||||
2,291,161 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 3.6% |
| |||||||||||
AMC Entertainment Holdings, Inc. | 12 | 1,385 | ||||||||||
Carnival Corp. | 79 | 86,070 | ||||||||||
9.875%, 08/01/2027(a) | 28 | 32,340 | ||||||||||
11.50%, 04/01/2023(a) | 167 | 193,053 | ||||||||||
Cedar Fair LP | 15 | 15,439 | ||||||||||
Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp. | 70 | 70,390 | ||||||||||
Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp./Millennium Op | 39 | 39,982 | ||||||||||
5.50%, 05/01/2025(a) | 92 | 96,108 | ||||||||||
Mattel, Inc. | 59 | 62,278 | ||||||||||
NCL Corp. Ltd. | 46 | 48,275 | ||||||||||
NCL Corp., Ltd. | 98 | 90,367 | ||||||||||
Royal Caribbean Cruises Ltd. | 59 | 59,388 | ||||||||||
10.875%, 06/01/2023(a) | 53 | 60,109 | ||||||||||
11.50%, 06/01/2025(a) | 122 | 142,319 | ||||||||||
SeaWorld Parks & Entertainment, Inc. | 33 | 35,626 | ||||||||||
9.50%, 08/01/2025(a) | 42 | 45,626 | ||||||||||
Silversea Cruise Finance Ltd. | 34 | 35,308 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Six Flags Entertainment Corp. | U.S.$ | 61 | $ | 61,061 | ||||||||
Six Flags Theme Parks, Inc. | 23 | 24,954 | ||||||||||
Vail Resorts, Inc. | 17 | 18,226 | ||||||||||
Viking Cruises Ltd. | 43 | 42,051 | ||||||||||
13.00%, 05/15/2025(a) | 45 | 53,955 | ||||||||||
VOC Escrow Ltd. | 69 | 68,104 | ||||||||||
|
| |||||||||||
1,382,414 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 5.7% | ||||||||||||
Adams Homes, Inc. | 58 | 60,567 | ||||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co. | 20 | 20,803 | ||||||||||
Bally’s Corp. | 107 | 115,069 | ||||||||||
Beazer Homes USA, Inc. | 19 | 19,967 | ||||||||||
6.75%, 03/15/2025 | 28 | 29,375 | ||||||||||
Boyd Gaming Corp. | 20 | 22,223 | ||||||||||
Brookfield Residential Properties, Inc./Brookfield Residential US Corp. | 16 | 16,539 | ||||||||||
6.25%, 09/15/2027(a) | 151 | 160,378 | ||||||||||
Caesars Entertainment, Inc. | 78 | 83,052 | ||||||||||
Caesars Holdings, Inc. | 11 | 23,866 | ||||||||||
Churchill Downs, Inc. | 61 | 64,590 | ||||||||||
CP Atlas Buyer, Inc. | 14 | 14,560 | ||||||||||
Empire Communities Corp. | 45 | 47,394 | ||||||||||
Five Point Operating Co. LP/Five Point Capital Corp. | 146 | 154,486 | ||||||||||
Forestar Group, Inc. | 58 | 59,747 | ||||||||||
8.00%, 04/15/2024(a) | 37 | 38,944 | ||||||||||
Hilton Domestic Operating Co., Inc. | 17 | 18,649 | ||||||||||
5.125%, 05/01/2026 | 30 | 31,117 |
20 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.375%, 05/01/2025(a) | U.S.$ | 40 | $ | 42,738 | ||||||||
5.75%, 05/01/2028(a) | 11 | 12,010 | ||||||||||
Hilton Grand Vacations Borrower LLC/Hilton Grand Vacations Borrower, Inc. | 28 | 29,213 | ||||||||||
Installed Building Products, Inc. | 40 | 42,533 | ||||||||||
K. Hovnanian Enterprises, Inc. | 61 | 61,100 | ||||||||||
KB Home | 22 | 23,032 | ||||||||||
Marriott Ownership Resorts, Inc./ILG LLC | 119 | 124,356 | ||||||||||
Mattamy Group Corp. | 33 | 35,252 | ||||||||||
Meritage Homes Corp. | 7 | 7,828 | ||||||||||
MGM Resorts International | 33 | 35,506 | ||||||||||
7.75%, 03/15/2022 | 16 | 17,050 | ||||||||||
Scientific Games International, Inc. | 30 | 32,207 | ||||||||||
Shea Homes LP/Shea Homes Funding Corp. | 20 | 20,624 | ||||||||||
Stars Group Holdings BV/Stars Group US Co-Borrower LLC | 57 | 60,067 | ||||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 16 | 15,742 | ||||||||||
Taylor Morrison Communities, Inc. | 31 | 35,088 | ||||||||||
5.875%, 06/15/2027(a) | 86 | 97,402 | ||||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 17 | 18,787 | ||||||||||
5.875%, 04/15/2023(a) | 8 | 8,398 | ||||||||||
Wyndham Destinations, Inc. | 43 | 45,431 | ||||||||||
6.625%, 07/31/2026(a) | 54 | 61,865 | ||||||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | 4 | 4,124 | ||||||||||
5.50%, 03/01/2025(a) | 236 | 246,397 | ||||||||||
Wynn Resorts Finance LLC/Wynn Resorts Capital Corp. | 86 | 89,922 | ||||||||||
7.75%, 04/15/2025(a) | 48 | 51,970 | ||||||||||
|
| |||||||||||
2,199,968 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Restaurants – 0.5% | ||||||||||||
1011778 BC ULC/New Red Finance, Inc. | U.S.$ | 10 | $ | 10,023 | ||||||||
4.25%, 05/15/2024(a) | 23 | 23,459 | ||||||||||
5.75%, 04/15/2025(a) | 66 | 70,757 | ||||||||||
Golden Nugget, Inc. | 58 | 57,507 | ||||||||||
IRB Holding Corp. | 12 | 12,420 | ||||||||||
7.00%, 06/15/2025(a) | 5 | 5,455 | ||||||||||
|
| |||||||||||
179,621 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 3.1% | ||||||||||||
Burlington Coat Factory Warehouse Corp. | 20 | 21,311 | ||||||||||
Dufry One BV | EUR | 103 | 120,608 | |||||||||
Group 1 Automotive, Inc. | U.S.$ | 13 | 13,387 | |||||||||
L Brands, Inc. | 20 | 20,853 | ||||||||||
6.625%, 10/01/2030(a) | 83 | 91,705 | ||||||||||
6.75%, 07/01/2036 | 48 | 53,492 | ||||||||||
6.875%, 07/01/2025(a) | 4 | 4,340 | ||||||||||
6.875%, 11/01/2035 | 88 | 98,717 | ||||||||||
7.50%, 06/15/2029 | 17 | 18,881 | ||||||||||
LBM Acquisition LLC | 14 | 14,526 | ||||||||||
Murphy Oil USA, Inc. | 2 | 2,467 | ||||||||||
Penske Automotive Group, Inc. | 52 | 53,972 | ||||||||||
PetSmart, Inc. | 123 | 122,832 | ||||||||||
Rite Aid Corp. | 25 | 26,114 | ||||||||||
8.00%, 11/15/2026(a) | 11 | 11,761 | ||||||||||
Sonic Automotive, Inc. | 20 | 20,565 | ||||||||||
Specialty Building Products Holdings LLC/SBP Finance Corp. | 130 | 137,384 | ||||||||||
Staples, Inc. | 159 | 165,880 | ||||||||||
10.75%, 04/15/2027(a) | 61 | 60,628 | ||||||||||
TPro Acquisition Corp. | 16 | 17,595 |
22 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
White Cap Buyer LLC | U.S.$ | 42 | $ | 44,800 | ||||||||
William Carter Co. (The) | 25 | 26,564 | ||||||||||
5.625%, 03/15/2027(a) | 44 | 46,311 | ||||||||||
|
| |||||||||||
1,194,693 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 6.3% | ||||||||||||
AdaptHealth LLC | 21 | 21,556 | ||||||||||
6.125%, 08/01/2028(a) | 45 | 48,388 | ||||||||||
Albertsons Cos., Inc./Safeway, Inc./New Albertsons LP/Albertsons LLC | 137 | 138,550 | ||||||||||
Albertsons Cos., Inc./Safeway, Inc./New Albertsons LP/Albertsons LLC | 47 | 48,437 | ||||||||||
Bausch Health Americas, Inc. | 189 | 210,291 | ||||||||||
Bausch Health Cos., Inc. | 46 | 47,395 | ||||||||||
9.00%, 12/15/2025(a) | 103 | 113,779 | ||||||||||
CD&R Smokey Buyer, Inc. | 14 | 14,987 | ||||||||||
Chobani LLC/Chobani Finance Corp., Inc. | 24 | 24,353 | ||||||||||
CHS/Community Health Systems, Inc. | 17 | 18,264 | ||||||||||
6.00%, 01/15/2029(a) | 14 | 15,111 | ||||||||||
6.625%, 02/15/2025(a) | 99 | 104,210 | ||||||||||
Coty, Inc. | 52 | 50,555 | ||||||||||
DaVita, Inc. | 85 | 86,254 | ||||||||||
Encompass Health Corp. | 30 | 30,967 | ||||||||||
Endo Dac/Endo Finance LLC/Endo Finco, Inc. | 17 | 18,976 | ||||||||||
Envision Healthcare Corp. | 41 | 25,617 | ||||||||||
HCA, Inc. | 33 | 37,888 | ||||||||||
5.625%, 09/01/2028 | 35 | 41,286 | ||||||||||
5.875%, 02/15/2026 | 54 | 62,188 | ||||||||||
Kronos Acquisition Holdings, Inc. | 119 | 121,854 | ||||||||||
Kronos Acquisition Holdings, Inc./KIK Custom Products, Inc. | 118 | 123,423 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Legacy LifePoint Health LLC | U.S.$ | 18 | $ | 18,206 | ||||||||
6.75%, 04/15/2025(a) | 20 | 21,492 | ||||||||||
Mallinckrodt International Finance | 10 | 3,438 | ||||||||||
Newell Brands, Inc. | 45 | 49,606 | ||||||||||
Par Pharmaceutical, Inc. | 150 | 161,978 | ||||||||||
Post Holdings, Inc. | 58 | 61,007 | ||||||||||
5.625%, 01/15/2028(a) | 54 | 57,683 | ||||||||||
Providence Service Corp. (The) | 24 | 25,380 | ||||||||||
Radiology Partners, Inc. | 6 | 6,741 | ||||||||||
RegionalCare Hospital Partners Holdings, | 24 | 26,258 | ||||||||||
RP Escrow Issuer LLC | 62 | 64,779 | ||||||||||
Spectrum Brands, Inc. | 36 | 37,169 | ||||||||||
Tenet Healthcare Corp. | 115 | 117,209 | ||||||||||
6.125%, 10/01/2028(a) | 17 | 17,701 | ||||||||||
6.25%, 02/01/2027(a) | 33 | 34,788 | ||||||||||
6.75%, 06/15/2023 | 98 | 105,199 | ||||||||||
7.00%, 08/01/2025 | 4 | 4,135 | ||||||||||
7.50%, 04/01/2025(a) | 58 | 63,474 | ||||||||||
TreeHouse Foods, Inc. | 23 | 23,811 | ||||||||||
US Renal Care, Inc. | 104 | 114,590 | ||||||||||
Vizient, Inc. | 10 | 10,682 | ||||||||||
|
| |||||||||||
2,429,655 | ||||||||||||
|
| |||||||||||
Energy – 10.8% | ||||||||||||
Antero Resources Corp. | 30 | 28,164 | ||||||||||
5.625%, 06/01/2023 | 50 | 48,893 | ||||||||||
8.375%, 07/15/2026(a) | 7 | 7,123 | ||||||||||
Apache Corp. | 93 | 96,608 | ||||||||||
4.625%, 11/15/2025 | 8 | 8,425 | ||||||||||
4.875%, 11/15/2027 | 14 | 14,819 |
24 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Berry Petroleum Co. LLC | U.S.$ | 127 | $ | 107,449 | ||||||
Blue Racer Midstream LLC/Blue Racer Finance Corp. | 14 | 14,102 | ||||||||
7.625%, 12/15/2025(a) | 61 | 64,945 | ||||||||
Callon Petroleum, Co. | 52 | 33,615 | ||||||||
8.25%, 07/15/2025 | 8 | 4,320 | ||||||||
Citgo Holding, Inc. | 18 | 16,846 | ||||||||
CITGO Petroleum Corp. | 16 | 15,872 | ||||||||
7.00%, 06/15/2025(a) | 50 | 50,261 | ||||||||
CNX Resources Corp. | 29 | 29,749 | ||||||||
7.25%, 03/14/2027(a) | 6 | 6,445 | ||||||||
Comstock Resources, Inc. | 105 | 107,531 | ||||||||
DCP Midstream Operating LP | 35 | 35,973 | ||||||||
5.60%, 04/01/2044 | 53 | 54,620 | ||||||||
Diamond Offshore Drilling, Inc. | 68 | 8,531 | ||||||||
7.875%, 08/15/2025(d)(i) | 62 | 7,512 | ||||||||
EnLink Midstream LLC | 60 | 61,221 | ||||||||
EnLink Midstream Partners LP | 119 | 115,863 | ||||||||
4.40%, 04/01/2024 | 11 | 10,848 | ||||||||
4.85%, 07/15/2026 | 107 | 104,360 | ||||||||
5.60%, 04/01/2044 | 14 | 11,235 | ||||||||
EQM Midstream Partners LP | 53 | 57,822 | ||||||||
Genesis Energy LP/Genesis Energy Finance Corp. | 45 | 43,895 | ||||||||
6.25%, 05/15/2026 | 21 | 19,719 | ||||||||
6.50%, 10/01/2025 | 35 | 34,016 | ||||||||
7.75%, 02/01/2028 | 62 | 59,460 | ||||||||
8.00%, 01/15/2027 | 60 | 59,435 | ||||||||
Global Partners LP/GLP Finance Corp. | 96 | 104,036 | ||||||||
7.00%, 08/01/2027 | 26 | 27,845 | ||||||||
Gulfport Energy Corp. | 128 | 86,400 | ||||||||
6.38%, 05/15/2025-01/15/2026(d)(i) | 55 | 36,613 | ||||||||
6.625%, 05/01/2023(d)(i) | 4 | 2,704 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
HighPoint Operating Corp. | U.S.$ | 35 | $ | 13,659 | ||||||
Hilcorp Energy I LP/Hilcorp Finance Co. | 107 | 108,296 | ||||||||
Indigo Natural Resources LLC | 62 | 63,550 | ||||||||
Moss Creek Resources Holdings, Inc. | 48 | 38,394 | ||||||||
Murphy Oil Corp. | 21 | 18,606 | ||||||||
Nabors Industries Ltd. | 36 | 25,220 | ||||||||
7.50%, 01/15/2028(a) | 37 | 25,293 | ||||||||
Nabors Industries, Inc. | 30 | 15,607 | ||||||||
New Fortress Energy, Inc. | 156 | 165,620 | ||||||||
NGL Energy Partners LP/NGL Energy Finance Corp. | 186 | 131,709 | ||||||||
Occidental Petroleum Corp. | 52 | 52,045 | ||||||||
2.90%, 08/15/2024 | 192 | 185,057 | ||||||||
3.40%, 04/15/2026 | 8 | �� | 7,626 | |||||||
3.50%, 06/15/2025 | 23 | 22,206 | ||||||||
5.50%, 12/01/2025 | 28 | 29,180 | ||||||||
5.55%, 03/15/2026 | 272 | 283,663 | ||||||||
6.125%, 01/01/2031 | 93 | 99,556 | ||||||||
6.20%, 03/15/2040 | 69 | 68,738 | ||||||||
8.50%, 07/15/2027 | 42 | 48,501 | ||||||||
8.875%, 07/15/2030 | 42 | 49,501 | ||||||||
Parkland Corp./Canada | 89 | 93,509 | ||||||||
PBF Holding Co. LLC/PBF Finance Corp. | 36 | 20,590 | ||||||||
9.25%, 05/15/2025(a) | 100 | 98,755 | ||||||||
PDC Energy, Inc. | 113 | 116,745 | ||||||||
QEP Resources, Inc. | 31 | 32,738 | ||||||||
5.375%, 10/01/2022 | 34 | 34,863 | ||||||||
5.625%, 03/01/2026 | 47 | 51,557 | ||||||||
Range Resources Corp. | 24 | 23,520 | ||||||||
SandRidge Energy, Inc. | 29 | – 0 | – | |||||||
8.125%, 10/15/2022(b)(d)(e) | 47 | – 0 | – |
26 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
SM Energy Co. | U.S.$ | 2 | $ | 1,731 | ||||||||
5.625%, 06/01/2025 | 34 | 28,107 | ||||||||||
6.125%, 11/15/2022 | 24 | 23,100 | ||||||||||
Southwestern Energy Co. | 27 | 29,338 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 34 | 34,987 | ||||||||||
5.875%, 03/15/2028 | 16 | 17,248 | ||||||||||
Transocean Phoenix 2 Ltd. | 31 | 29,850 | ||||||||||
Transocean Poseidon Ltd. | 50 | 45,468 | ||||||||||
Transocean, Inc. | 0 | ** | 56 | |||||||||
7.50%, 01/15/2026(a) | 18 | 8,267 | ||||||||||
8.00%, 02/01/2027(a) | 89 | 41,890 | ||||||||||
11.50%, 01/30/2027(a) | 32 | 23,172 | ||||||||||
Vantage Drilling International | 46 | – 0 | – | |||||||||
Vine Oil & Gas LP/Vine Oil & Gas Finance Corp. | 92 | 74,024 | ||||||||||
Weatherford International Ltd. | 10 | 7,796 | ||||||||||
Western Midstream Operating LP | 33 | 33,729 | ||||||||||
4.00%, 07/01/2022 | 11 | 11,301 | ||||||||||
4.10%, 02/01/2025 | 72 | 73,945 | ||||||||||
4.65%, 07/01/2026 | 41 | 42,999 | ||||||||||
4.75%, 08/15/2028 | 12 | 12,524 | ||||||||||
5.05%, 02/01/2030 | 49 | 54,683 | ||||||||||
5.45%, 04/01/2044 | 26 | 26,267 | ||||||||||
6.25%, 02/01/2050 | 34 | 37,356 | ||||||||||
|
| |||||||||||
4,179,417 | ||||||||||||
|
| |||||||||||
Other Industrial – 1.2% | ||||||||||||
American Builders & Contractors Supply Co., Inc. | 76 | 79,094 | ||||||||||
Avient Corp. | 78 | 82,778 | ||||||||||
Belden, Inc. | EUR | 100 | 127,421 | |||||||||
H&E Equipment Services, Inc. | U.S.$ | 79 | 79,825 | |||||||||
Interface, Inc. | 53 | 55,845 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Laureate Education, Inc. | U.S.$ | 29 | $ | 30,956 | ||||||||
Univar Solutions USA, Inc./Washington | 17 | 17,972 | ||||||||||
|
| |||||||||||
473,891 | ||||||||||||
|
| |||||||||||
Services – 4.5% | ||||||||||||
ADT Security Corp. (The) | 42 | 45,499 | ||||||||||
Allied Universal Holdco LLC/Allied Universal Finance Corp. | 77 | 82,067 | ||||||||||
ANGI Group LLC | 71 | 71,529 | ||||||||||
Aptim Corp. | 67 | 52,296 | ||||||||||
APX Group, Inc. | 161 | 161,323 | ||||||||||
Aramark Services, Inc. | 95 | 101,533 | ||||||||||
Carriage Services, Inc. | 30 | 32,050 | ||||||||||
Cars.com, Inc. | 115 | 122,052 | ||||||||||
eDreams ODIGEO SA | EUR | 102 | 117,971 | |||||||||
Garda World Security Corp. | U.S.$ | 59 | 65,500 | |||||||||
Gartner, Inc. | 38 | 40,112 | ||||||||||
Monitronics International, Inc. | 14 | – 0 | – | |||||||||
MPH Acquisition Holdings LLC | 131 | 128,585 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co. | 10 | 10,025 | ||||||||||
5.625%, 10/01/2028(a) | 10 | 10,874 | ||||||||||
5.875%, 10/01/2030(a) | 9 | 10,183 | ||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | 55 | 58,740 | ||||||||||
5.75%, 04/15/2026(a) | 77 | 84,448 | ||||||||||
6.25%, 01/15/2028(a) | 102 | 109,422 | ||||||||||
Refinitiv US Holdings, Inc. | 23 | 24,516 | ||||||||||
8.25%, 11/15/2026(a) | 23 | 25,153 | ||||||||||
Ritchie Bros Auctioneers, Inc. | 12 | 12,343 |
28 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Sabre GLBL, Inc. | U.S.$ | 44 | $ | 44,581 | ||||||||
9.25%, 04/15/2025(a) | 24 | 28,608 | ||||||||||
Service Corp. International/US | 94 | 97,709 | ||||||||||
TripAdvisor, Inc. | 61 | 65,976 | ||||||||||
Verscend Escrow Corp. | 137 | 148,917 | ||||||||||
|
| |||||||||||
1,752,012 | ||||||||||||
|
| |||||||||||
Technology – 2.2% | ||||||||||||
Ascend Learning LLC | 19 | 19,600 | ||||||||||
Austin BidCo, Inc. | 37 | 38,666 | ||||||||||
Avaya, Inc. | 89 | 95,041 | ||||||||||
Banff Merger Sub, Inc. | 38 | 41,035 | ||||||||||
CommScope, Inc. | 36 | 38,519 | ||||||||||
Conduent Finance, Inc./Conduent Business Services LLC | 0 | ** | 149 | |||||||||
Dell International LLC/EMC Corp. | 18 | 18,676 | ||||||||||
LogMeIn, Inc. | 24 | 25,131 | ||||||||||
NCR Corp. | 24 | 25,471 | ||||||||||
6.125%, 09/01/2029(a) | 56 | 62,115 | ||||||||||
8.125%, 04/15/2025(a) | 30 | 33,364 | ||||||||||
Presidio Holdings, Inc. | 5 | 5,292 | ||||||||||
8.25%, 02/01/2028(a) | 5 | 5,512 | ||||||||||
Science Applications International Corp. | 15 | 15,955 | ||||||||||
Sensata Technologies, Inc. | 135 | 139,849 | ||||||||||
Solera LLC/Solera Finance, Inc. | 76 | 79,163 | ||||||||||
Veritas US, Inc./Veritas Bermuda Ltd. | 185 | 189,749 | ||||||||||
Xerox Corp. | 18 | 18,927 | ||||||||||
|
| |||||||||||
852,214 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Transportation - Airlines – 0.5% | ||||||||||||
Spirit Loyalty Cayman Ltd./Spirit IP Cayman Ltd. | U.S.$ | 173 | $ | 194,992 | ||||||||
|
| |||||||||||
Transportation - Services – 1.2% | ||||||||||||
Algeco Global Finance PLC | EUR | 100 | 124,352 | |||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | U.S.$ | 45 | 45,743 | |||||||||
10.50%, 05/15/2025(a) | 87 | 102,370 | ||||||||||
United Rentals North America, Inc. | 125 | 131,348 | ||||||||||
5.875%, 09/15/2026 | 28 | 29,633 | ||||||||||
XPO Logistics, Inc. | 28 | 29,805 | ||||||||||
|
| |||||||||||
463,251 | ||||||||||||
|
| |||||||||||
27,141,674 | ||||||||||||
|
| |||||||||||
Financial Institutions – 6.7% | ||||||||||||
Banking – 0.7% | ||||||||||||
Alliance Data Systems Corp. | 103 | 104,125 | ||||||||||
7.00%, 01/15/2026(a) | 47 | 49,717 | ||||||||||
Discover Financial Services Series D | 93 | 104,937 | ||||||||||
Societe Generale SA | 3 | 3,526 | ||||||||||
|
| |||||||||||
262,305 | ||||||||||||
|
| |||||||||||
Brokerage – 0.5% | ||||||||||||
Lehman Brothers Holdings, Inc. | 423 | 4,742 | ||||||||||
LPL Holdings, Inc. | 43 | 44,456 | ||||||||||
NFP Corp. | 125 | 133,490 | ||||||||||
7.00%, 05/15/2025(a) | 18 | 19,438 | ||||||||||
|
| |||||||||||
202,126 | ||||||||||||
|
| |||||||||||
Finance – 1.8% | ||||||||||||
CNG Holdings, Inc. | 32 | 28,809 | ||||||||||
Curo Group Holdings Corp. | 146 | 139,344 | ||||||||||
Enova International, Inc. | 144 | 141,353 | ||||||||||
goeasy Ltd. | 7 | 7,296 |
30 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Navient Corp. | U.S.$ | 84 | $ | 88,644 | ||||||||
7.25%, 01/25/2022-09/25/2023 | 72 | 78,096 | ||||||||||
OneMain Finance Corp. | 46 | 52,010 | ||||||||||
SLM Corp. | 77 | 81,408 | ||||||||||
5.125%, 04/05/2022 | 21 | 21,051 | ||||||||||
TMX Finance LLC/TitleMax Finance Corp. | 50 | 49,056 | ||||||||||
|
| |||||||||||
687,067 | ||||||||||||
|
| |||||||||||
Insurance – 1.1% | ||||||||||||
Acrisure LLC/Acrisure Finance, Inc. | 91 | 96,438 | ||||||||||
10.125%, 08/01/2026(a) | 40 | 45,862 | ||||||||||
Alliant Holdings Intermediate LLC/Alliant Holdings Co-Issuer | 37 | 39,515 | ||||||||||
AmWINS Group, Inc. | 87 | 93,382 | ||||||||||
AssuredPartners, Inc. | 118 | 123,042 | ||||||||||
Genworth Holdings, Inc. |
| 30 |
|
| 30,075 |
| ||||||
7.625%, 09/24/2021 | 17 | 17,343 | ||||||||||
USI, Inc./NY | 7 | 7,177 | ||||||||||
|
| |||||||||||
452,834 | ||||||||||||
|
| |||||||||||
Other Finance – 0.3% | ||||||||||||
Intrum AB | EUR | 100 | 120,752 | |||||||||
|
| |||||||||||
REITS – 2.3% | ||||||||||||
Brookfield Property REIT, Inc./BPR Cumulus LLC/BPR Nimbus LLC/GGSI Sellco LL | U.S.$ | 231 | 227,875 | |||||||||
Diversified Healthcare Trust | 39 | 38,898 | ||||||||||
6.75%, 12/15/2021 | 9 | 8,887 | ||||||||||
9.75%, 06/15/2025 | 49 | 55,550 | ||||||||||
GEO Group, Inc. (The) | 8 | 6,361 | ||||||||||
Iron Mountain, Inc. | 130 | 135,662 | ||||||||||
MGM Growth Properties Operating Partnership LP/MGP Finance Co-Issuer, Inc. | 117 | 126,980 | ||||||||||
5.75%, 02/01/2027 | 59 | 66,169 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Realogy Group LLC/Realogy Co-Issuer Corp. | U.S.$ | 27 | $ | 27,540 | ||||||||
9.375%, 04/01/2027(a) | 167 | 185,188 | ||||||||||
|
| |||||||||||
879,110 | ||||||||||||
|
| |||||||||||
2,604,194 | ||||||||||||
|
| |||||||||||
Utility – 1.0% | ||||||||||||
Electric – 1.0% | ||||||||||||
Calpine Corp. | 197 | 195,009 | ||||||||||
Talen Energy Supply LLC | 0 | ** | 210 | |||||||||
6.50%, 06/01/2025 | 101 | 81,756 | ||||||||||
7.25%, 05/15/2027(a) | 44 | 46,708 | ||||||||||
Texas Competitive/TCEH | 59 | – 0 | – | |||||||||
Vistra Operations Co. LLC | 71 | 75,480 | ||||||||||
|
| |||||||||||
399,163 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade | 30,145,031 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT | ||||||||||||
Industrial – 4.9% | ||||||||||||
Basic – 0.3% | ||||||||||||
ArcelorMittal SA | 54 | 75,967 | ||||||||||
Arconic Corp. | 20 | 21,375 | ||||||||||
Glencore Finance Canada Ltd. | 5 | 5,875 | ||||||||||
|
| |||||||||||
103,217 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% | ||||||||||||
General Electric Co. | 40 | 37,314 | ||||||||||
Howmet Aerospace, Inc. | 4 | 4,721 | ||||||||||
|
| |||||||||||
42,035 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.4% | ||||||||||||
Qwest Corp. | 78 | 81,953 | ||||||||||
7.25%, 09/15/2025 | 55 | 64,721 | ||||||||||
|
| |||||||||||
146,674 | ||||||||||||
|
|
32 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Automotive – 0.6% | ||||||||||||
Nissan Motor Co., Ltd. | U.S.$ | 200 | $ | 219,904 | ||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.8% | ||||||||||||
Lennar Corp. | 1 | 748 | ||||||||||
Marriott International, Inc./MD | 16 | 18,720 | ||||||||||
MDC Holdings, Inc. | 87 | 116,377 | ||||||||||
PulteGroup, Inc. | 26 | 35,974 | ||||||||||
Toll Brothers Finance Corp. | 93 | 106,729 | ||||||||||
5.875%, 02/15/2022 | 35 | 36,672 | ||||||||||
|
| |||||||||||
315,220 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.3% | ||||||||||||
Kraft Heinz Foods Co. | 93 | 100,224 | ||||||||||
|
| |||||||||||
Energy – 1.1% | ||||||||||||
Cenovus Energy, Inc. | 15 | 16,312 | ||||||||||
5.375%, 07/15/2025 | 34 | 38,327 | ||||||||||
5.40%, 06/15/2047 | 61 | 71,864 | ||||||||||
6.75%, 11/15/2039 | 1 | 1,899 | ||||||||||
Continental Resources, Inc./OK | 16 | 15,817 | ||||||||||
5.75%, 01/15/2031(a) | 28 | 31,089 | ||||||||||
Hess Corp. | 36 | 46,913 | ||||||||||
Marathon Oil Corp. | 34 | 41,929 | ||||||||||
Ovintiv Exploration, Inc. | 79 | 84,540 | ||||||||||
Parsley Energy LLC/Parsley Finance Corp. | 59 | 64,599 | ||||||||||
|
| |||||||||||
413,289 | ||||||||||||
|
| |||||||||||
Services – 0.0% | ||||||||||||
Expedia Group, Inc. | 11 | 12,758 | ||||||||||
|
| |||||||||||
Technology – 0.2% | ||||||||||||
Nokia Oyj | 16 | 16,536 | ||||||||||
6.625%, 05/15/2039 | 64 | 81,466 | ||||||||||
|
| |||||||||||
98,002 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Transportation - Airlines – 1.1% | ||||||||||||
Delta Air Lines, Inc. | U.S.$ | 60 | $ | 69,493 | ||||||||
Delta Air Lines, Inc./SkyMiles IP Ltd. | 39 | 42,142 | ||||||||||
4.75%, 10/20/2028(a) | 45 | 48,984 | ||||||||||
Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd. | 248 | 267,760 | ||||||||||
|
| |||||||||||
428,379 | ||||||||||||
|
| |||||||||||
1,879,702 | ||||||||||||
|
| |||||||||||
Financial Institutions – 3.9% | ||||||||||||
Banking – 1.7% | ||||||||||||
Barclays Bank PLC | 15 | 20,641 | ||||||||||
CIT Group, Inc. | 37 | 39,056 | ||||||||||
Citigroup, Inc. | 38 | 43,587 | ||||||||||
Series U | ||||||||||||
5.00%, 09/12/2024(j) | 70 | 72,692 | ||||||||||
Series V | ||||||||||||
4.70%, 01/30/2025(j) | 41 | 42,111 | ||||||||||
Series W | ||||||||||||
4.00%, 12/10/2025(j) | 18 | 18,491 | ||||||||||
Credit Agricole SA | EUR | 100 | 124,972 | |||||||||
Goldman Sachs Group, Inc. (The) | U.S.$ | 44 | 44,389 | |||||||||
JPMorgan Chase & Co. | 80 | 84,041 | ||||||||||
Series HH | 49 | 50,486 | ||||||||||
Lloyds Banking Group PLC | GBP | 8 | 10,395 | |||||||||
Natwest Group PLC | U.S.$ | 117 | 120,951 | |||||||||
|
| |||||||||||
671,812 | ||||||||||||
|
| |||||||||||
Brokerage – 0.2% | ||||||||||||
Charles Schwab Corp. (The) | 58 | 64,563 | ||||||||||
|
|
34 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Finance – 0.7% | ||||||||||||
Aircastle Ltd. | U.S.$ | 148 | $ | 162,844 | ||||||||
Aviation Capital Group LLC | 18 | 18,025 | ||||||||||
4.125%, 08/01/2025(a) | 16 | 16,709 | ||||||||||
4.375%, 01/30/2024(a) | 36 | 37,987 | ||||||||||
4.875%, 10/01/2025(a) | 6 | 6,425 | ||||||||||
5.50%, 12/15/2024(a) | 41 | 45,278 | ||||||||||
|
| |||||||||||
287,268 | ||||||||||||
|
| |||||||||||
Insurance – 0.8% | ||||||||||||
ACE Capital Trust II | 20 | 30,609 | ||||||||||
Centene Corp. | 24 | 24,634 | ||||||||||
5.375%, 08/15/2026(a) | 82 | 86,706 | ||||||||||
Liberty Mutual Group, Inc. | 61 | 77,251 | ||||||||||
Prudential Financial, Inc. | 20 | 21,410 | ||||||||||
5.625%, 06/15/2043 | 50 | 53,824 | ||||||||||
|
| |||||||||||
294,434 | ||||||||||||
|
| |||||||||||
REITS – 0.5% | ||||||||||||
MPT Operating Partnership LP/MPT Finance Corp. | 45 | 48,285 | ||||||||||
5.00%, 10/15/2027 | 73 | 77,645 | ||||||||||
5.25%, 08/01/2026 | 40 | 41,481 | ||||||||||
Office Properties Income Trust | 27 | 28,653 | ||||||||||
|
| |||||||||||
196,064 | ||||||||||||
|
| |||||||||||
1,514,141 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 3,393,843 | |||||||||||
|
| |||||||||||
BANK LOANS – 6.1% | ||||||||||||
Industrial – 5.6% | ||||||||||||
Basic – 0.2% | ||||||||||||
Graham Packaging Co., Inc. | 43 | 43,208 | ||||||||||
Illuminate Buyer, LLC | 20 | 19,941 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Nouryon Finance B.V. (aka AkzoNobel) | U.S.$ | 10 | $ | 9,460 | ||||||||
|
| |||||||||||
72,609 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.6% | ||||||||||||
Apex Tool Group, LLC | 57 | 56,478 | ||||||||||
Brookfield WEC Holdings Inc. (aka Westinghouse Electric Company LLC) | 29 | 28,563 | ||||||||||
BWay Holding Company | 84 | 80,756 | ||||||||||
Garrett Motion SARL (aka Garrett Motion Inc.) | 28 | 27,596 | ||||||||||
Granite US Holdings Corporation | 55 | 55,162 | ||||||||||
|
| |||||||||||
248,555 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.4% | ||||||||||||
Advantage Sales & Marketing Inc. | 38 | 37,826 | ||||||||||
Clear Channel Outdoor Holdings, Inc. | 12 | 11,384 | ||||||||||
iHeartCommunications, Inc. (fka Clear Channel Communications, Inc.) | 20 | 19,454 | ||||||||||
Nielsen Finance LLC | 20 | 19,995 | ||||||||||
Univision Communications Inc. | 53 | 52,421 | ||||||||||
|
| |||||||||||
141,080 | ||||||||||||
|
| |||||||||||
Communications - |
| |||||||||||
Intrado Corporation | 29 | 28,002 |
36 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Zacapa S.A R.L. | U.S.$ | 100 | $ | 99,594 | ||||||||
|
| |||||||||||
127,596 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Clarios Global LP | 48 | 48,230 | ||||||||||
Navistar, Inc. | 9 | 9,450 | ||||||||||
|
| |||||||||||
57,680 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.1% | ||||||||||||
Seaworld Parks & Entertainment, Inc. (aka SW Acquisitions Co., Inc.) | 24 | 23,502 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.7% | ||||||||||||
Caesars Resort Collection, LLC | 38 | 36,904 | ||||||||||
Flutter Entertainment PLC | 4 | 4,168 | ||||||||||
Golden Nugget Online Gaming, Inc. | 1 | 853 | ||||||||||
Playtika Holding Corp. | 130 | 130,786 | ||||||||||
Ply Gem Midco, Inc. | 20 | 19,598 | ||||||||||
Scientific Games International, Inc. | 79 | 76,641 | ||||||||||
|
| |||||||||||
268,950 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 0.1% | ||||||||||||
IRB Holding Corp. (aka Arby’s/Buffalo Wild Wings) | 6 | 6,019 | ||||||||||
Whatabrands LLC | 15 | 14,504 | ||||||||||
|
| |||||||||||
20,523 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||||
Bass Pro Group, LLC | U.S.$ | 17 | $ | 16,923 | ||||||||
PetSmart, Inc. | 44 | 43,803 | ||||||||||
Serta Simmons Bedding, LLC | 28 | 10,459 | ||||||||||
|
| |||||||||||
71,185 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 1.1% | ||||||||||||
Aldevron, L.L.C. | 67 | 66,778 | ||||||||||
Alphabet Holding Company, Inc. (aka Nature’s Bounty) | 54 | 53,649 | ||||||||||
Envision Healthcare Corporation | 28 | 23,272 | ||||||||||
Froneri International Limited | 10 | 10,050 | ||||||||||
Global Medical Response, Inc. (aka Air Medical) | 16 | 15,634 | ||||||||||
Kronos Acquisition Holdings In | 40 | 39,950 | ||||||||||
LifePoint Health, Inc. (fka Regionalcare Hospital Partners Holdings, Inc.) | 27 | 27,226 | ||||||||||
Milano Acquisition Corp. | 40 | 39,933 | ||||||||||
U.S. Renal Care, Inc. | 59 | 58,880 | ||||||||||
US Radiology Specialists, Inc. | 90 | 89,240 | ||||||||||
|
| |||||||||||
424,612 | ||||||||||||
|
| |||||||||||
Energy – 0.1% |
| |||||||||||
CITGO Petroleum Corporation | 35 | 34,642 | ||||||||||
|
|
38 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Other Industrial – 0.3% |
| |||||||||||
American Tire Distributors, Inc. | U.S.$ | 2 | $ | 1,511 | ||||||||
8.500% (LIBOR 1 Month + 7.50%), 09/02/2024(k) | 14 | 12,838 | ||||||||||
Core & Main LP | 5 | 4,822 | ||||||||||
Dealer Tire, LLC | 20 | 19,618 | ||||||||||
Rockwood Service Corporation | 3 | 3,379 | ||||||||||
RS IVY Holdco, Inc. | 70 | 69,300 | ||||||||||
|
| |||||||||||
111,468 | ||||||||||||
|
| |||||||||||
Services – 0.5% |
| |||||||||||
Amentum Government Services Holdings LLC | 20 | 19,825 | ||||||||||
Garda World Security Corporation | 10 | 9,619 | ||||||||||
Parexel International Corporation | 9 | 8,900 | ||||||||||
Pi Lux Finco SARL | 100 | 98,500 | ||||||||||
Refinitiv US Holdings Inc. (fka Financial & Risk US Holdings, Inc.) | 15 | 14,669 | ||||||||||
Sabre GLBL Inc. | 30 | 30,038 | ||||||||||
Verscend Holding Corp. | 26 | 26,193 | ||||||||||
|
| |||||||||||
207,744 | ||||||||||||
|
| |||||||||||
Technology – 0.9% |
| |||||||||||
athenahealth, Inc. | 71 | 70,979 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Avaya Inc. | U.S.$ | 2 | $ | 1,794 | ||||||||
Boxer Parent Company Inc. (aka BMC Software, Inc.) | 59 | 58,562 | ||||||||||
MTS Systems Corporation | 10 | 9,854 | ||||||||||
Pitney Bowes Inc. | 39 | 38,123 | ||||||||||
Presidio Holdings Inc. | 15 | 15,112 | ||||||||||
Solera, LLC (Solera Finance, Inc.) | 58 | 57,527 | ||||||||||
Veritas Us Inc. | 84 | 84,036 | ||||||||||
|
| |||||||||||
335,987 | ||||||||||||
|
| |||||||||||
Transportation - Airlines – 0.0% |
| |||||||||||
Delta Air Lines, Inc. | 10 | 10,090 | ||||||||||
|
| |||||||||||
2,156,223 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.4% |
| |||||||||||
Insurance – 0.4% |
| |||||||||||
Cross Financial Corp. | 45 | 45,000 | ||||||||||
Hub International Limited | 68 | 67,673 | ||||||||||
Sedgwick Claims Management Services, Inc. (Lightning Cayman Merger Sub, Ltd.) | 50 | 49,800 | ||||||||||
|
| |||||||||||
162,473 | ||||||||||||
|
| |||||||||||
Utility – 0.1% |
| |||||||||||
Electric – 0.1% |
| |||||||||||
Granite Generation LLC | 46 | 45,546 |
40 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
4.750% (LIBOR 3 Month + 3.75%), 11/09/2026(k) | U.S.$ | 9 | $ | 8,554 | ||||||||
|
| |||||||||||
54,100 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 2,372,796 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE | ||||||||||||
Industrial – 1.5% |
| |||||||||||
Basic – 0.4% |
| |||||||||||
Eldorado Gold Corp. | 73 | 80,854 | ||||||||||
First Quantum Minerals Ltd. | 58 | 59,754 | ||||||||||
|
| |||||||||||
140,608 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.5% | ||||||||||||
Sable International Finance Ltd. | 200 | 213,216 | ||||||||||
|
| |||||||||||
Consumer Cyclical-Other – 0.5% |
| |||||||||||
Wynn Macau Ltd. | 209 | 217,213 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.0% |
| |||||||||||
K2016470219 (South Africa) Ltd. | 17 | – 0 | – | |||||||||
K2016470260 (South Africa) Ltd. | 8 | – 0 | – | |||||||||
|
| |||||||||||
– 0 | – | |||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.0% |
| |||||||||||
Tonon Luxembourg SA | 2 | 64 | ||||||||||
Virgolino de Oliveira Finance SA | 96 | 716 | ||||||||||
|
| |||||||||||
780 | ||||||||||||
|
| |||||||||||
Energy – 0.1% |
| |||||||||||
Petrobras Global Finance BV | 19 | 21,253 | ||||||||||
|
| |||||||||||
593,070 | ||||||||||||
|
| |||||||||||
Utility – 0.1% |
| |||||||||||
Electric – 0.1% |
| |||||||||||
Terraform Global Operating LLC | 28 | 28,749 | ||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Financial Institutions – 0.0% |
| |||||||||||
Insurance – 0.0% |
| |||||||||||
Ambac LSNI LLC | U.S.$ | 7 | $ | 7,331 | ||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 629,150 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 1.2% |
| |||||||||||
Mexico – 0.2% |
| |||||||||||
Mexican Bonos | MXN | 1,202 | 63,057 | |||||||||
Series M 20 | 480 | 28,812 | ||||||||||
|
| |||||||||||
91,869 | ||||||||||||
|
| |||||||||||
Russia – 0.2% |
| |||||||||||
Russian Federal Bond – OFZ | RUB | 3,986 | 54,966 | |||||||||
|
| |||||||||||
United States – 0.8% |
| |||||||||||
U.S. Treasury Notes | U.S.$ | 300 | 318,750 | |||||||||
|
| |||||||||||
Total Governments – Treasuries | 465,585 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.8% |
| |||||||||||
Energy – 0.2% |
| |||||||||||
Energy Equipment & Services – 0.1% |
| |||||||||||
Tervita Corp.(d) | 12,129 | 27,633 | ||||||||||
Vantage Drilling International(d) | 247 | 741 | ||||||||||
|
| |||||||||||
28,374 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels – 0.1% |
| |||||||||||
Berry Corp. | 5,250 | 19,320 | ||||||||||
CHC Group LLC(d)(n) | 9,365 | 169 | ||||||||||
Denbury, Inc.(d) | 1,554 | 39,922 | ||||||||||
Edcon Ltd.(b)(e) | 8,218 | – 0 | – | |||||||||
K201640219 (South Africa) Ltd. A Shares(b)(d)(e) | 191,574 | – 0 | – | |||||||||
K201640219 (South Africa) Ltd. B Shares(b)(d)(e) | 30,276 | – 0 | – | |||||||||
Paragon Offshore Ltd. – Class A(d)(e) | 267 | 27 | ||||||||||
Paragon Offshore Ltd. – Class B(d)(e) | 401 | 2,606 | ||||||||||
Whiting Petroleum Corp.(d) | 142 | 3,550 | ||||||||||
|
| |||||||||||
65,594 | ||||||||||||
|
| |||||||||||
93,968 | ||||||||||||
|
|
42 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Information Technology – 0.2% | ||||||||||||
Software – 0.2% | ||||||||||||
Avaya Holdings Corp.(d) | 2,770 | $ | 53,046 | |||||||||
Monitronics International, Inc.(d) | 578 | 7,225 | ||||||||||
|
| |||||||||||
60,271 | ||||||||||||
|
| |||||||||||
Consumer Staples – 0.2% | ||||||||||||
Food & Staples Retailing – 0.2% | ||||||||||||
Southeastern Grocers, Inc.(b)(d)(e) | 828 | 59,202 | ||||||||||
|
| |||||||||||
Materials – 0.1% | ||||||||||||
Containers & Packaging – 0.0% | ||||||||||||
Westrock Co. | 6 | 261 | ||||||||||
|
| |||||||||||
Metals & Mining – 0.1% | ||||||||||||
BIS Industries Holdings Ltd.(b)(d)(e) | 21,027 | – 0 | – | |||||||||
Constellium SE(d) | 1,317 | 18,425 | ||||||||||
Neenah Enterprises, Inc.(b)(d)(e) | 4,481 | – 0 | – | |||||||||
Ryerson Holding Corp.(d) | 2,606 | 35,546 | ||||||||||
|
| |||||||||||
53,971 | ||||||||||||
|
| |||||||||||
54,232 | ||||||||||||
|
| |||||||||||
Consumer Discretionary – 0.1% | ||||||||||||
Auto Components – 0.1% | ||||||||||||
ATD New Holdings, Inc.(d)(e) | 1,009 | 23,543 | ||||||||||
Exide Corp.(b)(d)(e) | 20,363 | 11,725 | ||||||||||
Exide Technologies(b)(d)(e) | 511 | – 0 | – | |||||||||
|
| |||||||||||
35,268 | ||||||||||||
|
| |||||||||||
Communication Services – 0.0% | ||||||||||||
Media – 0.0% | ||||||||||||
DISH Network Corp. – Class A(d) | 100 | 3,234 | ||||||||||
iHeartMedia, Inc. – Class A(d) | 1,033 | 13,408 | ||||||||||
|
| |||||||||||
16,642 | ||||||||||||
|
| |||||||||||
Industrials – 0.0% | ||||||||||||
Construction & Engineering – 0.0% | ||||||||||||
Willscot Corp.(d) | 508 | 11,770 | ||||||||||
|
| |||||||||||
Total Common Stocks | 331,353 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
ASSET-BACKED SECURITIES – 0.6% | ||||||||||||
Other ABS - Fixed Rate – 0.4% | ||||||||||||
DB Master Finance LLC | U.S.$ | 56 | 57,904 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Taco Bell Funding LLC | U.S.$ | 16 | $ | 16,722 | ||||||||
Wendy’s Funding LLC | 69 | 70,994 | ||||||||||
|
| |||||||||||
145,620 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.2% | ||||||||||||
CWABS Asset-Backed Certificates Trust | 39 | 39,755 | ||||||||||
GSAA Home Equity Trust | 66 | 27,300 | ||||||||||
|
| |||||||||||
67,055 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Floating Rate – 0.0% | ||||||||||||
Lehman XS Trust | 11 | 10,769 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 223,444 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 0.3% | ||||||||||||
Industrial – 0.2% | ||||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Exide International Holdings LP | 39 | 29,445 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. | 490 | 3,998 | ||||||||||
|
| |||||||||||
Industrial Conglomerates – 0.1% | ||||||||||||
WESCO International, Inc. | 1,425 | 44,531 | ||||||||||
|
| |||||||||||
77,974 | ||||||||||||
|
| |||||||||||
Financial Institutions – 0.1% | ||||||||||||
Capital Markets – 0.1% | ||||||||||||
Ladenburg Thalmann Financial Services, Inc. | 2,175 | 32,647 | ||||||||||
|
| |||||||||||
Total Preferred Stocks | 110,621 | |||||||||||
|
|
44 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 0.3% | ||||||||||||
Risk Share Floating Rate – 0.3% | ||||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | U.S.$ | 32 | $ | 32,202 | ||||||||
Series 2014-HQ2, Class M3 | 53 | 54,703 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 9 | 9,561 | ||||||||||
Series 2015-C03, Class 2M2 | 1 | 678 | ||||||||||
|
| |||||||||||
97,144 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.0% | ||||||||||||
Alternative Loan Trust | 4 | 3,230 | ||||||||||
CSMC Mortgage-Backed Trust | 5 | 3,404 | ||||||||||
|
| |||||||||||
6,634 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 103,778 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – | ||||||||||||
Brazil – 0.1% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 349 | 66,958 | |||||||||
|
| |||||||||||
South Africa – 0.1% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 283 | 20,460 | |||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 87,418 | |||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.1% | ||||||||||||
Non-Agency Fixed Rate CMBS – 0.1% | ||||||||||||
Citigroup Commercial Mortgage Trust | U.S.$ | 15 | $ | 13,008 | ||||||||
GS Mortgage Securities Trust | 29 | 8,677 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 29 | 27,939 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 49,624 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 0.1% | ||||||||||||
Funds and Investment Trusts – 0.1% | ||||||||||||
iShares MSCI Global Metals & Mining Producers ETF(o) | 805 | 29,664 | ||||||||||
|
| |||||||||||
WARRANTS – 0.0% | ||||||||||||
Avaya Holdings Corp., expiring 12/15/2022(d) | 1,210 | 3,993 | ||||||||||
Battalion Oil Corp., expiring 10/08/2022(b)(d)(e) | 3 | – 0 | – | |||||||||
Battalion Oil Corp., expiring 10/08/2022(b)(d)(e) | 2 | – 0 | – | |||||||||
Battalion Oil Corp., expiring 10/08/2022(b)(d)(e) | 4 | – 0 | – | |||||||||
iHeartMedia, Inc., expiring 05/01/2039(d) | 12 | 154 | ||||||||||
SandRidge Energy, Inc., A-CW22, expiring 10/04/2022(d) | 1,975 | 22 | ||||||||||
SandRidge Energy, Inc., B-CW22, expiring 10/04/2022(d) | 830 | 11 | ||||||||||
Willscot Corp., expiring 11/29/2022(b)(d)(e) | 787 | 7,169 | ||||||||||
|
| |||||||||||
Total Warrants | 11,349 | |||||||||||
|
| |||||||||||
RIGHTS – 0.0% | ||||||||||||
Vistra Energy Corp., expiring 12/31/2049(d)(e) | 3,442 | 3,442 | ||||||||||
|
|
46 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Shares | U.S. $ Value | |||||||||||
| ||||||||||||
SHORT-TERM INVESTMENTS – 0.4% | ||||||||||||
Investment Companies – 0.4% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.03%(o)(p)(q) | 147,954 | $ | 147,954 | |||||||||
|
| |||||||||||
Total Investments – 98.3% | 38,105,052 | |||||||||||
Other assets less liabilities – 1.7% | 646,083 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 38,751,135 | ||||||||||
|
|
FUTURES (see Note C)
Description | Number of Contracts | Expiration Month | Current Notional | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
Purchased Contracts |
| |||||||||||||||
E-Mini Russell 2000 Index Futures | 1 | March 2021 | $ | 98,740 | $ | 3,667 | ||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 19 | March 2021 | 2,397,117 | 5,492 | ||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 18 | March 2021 | 2,485,406 | 2,953 | ||||||||||||
Sold Contracts |
| |||||||||||||||
EURO-OAT Futures | 1 | March 2021 | 205,066 | (1,038 | ) | |||||||||||
|
| |||||||||||||||
$ | 11,074 | |||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note C)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Brown Brothers Harriman & Co. | CAD | 53 | USD | 42 | 02/18/2021 | $ | (265 | ) | ||||||||||||
Brown Brothers Harriman & Co. | MXN | 1,432 | USD | 72 | 02/25/2021 | 340 | ||||||||||||||
Brown Brothers Harriman & Co. | EUR | 100 | USD | 123 | 03/17/2021 | (201 | ) | |||||||||||||
Citibank, NA | BRL | 760 | USD | 144 | 01/05/2021 | (2,716 | ) | |||||||||||||
Citibank, NA | USD | 145 | BRL | 760 | 01/05/2021 | 1,591 | ||||||||||||||
Citibank, NA | BRL | 380 | USD | 72 | 02/02/2021 | (1,564 | ) | |||||||||||||
Goldman Sachs Bank USA | RUB | 4,120 | USD | 53 | 01/22/2021 | (2,131 | ) | |||||||||||||
Standard Chartered Bank | EUR | 1,355 | USD | 1,653 | 03/17/2021 | (4,483 | ) | |||||||||||||
|
| |||||||||||||||||||
$ | (9,429 | ) | ||||||||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note C)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 06/20/2021* | (5.00 | )% | Quarterly | 0.80 | % | EUR | 13 | $ | (333 | ) | $ | (242 | ) | $ | (91 | ) | ||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||
CDX-NAHY Series 33, 5 Year Index, 12/20/2024* | 5.00 | Quarterly | 2.52 | USD | 276 | 25,884 | 11,592 | 14,292 | ||||||||||||||||||||
CDX-NAHY Series 34, 5 Year Index, 06/20/2025* | 5.00 | Quarterly | 2.75 | USD | 603 | 56,838 | (693 | ) | 57,531 | |||||||||||||||||||
CDX-NAHY Series 35, 5 Year Index, 12/20/2025* | 5.00 | Quarterly | 2.93 | USD | 2,896 | 274,488 | 100,579 | 173,909 | ||||||||||||||||||||
Ford Motor Company, 4.346%, 12/08/2026, 06/20/2023* | 5.00 | Quarterly | 1.91 | USD | 103 | 7,722 | (14,290 | ) | 22,012 | |||||||||||||||||||
Ford Motor Company, 4.346%, 12/08/2026, 06/20/2023* | 5.00 | Quarterly | 1.91 | USD | 57 | 4,273 | (8,930 | ) | 13,203 | |||||||||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 06/20/2021* | 5.00 | Quarterly | 0.80 | EUR | 13 | 333 | 242 | 91 | ||||||||||||||||||||
iTraxx Europe Crossover Series 34, 5 Year Index, 12/20/2025* | 5.00 | Quarterly | 2.43 | EUR | 330 | 48,508 | 23,203 | 25,305 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 417,713 | $ | 111,461 | $ | 306,252 | |||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
48 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 1,770 | 03/06/2023 | 3 Month LIBOR | 2.714% | Quarterly/Semi-Annual | $ | 111,877 | $ | – 0 | – | $ | 111,877 | ||||||||||||||
USD | 2,835 | 09/02/2025 | 2.248% | 3 Month LIBOR | Semi-Annual/ Quarterly | (264,784 | ) | (8,311 | ) | (256,473 | ) | |||||||||||||||
USD | 961 | 01/15/2026 | 1.978% | 3 Month LIBOR | Semi-Annual/ Quarterly | (82,527 | ) | 5,398 | (87,925 | ) | ||||||||||||||||
USD | 651 | 02/16/2026 | 1.625% | 3 Month LIBOR | Semi-Annual/ Quarterly | (42,867 | ) | 7,434 | (50,301 | ) | ||||||||||||||||
USD | 150 | 03/31/2026 | 1.693% | 3 Month LIBOR | Semi-Annual/ Quarterly | (10,297 | ) | – 0 | – | (10,297 | ) | |||||||||||||||
USD | 100 | 05/03/2026 | 1.770% | 3 Month LIBOR | Semi-Annual/ Quarterly | (7,151 | ) | – 0 | – | (7,151 | ) | |||||||||||||||
USD | 800 | 06/01/2026 | 1.714% | 3 Month LIBOR | Semi-Annual/ Quarterly | (54,172 | ) | 32,362 | (86,534 | ) | ||||||||||||||||
USD | 4,650 | 04/28/2027 | 2.330% | 3 Month LIBOR | Quarterly/Semi-Annual | 526,293 | 16,658 | 509,635 | ||||||||||||||||||
USD | 350 | 05/03/2027 | 2.285% | 3 Month LIBOR | Semi-Annual/ Quarterly | (38,559 | ) | 112 | (38,671 | ) | ||||||||||||||||
USD | 940 | 03/06/2028 | 2.876% | 3 Month LIBOR | Semi-Annual/ Quarterly | (154,987 | ) | – 0 | – | (154,987 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | (17,174 | ) | $ | 53,653 | $ | (70,827 | ) | |||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note C)
Swap Counterparty & Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 05/11/2063* | (5.00 | )% | Monthly | 15.00 | % | USD | 180 | $ | 76,274 | $ | 21,801 | $ | 54,473 | |||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | (3.00 | ) | Monthly | 15.00 | USD | 192 | 51,200 | 19,586 | 31,614 | |||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||
BNP Paribas SA |
| |||||||||||||||||||||||||||
Altice France SA, 6/20/2024* | 5.00 | Quarterly | 2.14 | EUR | 70 | 8,232 | 4,371 | 3,861 | ||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 05/11/2063* | 5.00 | Monthly | 15.00 | USD | 29 | (12,289 | ) | (3,464 | ) | (8,825 | ) |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 49 |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 05/11/2063* | 5.00 | % | Monthly | 15.00 | % | USD | 69 | $ | (29,238 | ) | $ | (7,647 | ) | $ | (21,591 | ) | ||||||||||||
International Game Technology, 4.750%, 02/15/2023, 06/20/2022* | 5.00 | Quarterly | 0.85 | EUR | 100 | 7,515 | 4,178 | 3,337 | ||||||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 15.00 | USD | 252 | (67,179 | ) | (16,805 | ) | (50,374 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 15.00 | USD | 75 | (19,994 | ) | (4,872 | ) | (15,122 | ) | |||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 03/15/2025, 12/20/2023* | 5.00 | Quarterly | 3.31 | USD | 10 | 488 | 382 | 106 | ||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 03/15/2025, 12/20/2023* | 5.00 | Quarterly | 3.31 | USD | 20 | 976 | 1,196 | (220 | ) | |||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 05/11/2063* | 5.00 | Monthly | 15.00 | USD | 163 | (69,030 | ) | (28,372 | ) | (40,658 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (53,045 | ) | $ | (9,646 | ) | $ | (43,399 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note C)
Counterparty & Referenced Obligation | Rate Paid/ Received | Payment Frequency | Current Notional (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||
Markit iBoxx USD Contingent Convertible Liquid Developed Market AT1 | | 3 Month LIBOR | | Quarterly | USD | 585 | 03/20/2021 | $ | 5,098 |
** | 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 December 31, 2020, the aggregate market value of these securities amounted to $23,103,649 or 59.7% of net assets. |
50 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(b) | Fair valued by the Adviser. |
(c) | 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 December 31, 2020. |
(d) | Non-income producing security. |
(e) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(f) | Defaulted matured security. |
(g) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.15% of net assets as of December 31, 2020, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Exide International Holdings LP | 11/05/2020 | $ | 29,328 | $ | 29,445 | 0.08 | % | |||||||||
Exide Technologies (Exchange Priority) | 08/03/2020 | – 0 | – | – 0 | – | 0.00 | % | |||||||||
Exide Technologies (First Lien) | 10/29/2020 | – 0 | – | – 0 | – | 0.00 | % | |||||||||
K2016470219 (South Africa) Ltd. | 03/13/2015 | 16,276 | – 0 | – | 0.00 | % | ||||||||||
Magnetation LLC/Mag Finance Corp. | 02/19/2015 | 36,767 | – 0 | – | 0.00 | % | ||||||||||
Terraform Global Operating LLC | 02/08/2018 | 28,034 | 28,749 | 0.07 | % | |||||||||||
Tonon Luxembourg SA | 01/16/2013 | 4,100 | 64 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 02/13/2013 | 96,161 | 716 | 0.00 | % |
(h) | Convertible security. |
(i) | Defaulted. |
(j) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(k) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at December 31, 2020. |
(l) | 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. |
(m) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at December 31, 2020. |
(n) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
CHC Group LLC | 03/10/2017 | $ | 127,430 | $ | 169 | 0.00 | % |
(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. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
(p) | Affiliated investments. |
(q) | The rate shown represents the 7-day yield as of period end. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 51 |
PORTFOLIO OF INVESTMENTS (continued)
Currency Abbreviations:
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
MXN – Mexican Peso
RUB – Russian Ruble
USD – United States Dollar
ZAR – South African Rand
Glossary:
ABS – Asset-Backed Securities
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
LIBOR – London Interbank Offered Rate
MSCI – Morgan Stanley Capital International
OAT – Obligations Assimilables du Trésor
REIT – Real Estate Investment Trust
See notes to financial statements.
52 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
December 31, 2020
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $36,540,199) | $ | 37,957,098 | ||
Affiliated issuers (cost $147,954) | 147,954 | |||
Cash | 18,644 | |||
Cash collateral due from broker | 642,572 | |||
Foreign currencies, at value (cost $34,388) | 34,972 | |||
Unaffiliated interest receivable | 537,916 | |||
Market value of credit default swaps (net premiums paid $51,514) | 144,685 | |||
Receivable for investment securities sold | 10,054 | |||
Unrealized appreciation on total return swaps | 5,098 | |||
Receivable for variation margin on centrally cleared swaps | 4,854 | |||
Receivable for variation margin on futures | 2,736 | |||
Receivable for capital stock sold | 2,129 | |||
Unrealized appreciation on forward currency exchange contracts | 1,931 | |||
Affiliated dividends receivable | 6 | |||
|
| |||
Total assets | 39,510,649 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased | 220,119 | |||
Market value of credit default swaps (net premiums received $61,160) | 197,730 | |||
Audit and tax fee payable | 128,356 | |||
Advisory fee payable | 57,815 | |||
Payable for capital stock redeemed | 41,171 | |||
Dividends payable | 13,481 | |||
Unrealized depreciation on forward currency exchange contracts | 11,360 | |||
Transfer Agent fee payable | 3,082 | |||
Payable for variation margin on centrally cleared swaps | 542 | |||
Accrued expenses and other liabilities | 85,858 | |||
|
| |||
Total liabilities | 759,514 | |||
|
| |||
Net Assets | $ | 38,751,135 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 3,929 | ||
Additional paid-in capital | 47,320,150 | |||
Accumulated loss | (8,572,944 | ) | ||
|
| |||
$ | 38,751,135 | |||
|
|
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
Advisor | $ | 38,751,135 | 3,928,977 | $ | 9.86 | |||||||
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 53 |
STATEMENT OF OPERATIONS
Year Ended December 31, 2020
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $324) | $ | 2,349,889 | ||||||
Dividends | ||||||||
Unaffiliated issuers | 5,949 | |||||||
Affiliated issuers | 3,547 | $ | 2,359,385 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 231,005 | |||||||
Transfer agency—Advisor Class | 41,096 | |||||||
Custody and accounting | 153,756 | |||||||
Audit and tax | 136,812 | |||||||
Legal | 106,071 | |||||||
Administrative | 72,160 | |||||||
Printing | 38,915 | |||||||
Registration fees | 24,330 | |||||||
Directors’ fees | 16,540 | |||||||
Miscellaneous | 17,418 | |||||||
|
| |||||||
Total expenses | 838,103 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (568,950 | ) | ||||||
|
| |||||||
Net expenses | 269,153 | |||||||
|
| |||||||
Net investment income | 2,090,232 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (43,889 | )(a) | ||||||
Forward currency exchange contracts | (152,216 | ) | ||||||
Futures | 177,890 | |||||||
Swaps | 105,965 | |||||||
Foreign currency transactions | 41,441 | |||||||
Net change in unrealized appreciation/depreciation on: | ||||||||
Investments | 770,281 | (b) | ||||||
Forward currency exchange contracts | 36,943 | |||||||
Futures | 25,520 | |||||||
Swaps | 137,424 | |||||||
Foreign currency denominated assets and liabilities | 486 | |||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 1,099,845 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 3,190,077 | ||||||
|
|
(a) | Net of decrease in foreign capital gains taxes on realized gains of $20,258. |
(b) | Net of increase in accrued foreign capital gains taxes on unrealized gains of $2,884. |
See notes to financial statements.
54 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 2020 | Year Ended December 31, 2019 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 2,090,232 | $ | 1,991,008 | ||||
Net realized gain (loss) on investment and foreign currency transactions | 129,191 | (233,902 | ) | |||||
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | 970,654 | 3,115,409 | ||||||
|
|
|
| |||||
Net increase in net assets from operations | 3,190,077 | 4,872,515 | ||||||
Distributions to Shareholders | ||||||||
Advisor Class | (2,379,537 | ) | (2,205,237 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | (2,277,269 | ) | 7,041,926 | |||||
|
|
|
| |||||
Total increase (decrease) | (1,466,729 | ) | 9,709,204 | |||||
Net Assets | ||||||||
Beginning of period | 40,217,864 | 30,508,660 | ||||||
|
|
|
| |||||
End of period | $ | 38,751,135 | $ | 40,217,864 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 55 |
NOTES TO FINANCIAL STATEMENTS
December 31, 2020
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. 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 December 31, 2020. Advisor class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All 11 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 Fund’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
56 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 57 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
58 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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 a 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.
abfunds.com | AB FLEXFEE HIGH YIELD 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 December 31, 2020:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Non-Investment Grade | $ | – 0 | – | $ | 30,140,781 | $ | 4,250 | # | $ | 30,145,031 | ||||||
Corporates – Investment Grade | – 0 | – | 3,393,843 | – 0 | – | 3,393,843 | ||||||||||
Bank Loans | – 0 | – | 2,031,062 | 341,734 | 2,372,796 | |||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 629,086 | 64 | # | 629,150 | ||||||||||
Governments – Treasuries | – 0 | – | 465,585 | – 0 | – | 465,585 | ||||||||||
Common Stocks | 234,250 | – 0 | – | 97,103 | # | 331,353 | ||||||||||
Asset-Backed Securities | – 0 | – | 223,444 | – 0 | – | 223,444 | ||||||||||
Preferred Stocks | 48,529 | 32,647 | 29,445 | 110,621 | ||||||||||||
Collateralized Mortgage Obligations | – 0 | – | 103,778 | – 0 | – | 103,778 | ||||||||||
Emerging Markets – Treasuries | – 0 | – | 87,418 | – 0 | – | 87,418 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 49,624 | – 0 | – | 49,624 | ||||||||||
Investment Companies | 29,664 | – 0 | – | – 0 | – | 29,664 | ||||||||||
Warrants | 4,180 | – 0 | – | 7,169 | # | 11,349 | ||||||||||
Rights | – 0 | – | – 0 | – | 3,442 | 3,442 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 147,954 | – 0 | – | – 0 | – | 147,954 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 464,577 | 37,157,268 | 483,207 | 38,105,052 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets | ||||||||||||||||
Futures | 12,112 | – 0 | – | – 0 | – | 12,112 | † | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 1,931 | – 0 | – | 1,931 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 418,046 | – 0 | – | 418,046 | † | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 638,170 | – 0 | – | 638,170 | † | |||||||||
Credit Default Swaps | – 0 | – | 144,685 | – 0 | – | 144,685 | ||||||||||
Total Return Swaps | – 0 | – | 5,098 | – 0 | – | 5,098 | ||||||||||
Liabilities | ||||||||||||||||
Futures | (1,038 | ) | – 0 | – | – 0 | – | (1,038 | )† | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (11,360 | ) | – 0 | – | (11,360 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (333 | ) | – 0 | – | (333 | )† | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (655,344 | ) | – 0 | – | (655,344 | )† | ||||||||
Credit Default Swaps | – 0 | – | (197,730 | ) | – 0 | – | (197,730 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 475,651 | $ | 37,500,431 | $ | 483,207 | $ | 38,459,289 | ||||||||
|
|
|
|
|
|
|
|
60 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
# | The Fund held securities with zero market value at period end. |
* | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
† | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Corporates - Non-Investment Grade# | Bank Loans | Emerging Markets - Corporate Bonds# | Common Stocks# | |||||||||||||
Balance as of 12/31/19 | $ | 87,446 | $ | 405,559 | $ | 63 | $ | 91,942 | ||||||||
Accrued discounts/(premiums) | 327 | 164 | (1,630 | ) | – 0 | – | ||||||||||
Realized gain (loss) | (44,482 | ) | 230 | – 0 | – | (19,404 | ) | |||||||||
Change in unrealized appreciation/depreciation | 936 | 857 | (848 | ) | 25,908 | |||||||||||
Purchases/Payups | 856 | 157,568 | 2,436 | 6,825 | ||||||||||||
Sales | (40,833 | ) | (37,034 | ) | – 0 | – | – 0 | – | ||||||||
Transfers into level 3 | – 0 | – | 19,780 | 43 | – 0 | – | ||||||||||
Transfers out of level 3 | – 0 | – | (205,390 | ) | – 0 | – | (8,168 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 12/31/2020 | $ | 4,250 | $ | 341,734 | $ | 64 | $ | 97,103 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 12/31/2020** | $ | (745 | ) | $ | 1,192 | $ | (848 | ) | $ | (6,819 | ) | |||||
|
|
|
|
|
|
|
| |||||||||
Preferred Stocks | Warrants# | Rights | Total | |||||||||||||
Balance as of 12/31/19 | $ | – 0 | – | $ | 4,806 | $ | 3,363 | $ | 593,179 | |||||||
Accrued | – 0 | – | – 0 | – | – 0 | – | (1,139 | ) | ||||||||
Realized gain (loss) | – 0 | – | – 0 | – | – 0 | – | (63,656 | ) | ||||||||
Change in unrealized appreciation/depreciation | 117 | 2,363 | 79 | 29,412 | ||||||||||||
Purchases/Payups | 29,328 | – 0 | – | – 0 | – | 197,013 | ||||||||||
Sales | – 0 | – | – 0 | – | – 0 | – | (77,867 | ) | ||||||||
Transfers into level 3 | – 0 | – | – 0 | – | – 0 | – | 19,823 | |||||||||
Transfers out of level 3 | – 0 | – | – 0 | – | – 0 | – | (213,558 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 12/31/2020 | $ | 29,445 | $ | 7,169 | $ | 3,442 | $ | 483,207 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 12/31/2020** | $ | 117 | $ | 2,363 | $ | 79 | $ | (4,661 | ) | |||||||
|
|
|
|
|
|
|
|
# | 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 on investments and other financial instruments in the accompanying statement of operations. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 61 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at December 31, 2020. Securities priced (i) by third party vendors, (ii) by brokers or (iii) using prior transaction prices, which approximates fair value, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 12/31/20 | Valuation Technique | Unobservable Input | Input | |||||||
Corporates – Non-Investment Grade | $ | 4,250 | Recovery | Collateral Value | $85.10 | |||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
|
| |||||||||
$ | 4,250 | |||||||||
|
| |||||||||
Common Stocks | $ | 11,725 | Market Approach | Projected Enterprise Value | $502.6mm to $554.7mm | |||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
|
| |||||||||
$ | 11,725 | |||||||||
|
| |||||||||
Preferred Stocks | $ | 29,445 | Discounted Cash Flow | Discount Rate on Future Cash Flows | 13.21% | |||||
Warrants | $ | 7,169 | Option Pricing Model | Exercise Price | $9.11 | |||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
|
| |||||||||
$ | 7,169 | |||||||||
|
|
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 Collateral Value, Projected Enterprise Value and Exercise Price in insolation would be expected to result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in Discount Rate on Future Cash Flows in isolation would be expected to result in a significantly lower (higher) fair value measurement.
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars
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NOTES TO FINANCIAL STATEMENTS (continued)
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 or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/ depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for distributions received from REIT investments or from regulated investment companies as dividend income, realized gain, or return of capital based on information provided by the REIT or the investment company.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 63 |
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
Under the terms of the 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”) was initially from February 26, 2018 to December 31, 2019 and thereafter is 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
64 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
(Base Fee plus Performance Adjustment) on any day to the amount corresponding to the maximum fee rate multiplied by the Fund’s current net assets 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 December 31, 2020, the Fund accrued advisory fees of $231,005, as reflected in the statement of operations, at an annual effective rate (excluding the impact from any expense waivers in effect) of .60% of the Fund’s average net assets, which reflected a .20% Performance Adjustment of $76,391.
The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total expenses (other than the advisory fee, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs) on an annual basis from exceeding .10% of average daily net assets (the “Expense Cap”). For the year ended December 31, 2020, such reimbursements/ waivers amounted to $495,920. The Expense Cap will remain in effect until April 30, 2021 and then may be continued thereafter from year to year by the Adviser. Any fees waived and expenses borne by the Adviser between February 26, 2018 and December 31, 2019 are subject to repayment 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; such waivers that are subject to repayment amount to $450,749 for the period ended October 31, 2018, $157,175 for the period ended December 31, 2018 and $484,978 for the year ended December 31, 2019. 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% of average daily net assets.
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 December 31, 2020, the Adviser waived such fees in the amount of $72,160.
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 $18,166 for the year ended December 31, 2020.
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 FLEXFEE HIGH YIELD PORTFOLIO | 65 |
NOTES TO FINANCIAL STATEMENTS (continued)
bears its own expenses. The Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to 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 December 31, 2020, such waiver amounted to $870.
A summary of the Fund’s transactions in AB mutual funds for the year ended December 31, 2020 is as follows:
Fund | Market Value 12/31/19 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 2,551 | $ | 17,856 | $ | 20,259 | $ | 148 | $ | 4 |
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximate 65% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and
66 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2020, were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 28,114,416 | $ | 28,339,550 | ||||
U.S. government securities | – 0 | – | – 0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 36,736,894 | ||
|
| |||
Gross unrealized appreciation | 3,658,274 | |||
Gross unrealized depreciation | (2,335,427 | ) | ||
|
| |||
Net unrealized appreciation | $ | 1,322,847 | ||
|
|
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 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
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 67 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 December 31, 2020, 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 futures, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/ counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2020, the Fund held futures for hedging purposes.
68 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
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 including by making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the 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
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 69 |
NOTES TO FINANCIAL STATEMENTS (continued)
clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
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
70 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 December 31, 2020, the Fund held interest rate swaps for hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation. In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligation with the same counterparty.
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 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
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 71 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 December 31, 2020, the Fund held credit default swaps for hedging and non-hedging purposes.
Total Return Swaps:
The Fund may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty.
During the year ended December 31, 2020, 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
72 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended December 31, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 8,445 | * | Receivable/Payable for variation margin on futures | $ | 1,038 | * | ||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps |
| 621,512 | * | Receivable/Payable for variation margin on centrally cleared swaps |
| 692,339 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 1,931 |
| Unrealized depreciation on forward currency exchange contracts |
| 11,360 |
| ||||
Credit contracts | Market value of credit default swaps | 144,685 | Market value of credit default swaps | 197,730 | ||||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 306,343 | * | Receivable/Payable for variation margin on centrally cleared swaps | 91 | * | ||||||
Credit contracts | Unrealized appreciation on total return swaps | 5,098 | ||||||||||
Equity contracts | Receivable/Payable for variation margin on futures | 3,667 | * | |||||||||
|
|
|
| |||||||||
Total | $ | 1,091,681 | $ | 902,558 | ||||||||
|
|
|
|
* | 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 FLEXFEE HIGH YIELD PORTFOLIO | 73 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 | $ | 9,684 | $ | (60,055 | ) | ||||
Interest rate contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/ depreciation on futures | 163,983 | 23,549 | |||||||
Foreign currency contracts | Net realized gain/(loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation on forward currency exchange contracts | (152,216 | ) | 36,943 | ||||||
Credit contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/ depreciation on swaps | 96,281 | 197,479 | |||||||
Equity contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/ depreciation on futures | 13,907 | 1,971 | |||||||
|
|
|
| |||||||
Total | $ | 131,639 | $ | 199,887 | ||||||
|
|
|
|
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended December 31, 2020:
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 148,178 | ||
Average notional amount of sale contracts | $ | 3,801,360 | ||
Centrally Cleared Interest Rate Swaps | ||||
Average notional amount | $ | 13,133,077 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 458,877 | ||
Average notional amount of sale contracts | $ | 812,619 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 323,293 | ||
Average principal amount of sale contracts | $ | 2,207,958 | ||
Futures: | ||||
Average notional amount of buy contracts | $ | 4,327,240 | ||
Average notional amount of sale contracts | $ | 191,478 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 2,922,025 |
74 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of December 31, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the tables.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
BNP Paribas SA | $ | 8,232 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 8,232 | |||||||
Brown Brothers Harriman & Co. | 340 | (340 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA | 1,591 | (1,591 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 83,789 | (41,527 | ) | – 0 | – | – 0 | – | 42,262 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International. | 57,762 | (57,762 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 151,714 | $ | (101,220 | ) | $ | – 0 | – | $ | – 0 | – | $ | 50,494 | ^ | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivative Liabilities | |||||||||||||||
Brown Brothers Harriman & Co. | $ | 466 | $ | (340 | ) | $ | – 0 | – | $ | – 0 | – | $ | 126 | |||||||
Citibank, NA | 4,280 | (1,591 | ) | – 0 | – | – 0 | – | 2,689 | ||||||||||||
Credit Suisse International | 41,527 | (41,527 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 87,173 | – 0 | – | – 0 | – | – 0 | – | 87,173 | ||||||||||||
Goldman Sachs Bank USA/ | ||||||||||||||||||||
Goldman Sachs International. | 71,161 | (57,762 | ) | – 0 | – | – 0 | – | 13,399 | ||||||||||||
Standard Chartered Bank | 4,483 | – 0 | – | – 0 | – | – 0 | – | 4,483 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 209,090 | $ | (101,220 | ) | $ | – 0 | – | $ | – 0 | – | $ | 107,870 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | 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 amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 75 |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE D
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 2020 | Year Ended 2019 | Year Ended 2020 | Year Ended 2019 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 1,342,319 | 1,524,045 | $ | 12,290,493 | $ | 14,445,357 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 121,319 | 88,873 | 1,122,225 | 846,590 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (1,709,250 | ) | (867,925 | ) | (15,689,987 | ) | (8,250,021 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (245,612 | ) | 744,993 | $ | (2,277,269 | ) | $ | 7,041,926 | ||||||||||||||||
|
At December 31, 2020, the Adviser owned 46% of the Fund’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Fund’s performance.
NOTE E
Risks Involved in Investing in the Fund
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, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
76 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
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 may be more difficult to trade than other types of securities.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 77 |
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.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
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 the Fund’s returns.
Illiquid Investments Risk—Illiquid investments risk exists when certain investments are or become difficult to purchase or sell. Difficulty in selling such investments may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of illiquid investments risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Illiquid investments risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
LIBOR Transition and Associated Risk—A Fund may invest in debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although widely used LIBOR rates are intended to be published until June 2023, banks are strongly encouraged to cease entering into agreements with counterparties referencing LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as the European Interbank Offer Rate, the Sterling Overnight Interbank Average Rate and the Secured Overnight Financing Rate, global
78 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains incomplete. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect a Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, potentially adversely affecting a Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively-managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended December 31, 2020.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 79 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2020 and December 31, 2019 were as follows:
2020 | 2019 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 2,379,537 | $ | 2,205,237 | ||||
|
|
|
| |||||
Total taxable distributions paid | $ | 2,379,537 | $ | 2,205,237 | ||||
|
|
|
|
As of December 31, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 189,428 | ||
Accumulated capital and other losses | (9,990,151 | )(a) | ||
Unrealized appreciation/(depreciation) | 1,321,144 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (8,479,579 | )(c) | |
|
|
(a) | As of December 31, 2020, the Fund had a net capital loss carryforward of $9,990,151. During the fiscal year, the Fund utilized $3,705 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 recognition for tax purposes of unrealized gains/losses on certain derivative instruments, the tax treatment of callable bonds, the tax treatment of swaps, the tax deferral of losses on wash sales, and the tax treatment of partnership investments. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the accrual of foreign capital gains tax, the tax treatment of defaulted securities, and dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2020, the Fund had a net short-term capital loss carryforward of $5,227,619 and a net long-term capital loss carryforward of $4,762,532, 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 H
Subsequent Events
At a special meeting of the shareholders of the Fund held on January 20, 2021, the shareholders approved the amendment of the investment advisory agreement (the “Agreement”) of the Fund to implement an advisory fee with breakpoints at specific asset levels (based on the Fund’s average daily net assets) and eliminate the current performance-based, or “fulcrum,” advisory fee. Under the Agreement as currently in place, for its services the Adviser receives an investment advisory fee that consists of a
80 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
base fee (fulcrum fee) and a performance adjustment. The Fund’s fulcrum fee increases or decreases up to 0.20% from a mid-point or fulcrum fee of 0.40% of the Fund’s average daily net assets, resulting in a maximum advisory fee of 0.60% and a minimum advisory fee of 0.20%. A positive performance adjustment is earned when the Fund’s performance exceeds that of the Markit iBoxx USD Liquid High Yield Index (the “Markit Index”) plus 0.75%. Under the Agreement as it will be amended, the Fund will pay to the Adviser a fee for investment advisory services at the annual rate of 0.45% of the Fund’s average daily net assets up to $2.5 billion, 0.425% of average daily net assets in excess of $2.5 billion up to $5 billion, and 0.40% of average daily net assets in excess of $5 billion. The Board of Directors of AB Bond Fund, Inc. has approved certain additional actions with respect to the Fund, including a change in the Fund’s name to “AB High Yield Portfolio” and a change in the Fund’s fiscal year end for financial reporting purposes from December 31 to October 31. The amended Agreement and name change will take effect on or about May 1, 2021, and the fiscal year end change will be effective for fiscal periods subsequent to the reporting period of this report. The Fund’s year end for tax purposes of December 31 will not change.
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.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 81 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||||||
Year Ended 2020 | Year Ended 2019 | November 1, 2018(a) | Year Ended October 31, | September 1, 2016(b) | July 26, 2016 | |||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, beginning of period | $ 9.63 | $ 8.90 | $ 9.36 | $ 9.71 | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||||||
Net investment income(d)(e) | .50 | .52 | .09 | .50 | .49 | .08 | # | .05 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | .30 | .77 | (.41 | ) | (.37 | ) | .24 | .01 | .08 | ‡ | ||||||||||||||||||
Contributions from Affiliates | – 0 | – | – 0 | – | – 0 | – | .00 | (f) | .00 | (f) | – 0 | – | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | .80 | 1.29 | (.32 | ) | .13 | .73 | .09 | .13 | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Less: Dividends and Distributions |
| |||||||||||||||||||||||||||
Dividends from net investment income | (.57 | ) | (.56 | ) | (.14 | ) | (.48 | ) | (.43 | ) | (.07 | ) | (.05 | ) | ||||||||||||||
Return of capital | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.05 | ) | – 0 | – | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||||||
Total dividends and distributions | (.57 | ) | (.56 | ) | (.14 | ) | (.48 | ) | (.48 | ) | (.07 | ) | (.05 | ) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ 9.86 | $ 9.63 | $ 8.90 | $ 9.36 | $ 9.71 | $ 9.46 | $ 9.44 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||||||
Total investment return based on net asset value(g)* | 8.95 | %+ | 14.77 | %+ | (3.45 | )% | 1.32 | %** | 7.89 | %+ | .94 | %+# | 1.35 | % | ||||||||||||||
Ratios/Supplemental Data |
| |||||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $38,751 | $40,218 | $30,509 | $33,990 | $4,185 | $2,733 | $2,063 | |||||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(i)† | .70 | % | .29 | %++ | .29 | %^++ | .33 | %(h) | .71 | %(h) | .78 | %^ | .81 | %(h)^ | ||||||||||||||
Expenses, before waivers/reimbursements(i)† | 2.17 | % | 1.84 | %++ | 3.25 | %^++ | 2.56 | %(h) | 2.49 | %(h) | 3.18 | %^ | 2.41 | %(h)^ | ||||||||||||||
Net investment income(e) | 5.41 | % | 5.45 | % | 5.73 | %^ | 5.20 | % | 5.11 | % | 4.90 | %^# | 5.30 | %^ | ||||||||||||||
Portfolio turnover rate | 75 | % | 40 | % | 5 | % | 75 | % | 65 | % | 9 | % | 44 | % | ||||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||||||
portfolios | .00 | % | .01 | % | .01 | %^ | .01 | % | .01 | % | .02 | %^ | .00 | %^ |
See footnote summary on page 83.
82 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | The Fund changed its fiscal year end from October 31 to December 31. |
(b) | The Fund changed its fiscal year end from August 31 to October 31. |
(c) | Inception date. |
(d) | Based on average shares outstanding. |
(e) | Net of expenses waived/reimbursed by the Adviser. |
(f) | Amount is less than $.005. |
(g) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total 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. |
(h) | The expense ratios presented below exclude interest expense: |
Year Ended December 31, 2020 | Year Ended December 31, 2019 | November 1, 2018 to December 31, 2018(a) | Year Ended | September 1, 2016 to October 31, 2016(b) | July 26, 2016(c) to August 31, 2016 | |||||||||||||||||||||||
October 31, 2018 | October 31, 2017 | |||||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Net of waivers/ reimbursements | N/A | N/A | N/A | .31 | % | .70 | % | N/A | .80 | %^ | ||||||||||||||||||
Before waivers/ reimbursements | N/A | N/A | N/A | 2.54 | % | 2.54 | % | N/A | 2.40 | %^ |
(i) | 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 December 31, 2019, period ended December 31, 2018, years ended October 31, 2018, October 31, 2017 and period ended October 31, 2016, such waivers amounted to .01% , .01% (annualized), .01%, .01% and .02% (annualized), 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 December 31, 2019, October 31, 2018, October 31, 2017 and August 31, 2016 by .01%, .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% |
++ | The advisory fee reflected in the Fund’s expense ratio may be higher or lower than the Base Fee plus Performance Adjustment due to the different time periods over which the fee is calculated (i.e., the financial reporting vs. the Performance Period). |
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 83 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
AB FlexFee High Yield Portfolio
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB FlexFee High Yield Portfolio (the “Fund”), (one of the portfolios constituting the AB Bond Fund, Inc. (the “Company”)), including the portfolio of investments, as of December 31, 2020, 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 November 1, 2018 through December 31, 2018, each of the two years in the period ended October 31, 2018, the period from September 1, 2016 through October 31, 2016 and the period from July 26, 2016 (commencement of operations) through 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 portfolios constituting the AB Bond Fund, Inc.) at December 31, 2020, 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 November 1, 2018 to December 31, 2018, each of the two years in the period ended October 31, 2018, the period from September 1, 2016 through October 31, 2016 and the period from July 26, 2016 (commencement of operations) through 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
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
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 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 December 31, 2020, 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
February 26, 2021
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2020 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 calendar year ended December 31, 2020. For foreign shareholders, 69.00% of ordinary income dividends paid may be considered to be qualifying to be taxed as interest-related dividends.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith*, President and Chief Executive Officer Jeanette W. Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Gershon M. Distenfeld(2), Vice President William Smith(2), Vice President Jacqueline Pincus(2), Vice President Emilie D. Wrapp, Secretary | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer 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’s portfolio are made by the Adviser’s High Yield Investment Team. Messrs. Distenfeld and Smith and Ms. Pincus are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
* | Mr. Keith is expected to retire as President, Chief Executive Officer and a Director of the Fund as of March 31, 2021 and from the Adviser effective June 30, 2021. |
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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 60 (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. | 74 | 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 | ||||||||
Marshall C. Turner, Jr.# Chairman of the Board 79 (2014) | Private Investor since prior to 2016. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He was a Director of Xilinx, Inc. (programmable logic semi-conductors and adaptable, intelligent computing) from 2007 through August 2020, and is a former director of 33 other companies and organizations. 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 all AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of the AB Funds since February 2014. | 74 | 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 | ||||||||
Jorge A. Bermudez,# 69 (2020) | Private Investor since prior to 2016. Formerly, Chief Risk Officer of Citigroup, Inc., a global financial services company, from November 2007 to March 2008, Chief Executive Officer of Citigroup’s Commercial Business Group in North America and Citibank Texas from 2005 to 2007, and a variety of other executive and leadership roles at various businesses within Citigroup prior to then; Chairman (2018) of the Texas A&M Foundation Board of Trustees (Trustee since 2013) and Chairman of the Smart Grid Center Board at Texas A&M University since 2012; director of, among others, Citibank N.A. from 2005 to 2008, the Federal Reserve Bank of Dallas, Houston Branch from 2009 to 2011, the Federal Reserve Bank of Dallas from 2011 to 2017, and the Electric Reliability Council of Texas from 2010 to 2016. He has served as director or trustee of the AB Funds since January 2020. | 74 | Moody’s Corporation since April 2011 | |||||
Michael J. Downey,# 77 (2014) | Private Investor since prior to 2016. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2016 until January 2019. 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. | 74 | 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,# 72 (2014) | Private Investor since prior to 2016. 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. | 74 | None | |||||
Jeanette W. Loeb,# 68 (2020) | Chief Executive Officer of PetCareRx (e-commerce pet pharmacy) from 2002 to 2011 and 2015 to present. Director of New York City Center since 2005. She was a director of AB Multi-Manager Alternative Fund, Inc. (fund of hedge funds) from 2012 to 2018. Formerly, affiliated with Goldman Sachs Group, Inc. (financial services) from 1977 to 1994, including as a partner thereof from 1986 to 1994. She has served as director or trustee of the AB Funds since April 2020. | 74 | Apollo Investment Corp. (business development company) since August 2011 |
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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,# 65 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and a member of the Advisory Board of Butcher Box (since 2018). Formerly, member, Partners Healthcare Investment Committee (2010-2019); 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 Chief Investment Officer, Core and Growth and 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. | 74 | 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,# 68 (2014) | Private Investor since prior to 2016. 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 is also a member of the Investment Company Institute’s Board of Governors and the Independent Directors Council’s Governing Council. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 74 | 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) | ||||||||
Earl D. Weiner,# 81 (2014) | Senior Counsel since 2017, Of Counsel from 2007 to 2016, and Partner prior to then, of the law firm Sullivan & Cromwell LLP. He 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. | None |
* | 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. He is expected to retire as President, Chief Executive Officer and a Director of the Fund as of March 31, 2021 and from the Adviser effective June 30, 2021. Mr. Onur Erzan, Senior Vice President and Head of the Global Client Group of the Adviser, has been elected President, Chief Executive Officer and a Director of the Fund, effective April 1, 2021. |
# | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
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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# 60 | President and Chief Executive Officer | See biography above. | ||
Gershon M. Distenfeld 45 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2016. He is also Co-Head of Fixed-Income. | ||
Jacqueline Pincus 34 | Vice President | Senior Vice President of the Adviser**, with which she has been associated since 2016. | ||
William Smith 33 | Vice President | Vice President of the Adviser**, with which he has been associated since prior to 2016. He is also a Director of US High Yield Credit. | ||
Emilie D. Wrapp 65 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2016. | ||
Michael B. Reyes 44 | Senior Analyst | Vice President of the Adviser**, with which has been associated since prior to 2016. | ||
Joseph J. Mantineo 61 | Treasurer and Chief Financial Officer | Senior Vice President of ABIS**, with which he has been associated since prior to 2016. | ||
Stephen M. Woetzel 49 | Controller | Senior Vice President of ABIS**, with which he has been associated since prior to 2016. | ||
Vincent S. Noto 56 | Chief Compliance Officer | Senior Vice President and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2016. |
* | 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. |
# | Mr. Keith is expected to retire as President, Chief Executive Officer and a Director of the Fund as of March 31, 2021 and from the Adviser effective June 30, 2021. Mr. Onur Erzan, Senior Vice President and Head of the Global Client Group of the Adviser, has been elected President, Chief Executive Officer and a Director of the Fund, effective April 1, 2021. |
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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Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
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Board Consideration of Amendment to the Fund’s Advisory Agreement
At the Board Meeting held by video conference on November 3-5, 2020, 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 FlexFeeTM High Yield Portfolio (the “Fund”) to implement an advisory fee with breakpoints at specific asset levels (based on the Fund’s average daily net assets) and eliminate the current performance-based advisory fee. The Adviser cited the following reasons for its recommendation:
• | The performance-based fee structure has failed to increase investor demand and attract significant assets for the Fund, making it more difficult for the Fund to achieve economies of scale. The Adviser also observed that the Fund’s current advisory fee structure is not in line with those of peer funds, noting that few other firms had made a substantial effort to launch fulcrum fee funds since implementation of the performance-based fee structure for the Fund in 2018. |
• | The methodology used to calculate the performance-based fee is complex, preventing the Fund from being more competitive in the mutual fund marketplace. |
• | The performance-based fee structure creates uncertainty for investors in reasonably predicting Fund expenses, due to significant fluctuations in advisory fees and total expense ratios that can result from fund performance fluctuations. This was a particular issue in the qualified plan context, where uncertainty about the amount of future fees has been a concern. |
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. The Board, including the Independent Directors, also recommended approval of the Amended Agreement by stockholders.
At the Board Meeting, the Board also approved, upon recommendation of the Adviser, (i) changing the Fund’s name to “AB High Yield Portfolio”; (ii) changing the benchmark against which the Fund’s performance is compared in the Fund’s prospectus and shareholder reports from the Markit iBoxx USD Liquid High Yield Index to the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index, the index used by the Fund prior to the implementation of the performance-based fee structure; (iii) changing the Fund’s fiscal year end from December 31 to October 31,
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to be consistent with the other fixed-income mutual funds advised by the Adviser with conventional asset-based advisory fees; and (iv) changing the Fund’s dividend policy to declare dividends daily instead of monthly. The Directors also noted the Adviser’s intent, in connection with these changes, to offer Class A and Class Z shares in addition to Advisor Class shares. Implementation of the foregoing changes and actions is conditioned upon approval by stockholders of the Amended Agreement and would be effective on or about May 1, 2021.
The Directors also considered that the Fund will not bear the expenses relating to the above-referenced changes, including expenses relating to the special meeting of stockholders called to approve the Amended Agreement and the preparation, printing and mailing of the proxy materials and of all related solicitations, in light of the applicable expense limitation agreement and the Adviser’s agreement to bear such expenses to the extent not subject to such expense limitation agreement.
At the Board Meeting, the Directors also approved the 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 and the continuance of the current Advisory Agreement, the Directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed Amended Agreement and the proposed continuance of the current Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The Directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The Directors also discussed the proposed approvals in private sessions with counsel.
The Directors considered the fact that the Amended Agreement would have terms and conditions substantially identical to those of the current Advisory Agreement, except for (i) the absence of the performance-based advisory fee and adoption of a more conventional advisory fee, which would consist of an advisory fee with breakpoints at specific asset levels (based on the Fund’s average daily net assets) under the Amended Agreement and (ii) 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
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implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the money market fund advised by the Adviser in which the Fund invests a portion of its assets.
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. In connection with their consideration of the current management fee, the Directors considered materials presented to them concerning the SEC’s published guidance on factors that should be considered in connection with fulcrum fee arrangements, including the following factors: (1) the fairness of the fulcrum fee; (2) selection of an appropriate index against which fund performance should be measured; (3) variations in periods used for computing average asset values and performance; (4) length of period over which performance is computed; (5) computation of performance over a rolling period; (6) performance for transitional periods; (7) computation of the performance of the fund and the index with respect to payment of dividends and capital gains distributions; and (8) avoidance of basing significant fee adjustments upon random or insignificant differences. The Directors 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, 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 and to be provided 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. The Directors noted that the Adviser had not requested any reimbursements from the Fund in 2020 through the date of the Board Meeting, in the Fund’s fiscal year ended December 31, 2019, in the two-month fiscal period ended December 31, 2018 and in the fiscal year ended October 31, 2018. 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 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant at the request of the Directors. 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 current 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. The Directors noted that, due to the performance fee component of the advisory fee under the current Advisory Agreement, profitability would tend to be higher with better performance relative to the Fund’s benchmark index, which they considered to create an appropriate alignment of incentives. The Directors noted that, due to the elimination of the performance fee, profitability in respect of periods after the effective date of the Amended Agreement (if it becomes effective) would no longer be directly affected by investment performance relative to the Fund’s benchmark index.
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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 2021 and subsequent years would differ from that reviewed previously as a result of the elimination of the performance fee.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, and the money market fund advised by the Adviser in which the Fund invests. including, but not limited to, benefits relating to 12b-1 fees and sales charges to be received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of Class A shares to be offered with the implementation of the Amended Agreement, and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The Directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the Directors in connection with the 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 prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Advisor Class 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 Advisor Class shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year period ended July 31, 2020. Based on their review, the Directors concluded that the Fund’s investment performance was acceptable. In connection with their consideration of the Amended Agreement, the Directors noted that the Fund’s performance would have been different had the fee schedule in the Amended Agreement been in effect during such periods.
Management Fees and Other Expenses
The Directors considered the current advisory fee rate payable by the Fund to the Adviser under the current Advisory Agreement and the proposed advisory fee rate payable by the Fund to the Adviser under the Amended Agreement, and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds. The Directors considered the
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Fund’s contractual effective advisory fee rate under the current Advisory Agreement against a peer group median. The Directors also compared the Fund’s proposed contractual effective advisory fee rate under the Amended Agreement with a peer group median. The information reviewed by the Directors showed that its proposed contractual effective advisory fee rate under the Amended Agreement was lower than the peer group median.
The Directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule under the current Advisory Agreement and the Amended Agreement, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to those of the Fund, on the other. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Directors previously discussed these matters with an independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders 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 Fund, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that the Fund invests 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
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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, in some cases pending purchases of underlying securities, that the advisory fee for the Fund is for services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
In connection with their review of the Fund’s operations under the current performance-based advisory fee structure, the Directors also considered the total expense ratio of the Advisor Class shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Advisor Class expense ratio of the Fund was based on the Fund’s latest fiscal year and the Directors considered the Adviser’s expense cap for the Fund. 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 the 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.
With respect to the Fund’s proposed implementation of an asset-based advisory fee with breakpoints at specific asset levels as provided in the Amended Agreement, the Directors considered the proposed total expense ratio of the Advisor Class shares of the Fund (Class A and Class Z shares will also be offered) 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 Fund’s Advisor Class shares, with corresponding expense caps for the other classes of shares, for an initial period to end no earlier than April 30, 2022. 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 advisory fee schedule for the Fund in the Amended Agreement, unlike the advisory fee schedule in the current Advisory Agreement, contains breakpoints that reduce the fee rates on assets above specified levels. The Directors took into consideration prior
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presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and presentations from time to time by the Adviser concerning certain of its views on economies of scale. The Directors also previously discussed economies of scale with an independent fee consultant. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board Meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the Directors concluded that the Fund’s stockholders 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
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
Global Core Equity Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
GROWTH
Concentrated International Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities 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 Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
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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-0151-1220
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, Marshall C. Turner, Jr. and Jorge A. Bermudez 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 Fees | Audit-Related Fees | Tax Fees | ||||||||||||||
AB FlexFee High Yield Portfolio | 2019 | $ | 111,951 | $ | — | $ | 26,517 | |||||||||
2020 | $ | 111,951 | $ | — | $ | 6,219 |
(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 FlexFee High Yield Portfolio | 2019 | $ | 870,572 | $ | 26,517 | |||||||
$ | — | |||||||||||
$ | (26,517 | ) | ||||||||||
2020 | $ | 904,270 | $ | 6,219 | ||||||||
$ | — | |||||||||||
$ | (6,219 | ) |
(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. 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. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 13. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
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: | February 26, 2021 |
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: | February 26, 2021 | |
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer | ||
Date: | February 26, 2021 |