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: 811-01716
AB CAP 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: June 30, 2020
Date of reporting period: June 30, 2020
ITEM 1. REPORTS TO STOCKHOLDERS.
JUN 06.30.20
ANNUAL REPORT
AB CONCENTRATED GROWTH FUND
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
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| 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.
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| FROM THE PRESIDENT | |  |
Dear Shareholder,
We are pleased to provide this report for AB Concentrated Growth Fund (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
| + | | Transforming uncommon insights into uncommon knowledge with a global research scope |
| + | | Navigating markets with seasoned investment experience and sophisticated solutions |
| + | | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 1 |
ANNUAL REPORT
August 11, 2020
This report provides management’s discussion of fund performance for AB Concentrated Growth Fund for the annual reporting period ended June 30, 2020.
The Fund’s investment objective is long-term growth of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | 6 Months | | | 12 Months | |
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| AB CONCENTRATED GROWTH FUND | | | | | | | | |
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| Class A Shares | | | -2.41% | | | | 6.84% | |
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| Class C Shares | | | -2.78% | | | | 6.01% | |
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| Advisor Class Shares1 | | | -2.30% | | | | 7.09% | |
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| Class R Shares1 | | | -2.59% | | | | 6.48% | |
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| Class K Shares1 | | | -2.43% | | | | 6.78% | |
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| Class I Shares1 | | | -2.30% | | | | 7.10% | |
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| Class Z Shares1 | | | -2.28% | | | | 7.13% | |
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| S&P 500 Index | | | -3.08% | | | | 7.51% | |
| 1 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Standard & Poor’s (“S&P”) 500 Index, for the six- and 12-month periods ended June 30, 2020.
All share classes underperformed the benchmark for the 12-month period, but outperformed for the six-month period, before sales charges. In both periods, having less exposure to areas of the market that underperformed, such as energy and financials, was most beneficial to relative performance. At the security level, selection within consumer discretionary and technology detracted, while selection within industrials and communication services contributed.
For the 12-month period, the top absolute detractors were ULTA Beauty, Booking Holdings and Charles Schwab. The top contributors included Microsoft, Alphabet, Inc. and Mastercard. For the six-month period, the top absolute contributors included Microsoft, Verisk Analytics and Facebook. The top absolute detractors were Charles Schwab, Allegion and Booking Holdings.
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| 2 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
The Fund did not utilize derivatives during the six- or 12-month periods.
MARKET REVIEW AND INVESTMENT STRATEGY
US equity markets posted positive absolute results over the 12-month period ended June 30, 2020 but became challenged in the face of the COVID-19 outbreak, which occurred early in the first quarter of 2020. Six-month performance was much more volatile. The period produced the quickest bear market ever, followed by the fastest bull market in history. US equities ended the six-month period lower as the S&P 500 Index declined 3.08%, but advanced 7.51% over the 12-month period.
During both periods, the Fund benefited from specific style factors in the market. The Fund’s high-quality growth focus added to performance, as value and companies that carried higher debt loads were more adversely impacted and lagged. Market leadership was consistent over both periods, led by technology, while energy was the worst-performing sector.
In this challenging environment, the Fund’s Senior Investment Management Team remains focused on sustainably growing the underlying earnings power of the Fund and believes the Fund is well positioned for the current environment.
INVESTMENT POLICIES
The Adviser seeks to achieve the Fund’s investment objective of long-term growth of capital by investing primarily in common stocks of listed US companies. The Adviser employs an appraisal method that attempts to measure each prospective company’s quality and growth rate by numerous factors. Such factors include: a company’s record and projections of profit and earnings growth, accuracy and availability of information with respect to the company, success and experience of management, accessibility of management to the Fund’s Adviser, product lines and competitive position both in the United States and abroad, lack of cyclicality, large market capitalization and liquidity of the company’s securities. The Adviser compares these results to the general stock markets to determine the relative attractiveness of each company at a given time. The Adviser weighs economic, political and market factors in making investment decisions; this appraisal technique attempts to measure each investment candidate not only against other stocks of the same industry group, but also against a broad spectrum of investments. While the Fund primarily invests in companies that have market capitalizations of $5 billion or more, it may invest in companies that have market capitalizations of $3 billion to $5 billion.
(continued on next page)
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 3 |
The Fund invests in a relatively small number of individual stocks. The Fund is considered to be “non-diversified”, which means that the securities laws do not limit the percentage of its assets that it may invest in any one company (subject to certain limitations under the Internal Revenue Code of 1986, as amended).
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| 4 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The S&P 500® Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. An investor cannot invest directly in an index or average, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Focused Portfolio Risk: Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s net asset value (“NAV”).
Sector Risk: The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information-technology or health-care sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
Capitalization Risk: Investments in mid-capitalization companies may be more volatile and less liquid than investments in large-capitalization companies.
Non-Diversification Risk: The Fund may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s NAV.
Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 5 |
DISCLOSURES AND RISKS (continued)
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
Effective as of the close of business on February 28, 2014, the W.P. Stewart Growth Fund, Inc. (the “Predecessor Fund”) was converted into the Fund and the Predecessor Fund’s shares were converted into Advisor Class shares of the Fund. The inception date for Class A, C, R, K, I and Z shares is February 28, 2014. The inception date of the Predecessor Fund is February 28, 1994.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
Please note: References to specific securities are presented to illustrate the Fund’s investment philosophy and are not to be considered advice or recommendations. This information reflects prevailing market conditions and the Adviser’s judgments as of the date indicated, which are subject to change. In preparing this report, the Adviser has relied upon and assumed without independent verification, the accuracy and completeness of all information available from third-party sources. It should not be assumed that any investments made in the future will be profitable or will equal the performance of the selected investments referenced herein.
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| 6 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
6/30/2010 TO 6/30/2020
This chart illustrates the total value of an assumed $10,000 investment in AB Concentrated Growth Fund Advisor Class shares (from 6/30/2010 to 6/30/2020) as compared to the performance of the Fund’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 7 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | NAV Returns | | | SEC Returns (reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | | | | | |
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| 1 Year | | | 6.84% | | | | 2.29% | |
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| 5 Years | | | 11.67% | | | | 10.70% | |
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| Since Inception1 | | | 12.06% | | | | 11.30% | |
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| CLASS C SHARES | | | | | | | | |
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| 1 Year | | | 6.01% | | | | 5.01% | |
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| 5 Years | | | 10.83% | | | | 10.83% | |
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| Since Inception1 | | | 11.23% | | | | 11.23% | |
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| ADVISOR CLASS SHARES2 | | | | | | | | |
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| 1 Year | | | 7.09% | | | | 7.09% | |
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| 5 Years | | | 11.95% | | | | 11.95% | |
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| 10 Years | | | 15.30% | | | | 15.30% | |
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| CLASS R SHARES2 | | | | | | | | |
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| 1 Year | | | 6.48% | | | | 6.48% | |
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| 5 Years | | | 11.38% | | | | 11.38% | |
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| Since Inception1 | | | 11.77% | | | | 11.77% | |
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| CLASS K SHARES2 | | | | | | | | |
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| 1 Year | | | 6.78% | | | | 6.78% | |
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| 5 Years | | | 11.66% | | | | 11.66% | |
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| Since Inception1 | | | 12.06% | | | | 12.06% | |
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| CLASS I SHARES2 | | | | | | | | |
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| 1 Year | | | 7.10% | | | | 7.10% | |
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| 5 Years | | | 11.97% | | | | 11.97% | |
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| Since Inception1 | | | 12.36% | | | | 12.36% | |
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| CLASS Z SHARES2 | | | | | | | | |
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| 1 Year | | | 7.13% | | | | 7.13% | |
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| 5 Years | | | 11.98% | | | | 11.98% | |
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| Since Inception1 | | | 12.36% | | | | 12.36% | |
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 1.04%, 1.79%, 0.79%, 1.29%, 1.05%, 0.77% and 0.77% for Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively, gross of any fee waivers or expense reimbursements. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
| 1 | Inception date: 2/28/2014. |
| 2 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| 8 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
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| | | SEC Returns (reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | |
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| 1 Year | | | 2.29% | |
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| 5 Years | | | 10.70% | |
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| Since Inception1 | | | 11.30% | |
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| CLASS C SHARES | | | | |
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| 1 Year | | | 5.01% | |
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| 5 Years | | | 10.83% | |
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| Since Inception1 | | | 11.23% | |
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| ADVISOR CLASS SHARES2 | | | | |
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| 1 Year | | | 7.09% | |
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| 5 Years | | | 11.95% | |
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| 10 Years | | | 15.30% | |
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| CLASS R SHARES2 | | | | |
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| 1 Year | | | 6.48% | |
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| 5 Years | | | 11.38% | |
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| Since Inception1 | | | 11.77% | |
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| CLASS K SHARES2 | | | | |
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| 1 Year | | | 6.78% | |
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| 5 Years | | | 11.66% | |
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| Since Inception1 | | | 12.06% | |
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| CLASS I SHARES2 | | | | |
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| 1 Year | | | 7.10% | |
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| 5 Years | | | 11.97% | |
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| Since Inception1 | | | 12.36% | |
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| CLASS Z SHARES2 | | | | |
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| 1 Year | | | 7.13% | |
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| 5 Years | | | 11.98% | |
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| Since Inception1 | | | 12.36% | |
| 1 | Inception date: 2/28/2014. |
| 2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| | | Beginning
Account Value
January 1, 2020 | | | Ending
Account Value
June 30, 2020 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
| Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 975.90 | | | $ | 5.35 | | | | 1.09 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,019.44 | | | $ | 5.47 | | | | 1.09 | % |
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| 10 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
EXPENSE EXAMPLE (continued)
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| | | Beginning
Account Value
January 1, 2020 | | | Ending
Account Value
June 30, 2020 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
| Class C | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 972.20 | | | $ | 9.02 | | | | 1.84 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.71 | | | $ | 9.22 | | | | 1.84 | % |
| Advisor Class | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 977.00 | | | $ | 4.13 | | | | 0.84 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.69 | | | $ | 4.22 | | | | 0.84 | % |
| Class R | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 974.10 | | | $ | 6.97 | | | | 1.42 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,017.80 | | | $ | 7.12 | | | | 1.42 | % |
| Class K | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 975.70 | | | $ | 5.60 | | | | 1.14 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,019.19 | | | $ | 5.72 | | | | 1.14 | % |
| Class I | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 977.00 | | | $ | 4.08 | | | | 0.83 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.74 | | | $ | 4.17 | | | | 0.83 | % |
| Class Z | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 977.20 | | | $ | 3.93 | | | | 0.80 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.89 | | | $ | 4.02 | | | | 0.80 | % |
| * | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| ** | Assumes 5% annual return before expenses. |
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 11 |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $768.9
TEN LARGEST HOLDINGS2
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| Company | | U.S. $ Value | | | Percent of
Net Assets | |
| | |
| Microsoft Corp. | | $ | 72,476,423 | | | | 9.4 | % |
| | |
| Mastercard, Inc. – Class A | | | 62,509,797 | | | | 8.1 | |
| | |
| IQVIA Holdings, Inc. | | | 60,958,600 | | | | 7.9 | |
| | |
| Abbott Laboratories | | | 58,210,373 | | | | 7.6 | |
| | |
| Zoetis, Inc. | | | 42,002,349 | | | | 5.5 | |
| | |
| Amphenol Corp. – Class A | | | 37,049,056 | | | | 4.8 | |
| | |
| Facebook, Inc. – Class A | | | 36,816,676 | | | | 4.8 | |
| | |
| International Flavors & Fragrances, Inc. | | | 35,930,866 | | | | 4.7 | |
| | |
| Stericycle, Inc. | | | 35,696,263 | | | | 4.6 | |
| | |
| TJX Cos., Inc. (The) | | | 35,367,023 | | | | 4.6 | |
| | |
| | $ | 477,017,426 | | | | 62.0 | % |
| 1 | All data are as of June 30, 2020. The Fund’s sector breakdown is expressed as a percentage of total investments and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund’s prospectus.
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| 12 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
PORTFOLIO OF INVESTMENTS
June 30, 2020
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
COMMON STOCKS – 99.2% | | | | | | | | |
Information Technology – 30.8% | | | | | | | | |
Electronic Equipment, Instruments & Components – 9.3% | | | | | | | | |
Amphenol Corp. – Class A | | | 386,693 | | | $ | 37,049,056 | |
CDW Corp./DE | | | 298,102 | | | | 34,633,491 | |
| | | | | | | | |
| | | | | | | 71,682,547 | |
| | | | | | | | |
IT Services – 12.1% | | | | | | | | |
Automatic Data Processing, Inc. | | | 203,718 | | | | 30,331,573 | |
Mastercard, Inc. – Class A | | | 211,396 | | | | 62,509,797 | |
| | | | | | | | |
| | | | | | | 92,841,370 | |
| | | | | | | | |
Software – 9.4% | | | | | | | | |
Microsoft Corp. | | | 356,132 | | | | 72,476,423 | |
| | | | | | | | |
| | | | | | | 237,000,340 | |
| | | | | | | | |
Health Care – 21.0% | | | | | | | | |
Health Care Equipment & Supplies – 7.6% | | | | | | | | |
Abbott Laboratories | | | 636,666 | | | | 58,210,373 | |
| | | | | | | | |
| | |
Life Sciences Tools & Services – 7.9% | | | | | | | | |
IQVIA Holdings, Inc.(a) | | | 429,649 | | | | 60,958,600 | |
| | | | | | | | |
| | |
Pharmaceuticals – 5.5% | | | | | | | | |
Zoetis, Inc. | | | 306,497 | | | | 42,002,349 | |
| | | | | | | | |
| | | | | | | 161,171,322 | |
| | | | | | | | |
Consumer Discretionary – 16.7% | | | | | | | | |
Auto Components – 4.5% | | | | | | | | |
Aptiv PLC | | | 443,038 | | | | 34,521,521 | |
| | | | | | | | |
| | |
Specialty Retail – 7.9% | | | | | | | | |
TJX Cos., Inc. (The) | | | 699,506 | | | | 35,367,023 | |
Ulta Beauty, Inc.(a) | | | 126,064 | | | | 25,643,939 | |
| | | | | | | | |
| | | | | | | 61,010,962 | |
| | | | | | | | |
Textiles, Apparel & Luxury Goods – 4.3% | | | | | | | | |
NIKE, Inc. – Class B | | | 334,893 | | | | 32,836,259 | |
| | | | | | | | |
| | | | | | | 128,368,742 | |
| | | | | | | | |
Industrials – 12.7% | | | | | | | | |
Building Products – 3.6% | | | | | | | | |
Allegion PLC | | | 270,312 | | | | 27,631,292 | |
| | | | | | | | |
| | |
Commercial Services & Supplies – 4.6% | | | | | | | | |
Stericycle, Inc.(a)(b) | | | 637,661 | | | | 35,696,263 | |
| | | | | | | | |
| | |
Professional Services – 4.5% | | | | | | | | |
Verisk Analytics, Inc. – Class A | | | 201,259 | | | | 34,254,282 | |
| | | | | | | | |
| | | | | | | 97,581,837 | |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 13 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Communication Services – 9.1% | | | | | | | | |
Interactive Media & Services – 9.1% | | | | | | | | |
Alphabet, Inc. – Class C(a) | | | 23,660 | | | $ | 33,446,012 | |
Facebook, Inc. – Class A(a) | | | 162,138 | | | | 36,816,676 | |
| | | | | | | | |
| | | | | | | 70,262,688 | |
| | | | | | | | |
Materials – 4.7% | | | | | | | | |
Chemicals – 4.7% | | | | | | | | |
International Flavors & Fragrances, Inc. | | | 293,409 | | | | 35,930,866 | |
| | | | | | | | |
| | |
Financials – 4.2% | | | | | | | | |
Capital Markets – 4.2% | | | | | | | | |
Charles Schwab Corp. (The) | | | 954,669 | | | | 32,210,532 | |
| | | | | | | | |
| | |
Total Common Stocks
(cost $590,857,775) | | | | | | | 762,526,327 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM INVESTMENTS – 0.7% | | | | | | | | |
Investment Companies – 0.7% | | | | | | | | |
AB Fixed Income Shares, Inc. –
Government Money Market Portfolio –
Class AB, 0.13%(c)(d)(e)
(cost $5,874,639) | | | 5,874,639 | | | | 5,874,639 | |
| | | | | | | | |
| | |
Total Investments – 99.9%
(cost $596,732,414) | | | | | | | 768,400,966 | |
Other assets less liabilities – 0.1% | | | | | | | 467,419 | |
| | | | | | | | |
| | |
Net Assets – 100.0% | | | | | | $ | 768,868,385 | |
| | | | | | | | |
| (a) | Non-income producing security. |
| (b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (c) | Affiliated investments. |
| (d) | The rate shown represents the 7-day yield as of period end. |
| (e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
See notes to financial statements.
| | |
| |
| 14 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020
| | | | |
| Assets | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $590,857,775) | | $ | 762,526,327 | (a) |
Affiliated issuers (cost $5,874,639) | | | 5,874,639 | |
Cash | | | 86,500 | |
Receivable for capital stock sold | | | 1,542,045 | |
Unaffiliated dividends receivable | | | 579,890 | |
Affiliated dividends receivable | | | 1,220 | |
| | | | |
Total assets | | | 770,610,621 | |
| | | | |
| Liabilities | | | | |
Payable for capital stock redeemed | | | 1,170,388 | |
Advisory fee payable | | | 412,981 | |
Distribution fee payable | | | 31,512 | |
Administrative fee payable | | | 17,935 | |
Transfer Agent fee payable | | | 4,114 | |
Accrued expenses and other liabilities | | | 105,306 | |
| | | | |
Total liabilities | | | 1,742,236 | |
| | | | |
Net Assets | | $ | 768,868,385 | |
| | | | |
| Composition of Net Assets | | | | |
Capital stock, at par | | $ | 1,819 | |
Additional paid-in capital | | | 565,425,393 | |
Distributable earnings | | | 203,441,173 | |
| | | | |
| | $ | 768,868,385 | |
| | | | |
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.0001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| |
| A | | $ | 37,614,778 | | | | 902,087 | | | $ | 41.70 | * |
| |
| C | | $ | 28,209,797 | | | | 713,686 | | | $ | 39.53 | |
| |
| Advisor | | $ | 699,504,309 | | | | 16,489,686 | | | $ | 42.42 | |
| |
| R | | $ | 34,327 | | | | 838.61 | | | $ | 40.93 | |
| |
| K | | $ | 1,480,152 | | | | 35,505 | | | $ | 41.69 | |
| |
| I | | $ | 17,804 | | | | 418.92 | | | $ | 42.50 | |
| |
| Z | | $ | 2,007,218 | | | | 47,245 | | | $ | 42.49 | |
| |
| (a) | Includes securities on loan with a value of $2,077,698 (see Note E). |
| * | The maximum offering price per share for Class A shares was $43.55 which reflects a sales charge of 4.25%. |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 15 |
STATEMENT OF OPERATIONS
Year Ended June 30, 2020
| | | | | | | | |
| Investment Income | | | | | | | | |
Dividends | | | | | | | | |
Unaffiliated issuers | | $ | 5,701,351 | | | | | |
Affiliated issuers | | | 190,983 | | | | | |
Securities lending income | | | 24,194 | | | $ | 5,916,528 | |
| | | | | | | | |
| Expenses | | | | | | | | |
Advisory fee (see Note B) | | | 5,176,955 | | | | | |
Distribution fee—Class A | | | 82,549 | | | | | |
Distribution fee—Class C | | | 244,483 | | | | | |
Distribution fee—Class R | | | 107 | | | | | |
Distribution fee—Class K | | | 2,233 | | | | | |
Transfer agency—Class A | | | 15,385 | | | | | |
Transfer agency—Class C | | | 11,529 | | | | | |
Transfer agency—Advisor Class | | | 282,961 | | | | | |
Transfer agency—Class R | | | 24 | | | | | |
Transfer agency—Class K | | | 805 | | | | | |
Transfer agency—Class I | | | 6 | | | | | |
Transfer agency—Class Z | | | 342 | | | | | |
Registration fees | | | 136,072 | | | | | |
Custody and accounting | | | 133,773 | | | | | |
Administrative | | | 74,328 | | | | | |
Printing | | | 46,284 | | | | | |
Audit and tax | | | 39,717 | | | | | |
Legal | | | 37,576 | | | | | |
Directors’ fees | | | 24,452 | | | | | |
Miscellaneous | | | 20,459 | | | | | |
| | | | | | | | |
Total expenses | | | 6,330,040 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | | | (186,167 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 6,143,873 | |
| | | | | | | | |
Net investment loss | | | | | | | (227,345 | ) |
| | | | | | | | |
| Realized and Unrealized Gain on Investment Transactions | | | | | | | | |
Net realized gain on investment transactions | | | | | | | 44,854,273 | |
Net change in unrealized appreciation/depreciation of investments | | | | | | | 5,016,995 | |
| | | | | | | | |
Net gain on investment transactions | | | | | | | 49,871,268 | |
| | | | | | | | |
Contributions from Affiliates (see Note B) | | | | | | | 319 | |
| | | | | | | | |
Net Increase in Net Assets from Operations | | | | | | $ | 49,644,242 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 16 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
Net investment loss | | $ | (227,345 | ) | | $ | (583,869 | ) |
Net realized gain on investment transactions | | | 44,854,273 | | | | 26,442,826 | |
Net change in unrealized appreciation/depreciation of investments | | | 5,016,995 | | | | 74,701,123 | |
Contributions from Affiliates (see Note B) | | | 319 | | | | – 0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 49,644,242 | | | | 100,560,080 | |
Distributions to Shareholders | | | | | | | | |
Class A | | | (1,116,096 | ) | | | (1,607,170 | ) |
Class C | | | (837,819 | ) | | | (1,347,233 | ) |
Advisor Class | | | (20,178,205 | ) | | | (27,894,149 | ) |
Class R | | | (621 | ) | | | (1,045 | ) |
Class K | | | (25,331 | ) | | | (42,507 | ) |
Class I | | | (589 | ) | | | (8,711 | ) |
Class Z | | | (59,792 | ) | | | (48,301 | ) |
| Capital Stock Transactions | | | | | | | | |
Net increase | | | 151,214,048 | | | | 105,119,056 | |
| | | | | | | | |
Total increase | | | 178,639,837 | | | | 174,730,020 | |
| Net Assets | | | | | | | | |
Beginning of period | | | 590,228,548 | | | | 415,498,528 | |
| | | | | | | | |
End of period | | $ | 768,868,385 | | | $ | 590,228,548 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 17 |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020
NOTE A
Significant Accounting Policies
AB Cap Fund, Inc. (the “Company”), which is a Maryland corporation, is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company operates as a series company currently comprised of 15 portfolios. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Concentrated Growth Fund (the “Fund”), a non-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. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class, Class I and Class Z shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national
| | |
| |
| 18 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, 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
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 19 |
NOTES TO FINANCIAL STATEMENTS (continued)
pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be
| | |
| |
| 20 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
| | | | | | | | | | | | | | | | |
Investments in Securities: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks(a) | | $ | 762,526,327 | | | $ | – 0 | – | | $ | – 0 | – | | $ | 762,526,327 | |
Short-Term Investments | | | 5,874,639 | | | | – 0 | – | | | – 0 | – | | | 5,874,639 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 768,400,966 | | | | – 0 | – | | | – 0 | – | | | 768,400,966 | |
Other Financial Instruments(b) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | | | | | | | | | | | | |
Total | | $ | 768,400,966 | | | $ | – 0 | – | | $ | – 0 | – | | $ | 768,400,966 | |
| | | | | | | | | | | | | | | | |
| (a) | See Portfolio of Investments for sector classifications. |
| (b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 21 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 and includes amortization of premiums and accretions of discounts as adjustments to interest income. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Effective May 7, 2020, under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of .65% of the Fund’s average daily net assets. Prior to May 7, 2020, the investment advisory agreement provided for the payment of an advisory fee at
| | |
| |
| 22 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
an annual rate of .80% of the Fund’s average daily net assets. For the period from March 2, 2020 until May 6, 2020, the Adviser waived a portion of the advisory fee in order to reduce the advisory fee rate from .80% to .65% of the Fund’s average daily net assets; such waiver amounted to $172,557. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding expenses associated with acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs) on an annual basis (the “Expense Caps”) to 1.24%, 1.99%, .99%, 1.49%, 1.24%, .99% and .99% of daily average net assets for Class A, Class C, Advisor Class, Class R, Class K, Class I and Class Z shares, respectively. For the year ended June 30, 2020, there was no such reimbursement. The Expense Caps may not be terminated by the Adviser prior to October 31, 2020.
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 June 30, 2020, the reimbursement for such services amounted to $74,328.
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 $138,371 for the year ended June 30, 2020.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales charges of $18,412 from the sale of Class A shares and received $756 and $4,183 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended June 30, 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 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
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 23 |
NOTES TO FINANCIAL STATEMENTS (continued)
of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended June 30, 2020, such waiver amounted to $12,547.
A summary of the Fund’s transactions in AB mutual funds for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
6/30/19
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
6/30/20
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 16,602 | | | $ | 195,129 | | | $ | 205,856 | | | $ | 5,875 | | | $ | 180 | |
Government Money Market Portfolio* | | | 151 | | | | 28,427 | | | | 28,578 | | | | – 0 | – | | | 11 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 5,875 | | | $ | 191 | |
| | | | | | | | | | | | | | | | | | | | |
| * | Investments of cash collateral for securities lending transactions (see Note E). |
During the year ended June 30, 2020, the Adviser reimbursed the Fund $319 for trading losses incurred due to a trade entry error.
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 approximately 65.2% 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
| | |
| |
| 24 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (“the Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940 for Class A, Class C, Class R and Class K. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to Class C shares, .50% of the Fund’s average daily net assets attributable to Class R shares, and .25% of the Fund’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on the Advisor Class, Class I and Class Z shares. The fees are accrued daily and paid monthly. Since the commencement of the Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $256,642, $0 and $0 for Class C, Class R and Class K shares, respectively. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended June 30, 2020 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 289,863,041 | | | $ | 149,014,486 | |
U.S. government securities | | | – 0 | – | | | – 0 | – |
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 25 |
NOTES TO FINANCIAL STATEMENTS (continued)
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 598,277,553 | |
| | | | |
Gross unrealized appreciation | | $ | 185,988,582 | |
Gross unrealized depreciation | | | (15,865,169 | ) |
| | | | |
Net unrealized appreciation | | $ | 170,123,413 | |
| | | | |
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Fund did not engage in derivatives transactions for the year ended June 30, 2020.
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized continually by cash collateral and/or non-cash collateral. Non-cash collateral will include only securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The Fund cannot sell or repledge any non-cash collateral, such collateral will not be reflected in the portfolio of investments. If a loan is collateralized by cash, the Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the
| | |
| |
| 26 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Fund in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. If the Fund receives non-cash collateral, the Fund will receive a fee from the borrower generally equal to a negotiated percentage of the market value of the loaned securities. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. The collateral will be adjusted the next business day to maintain the required collateral amount. The amounts of securities lending income from the borrowers and Government Money Market Portfolio are reflected in the statement of operations. When the Fund earns net securities lending income from Government Money Market Portfolio, the income is inclusive of a rebate expense paid to the borrower. In connection with the cash collateral investment by the Fund in Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower.
A summary of the Fund’s transactions surrounding securities lending for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
Market Value
of Securities
on Loan* | | | Cash
Collateral* | | | Market Value of
Non-Cash
Collateral* | | | Income from
Borrowers | | | Government Money
Market Portfolio | |
| | Income
Earned | | | Advisory Fee
Waived | |
| $ | 2,077,698 | | | $ | – 0 | – | | $ | 2,156,924 | | | $ | 24,194 | | | $ | 10,953 | | | $ | 1,063 | |
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 27 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30, 2019 | | | | | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | |
| | | | | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 522,248 | | | | 233,180 | | | | | | | $ | 20,962,145 | | | $ | 8,527,311 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 23,397 | | | | 43,192 | | | | | | | | 982,194 | | | | 1,447,354 | | | | | |
| | | | | |
Shares converted from Class C | | | 8,817 | | | | 2,205 | | | | | | | | 355,025 | | | | 81,423 | | | | | |
| | | | | |
Shares redeemed | | | (362,635 | ) | | | (327,801 | ) | | | | | | | (14,248,341 | ) | | | (12,160,078 | ) | | | | |
| | | | | |
Net increase (decrease) | | | 191,827 | | | | (49,224 | ) | | | | | | $ | 8,051,023 | | | $ | (2,103,990 | ) | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 283,215 | | | | 136,057 | | | | | | | $ | 10,556,925 | | | $ | 4,725,917 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 18,072 | | | | 36,915 | | | | | | | | 722,159 | | | | 1,188,284 | | | | | |
| | | | | |
Shares converted to Class A | | | (9,245 | ) | | | (2,297 | ) | | | | | | | (355,025 | ) | | | (81,423 | ) | | | | |
| | | | | |
Shares redeemed | | | (156,489 | ) | | | (122,750 | ) | | | | | | | (5,610,758 | ) | | | (4,386,660 | ) | | | | |
| | | | | |
Net increase | | | 135,553 | | | | 47,925 | | | | | | | $ | 5,313,301 | | | $ | 1,446,118 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 7,470,217 | | | | 4,895,058 | | | | | | | $ | 301,380,259 | | | $ | 183,674,681 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 355,218 | | | | 655,960 | | | | | | | | 15,150,069 | | | | 22,269,839 | | | | | |
| | | | | |
Shares redeemed | | | (4,467,123 | ) | | | (2,718,811 | ) | | | | | | | (180,222,446 | ) | | | (100,310,424 | ) | | | | |
| | | | | |
Net increase | | | 3,358,312 | | | | 2,832,207 | | | | | | | $ | 136,307,882 | | | $ | 105,634,096 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class R | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 436 | | | | 0 | (a) | | | | | | $ | 15,655 | | | $ | 5 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 1 | | | | 0 | (a) | | | | | | | 51 | | | | 0 | (b) | | | | |
| | | | | |
Shares redeemed | | | (1 | ) | | | – 0 | – | | | | | | | (26 | ) | | | – 0 | – | | | | |
| | | | | |
Net increase | | | 436 | | | | 0 | (a) | | | | | | $ | 15,680 | | | $ | 5 | | | | | |
| | | | | |
| | |
| |
| 28 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | |
| | | | | | | | |
Class K | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 20,463 | | | | 2,458 | | | | | | | $ | 757,910 | | | $ | 92,575 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 590 | | | | 1,237 | | | | | | | | 24,759 | | | | 41,462 | | | | | |
| | | | | |
Shares redeemed | | | (3,897 | ) | | | (1,096 | ) | | | | | | | (163,652 | ) | | | (36,571 | ) | | | | |
| | | | | |
Net increase | | | 17,156 | | | | 2,599 | | | | | | | $ | 619,017 | | | $ | 97,466 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class I | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 5 | | | | 3,136 | | | | | | | $ | 190 | | | $ | 117,021 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 0 | (a) | | | 225 | | | | | | | | 13 | | | | 7,657 | | | | | |
| | | | | |
Shares redeemed | | | (2 | ) | | | (3,526 | ) | | | | | | | (80 | ) | | | (130,695 | ) | | | | |
| | | | | |
Net increase (decrease) | | | 3 | | | | (165 | ) | | | | | | $ | 123 | | | $ | (6,017 | ) | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class Z | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 27,974 | | | | 13,049 | | | | | | | $ | 1,091,486 | | | $ | 457,789 | | | | | |
| | | | | |
Shares issues in reinvestment of distributions | | | 1,308 | | | | 1,208 | | | | | | | | 55,837 | | | | 41,059 | | | | | |
| | | | | |
Shares redeemed | | | (6,189 | ) | | | (12,751 | ) | | | | | | | (240,301 | ) | | | (447,470 | ) | | | | |
| | | | | |
Net increase | | | 23,093 | | | | 1,506 | | | | | | | $ | 907,022 | | | $ | 51,378 | | | | | |
| | | | | |
| (a) | Amount is less than one share. |
| (b) | Amount is less than $.50. |
NOTE G
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.
Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s net asset value, or NAV.
Sector Risk—The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information technology or health care sector. To the extent it does so,
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
Capitalization Risk—Investments in mid-capitalization companies may be more volatile and less liquid than investments in large-capitalization companies.
Non-Diversification Risk—The Fund may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s NAV.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
| | |
| |
| 30 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
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.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended June 30, 2020.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended June 30, 2020 and June 30, 2019 were as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 656,724 | | | $ | – 0 | – |
Net long-term capital gains | | | 21,561,729 | | | | 30,949,116 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 22,218,453 | | | $ | 30,949,116 | |
| | | | | | | | |
As of June 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed capital gains | | $ | 33,341,005 | |
Other losses | | | (23,245 | )(a) |
Unrealized appreciation/(depreciation) | | | 170,123,413 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 203,441,173 | |
| | | | |
| (a) | As of June 30, 2020, the Fund had a qualified late-year ordinary loss deferral of $23,245. |
| (b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales. |
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
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of June 30, 2020, the Fund did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the utilization of earnings and profits distributed to shareholders on redemption of shares, the disallowance of a net operating loss, and contributions from the Adviser resulted in a net decrease in distributable earnings and a net increase in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
| | |
| |
| 32 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 40.35 | | | | $ 35.44 | | | | $ 32.65 | | | | $ 26.04 | | | | $ 28.61 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.10 | ) | | | (.12 | ) | | | (.15 | ) | | | (.08 | ) | | | (.05 | ) |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.87 | | | | 7.62 | | | | 4.13 | | | | 6.82 | | | | (1.73 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.77 | | | | 7.50 | | | | 3.98 | | | | 6.74 | | | | (1.78 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 41.70 | | | | $ 40.35 | | | | $ 35.44 | | | | $ 32.65 | | | | $ 26.04 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 6.84 | % | | | 22.67 | % | | | 12.39 | % | | | 25.93 | % | | | (6.38 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $37,615 | | | | $28,661 | | | | $26,920 | | | | $26,579 | | | | $30,438 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | 1.12 | % | | | 1.19 | % | | | 1.21 | % | | | 1.22 | % | | | 1.24 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 1.15 | % | | | 1.19 | % | | | 1.21 | % | | | 1.22 | % | | | 1.27 | % |
| | | | | |
Net investment loss(b) | | | (.24 | )% | | | (.32 | )% | | | (.45 | )% | | | (.27 | )% | | | (.19 | )% |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 33 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class C | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 38.61 | | | | $ 34.27 | | | | $ 31.84 | | | | $ 25.58 | | | | $ 28.33 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.38 | ) | | | (.38 | ) | | | (.40 | ) | | | (.29 | ) | | | (.25 | ) |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.72 | | | | 7.31 | | | | 4.02 | | | | 6.68 | | | | (1.71 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.34 | | | | 6.93 | | | | 3.62 | | | | 6.39 | | | | (1.96 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 39.53 | | | | $ 38.61 | | | | $ 34.27 | | | | $ 31.84 | | | | $ 25.58 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 6.01 | % | | | 21.75 | % | | | 11.56 | % | | | 25.03 | % | | | (7.10 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $28,210 | | | | $22,320 | | | | $18,168 | | | | $18,727 | | | | $19,617 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | 1.87 | % | | | 1.94 | % | | | 1.96 | % | | | 1.97 | % | | | 1.99 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 1.90 | % | | | 1.94 | % | | | 1.96 | % | | | 1.97 | % | | | 2.01 | % |
| | | | | |
Net investment loss(b) | | | (.99 | )% | | | (1.07 | )% | | | (1.20 | )% | | | (1.02 | )% | | | (.94 | )% |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| 34 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Advisor Class | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 40.93 | | | | $ 35.83 | | | | $ 32.91 | | | | $ 26.18 | | | | $ 28.69 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | .01 | | | | (.03 | ) | | | (.07 | ) | | | (.01 | ) | | | .01 | |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.90 | | | | 7.72 | | | | 4.18 | | | | 6.87 | | | | (1.73 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.91 | | | | 7.69 | | | | 4.11 | | | | 6.86 | | | | (1.72 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 42.42 | | | | $ 40.93 | | | | $ 35.83 | | | | $ 32.91 | | | | $ 26.18 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 7.09 | % | | | 22.97 | % | | | 12.69 | % | | | 26.26 | % | | | (6.16 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $699,504 | | | | $537,484 | | | | $369,006 | | | | $298,099 | | | | $227,787 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | .87 | % | | | .94 | % | | | .96 | % | | | .96 | % | | | .99 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | .90 | % | | | .94 | % | | | .96 | % | | | .97 | % | | | 1.01 | % |
| | | | | |
Net investment income (loss)(b) | | | .02 | % | | | (.07 | )% | | | (.21 | )% | | | (.03 | )% | | | .05 | % |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 35 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class R | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 39.76 | | | | $ 35.04 | | | | $ 32.37 | | | | $ 25.88 | | | | $ 28.51 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.21 | ) | | | (.21 | ) | | | (.24 | ) | | | (.15 | ) | | | (.12 | ) |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.80 | | | | 7.52 | | | | 4.10 | | | | 6.77 | | | | (1.72 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.59 | | | | 7.31 | | | | 3.86 | | | | 6.62 | | | | (1.84 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 40.93 | | | | $ 39.76 | | | | $ 35.04 | | | | $ 32.37 | | | | $ 25.88 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 6.48 | % | | | 22.38 | % | | | 12.12 | % | | | 25.63 | % | | | (6.62 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $34 | | | | $16 | | | | $14 | | | | $13 | | | | $33 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | 1.42 | % | | | 1.44 | % | | | 1.45 | % | | | 1.46 | % | | | 1.49 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 1.45 | % | | | 1.44 | % | | | 1.45 | % | | | 1.47 | % | | | 1.50 | % |
| | | | | |
Net investment loss(b) | | | (.54 | )% | | | (.57 | )% | | | (.70 | )% | | | (.53 | )% | | | (.45 | )% |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | 0 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| 36 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class K | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 40.36 | | | | $ 35.45 | | | | $ 32.66 | | | | $ 26.04 | | | | $ 28.61 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.11 | ) | | | (.12 | ) | | | (.16 | ) | | | (.09 | ) | | | (.05 | ) |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.86 | | | | 7.62 | | | | 4.14 | | | | 6.84 | | | | (1.73 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.75 | | | | 7.50 | | | | 3.98 | | | | 6.75 | | | | (1.78 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 41.69 | | | | $ 40.36 | | | | $ 35.45 | | | | $ 32.66 | | | | $ 26.04 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 6.78 | % | | | 22.67 | % | | | 12.38 | % | | | 25.97 | % | | | (6.38 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $1,480 | | | | $741 | | | | $558 | | | | $398 | | | | $99 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | 1.15 | % | | | 1.19 | % | | | 1.21 | % | | | 1.21 | % | | | 1.24 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 1.18 | % | | | 1.20 | % | | | 1.22 | % | | | 1.22 | % | | | 1.24 | % |
| | | | | |
Net investment loss(b) | | | (.27 | )% | | | (.32 | )% | | | (.46 | )% | | | (.31 | )% | | | (.18 | )% |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 37 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class I | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 41.00 | | | | $ 35.88 | | | | $ 32.95 | | | | $ 26.21 | | | | $ 28.71 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | .01 | | | | (.03 | ) | | | (.07 | ) | | | .00 | (c) | | | .02 | |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.91 | | | | 7.74 | | | | 4.19 | | | | 6.87 | | | | (1.73 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.92 | | | | 7.71 | | | | 4.12 | | | | 6.87 | | | | (1.71 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 42.50 | | | | $ 41.00 | | | | $ 35.88 | | | | $ 32.95 | | | | $ 26.21 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 7.10 | % | | | 22.99 | % | | | 12.71 | % | | | 26.26 | % | | | (6.12 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $18 | | | | $17 | | | | $21 | | | | $13 | | | | $25 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | .86 | % | | | .91 | % | | | .95 | % | | | .95 | % | | | .98 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | .88 | % | | | .92 | % | | | .96 | % | | | .96 | % | | | .98 | % |
| | | | | |
Net investment income (loss)(b) | | | .03 | % | | | (.09 | )% | | | (.21 | )% | | | .01 | % | | | .07 | % |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| 38 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class Z | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 40.98 | | | | $ 35.86 | | | | $ 32.93 | | | | $ 26.19 | | | | $ 28.69 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | .02 | | | | (.01 | ) | | | (.05 | ) | | | .00 | (c) | | | .02 | |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.91 | | | | 7.72 | | | | 4.17 | | | | 6.87 | | | | (1.73 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | 2.93 | | | | 7.71 | | | | 4.12 | | | | 6.87 | | | | (1.71 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (1.42 | ) | | | (2.59 | ) | | | (1.19 | ) | | | (.13 | ) | | | (.79 | ) |
| | | | |
Net asset value, end of period | | | $ 42.49 | | | | $ 40.98 | | | | $ 35.86 | | | | $ 32.93 | | | | $ 26.19 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | 7.13 | % | | | 23.01 | % | | | 12.72 | % | | | 26.29 | % | | | (6.12 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $2,007 | | | | $990 | | | | $812 | | | | $64,060 | | | | $44,764 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | .84 | % | | | .91 | % | | | .91 | % | | | .93 | % | | | .96 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | .87 | % | | | .92 | % | | | .92 | % | | | .94 | % | | | .96 | % |
| | | | | |
Net investment income (loss)(b) | | | .04 | % | | | (.03 | )% | | | (.13 | )% | | | 0 | % | | | .07 | % |
| | | | | |
Portfolio turnover rate | | | 23 | % | | | 30 | % | | | 27 | % | | | 29 | % | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
Portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 40.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 39 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| (a) | Based on average shares outstanding. |
| (b) | Net of expenses waived/reimbursed by the Adviser. |
| (c) | Amount is less than $.005. |
| (d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
| (e) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the years ended June 30, 2018 and June 30, 2017, such waiver amounted to .01% and .01%, respectively. |
See notes to financial statements.
| | |
| |
| 40 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AB Concentrated Growth Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Concentrated Growth Fund (the “Fund”) (one of the funds constituting AB Cap Fund, Inc. (the “Company”)), including the portfolio of investments, as of June 30, 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 five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Cap Fund, Inc.) at June 30, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 41 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 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
August 26, 2020
| | |
| |
| 42 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
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 taxable year ended June 30, 2020. For corporate shareholders, 100.00% of dividends paid qualify for the dividends received deduction. For individual shareholders, the Fund designates 100.00% of dividends paid as qualified dividend income.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2021.
| | |
| |
| abfunds.com | | AB CONCENTRATED GROWTH FUND | 43 |
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 Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
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James T. Tierney(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
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Custodian and Accounting Agent State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| 1 | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
| 2 | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by Mr. James T. Tierney. Mr. Tierney has the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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MANAGEMENT OF THE FUND
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NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
| INTERESTED DIRECTOR | | | | | | |
| | | |
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
| DISINTERESTED DIRECTORS | | | | | | |
| | | |
Marshall C. Turner, Jr.,## Chairman of the Board 78 (2014) | | Private Investor since prior to 2015. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of 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 such AB Funds since February 2014. | | | 78 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
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MANAGEMENT OF THE FUND (continued)
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NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Jorge A. Bermudez,## 69 (2020) | | Private investor since prior to 2015. 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. | | | 78 | | | Moody’s Corporation since April 2011 |
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Michael J. Downey,## 76 (2014) | | Private Investor since prior to 2015. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2015 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. | | | 78 | | | None |
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| abfunds.com | | AB CONCENTRATED GROWTH FUND | 47 |
MANAGEMENT OF THE FUND (continued)
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NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Nancy P. Jacklin,## 72 (2014) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
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Jeanette 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. | | | 78 | | | Apollo Investment Corp. (business development company) since August 2011 |
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MANAGEMENT OF THE FUND (continued)
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NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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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 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Chief Investment Officer, Core and Growth and Head of Global Investment Research). She has served on a number of private company and nonprofit boards, and as a director or trustee of the AB Funds since June 2016. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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Garry L. Moody,## 68 (2014) | | Private Investor since prior to 2015. 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 the 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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Earl D. Weiner,## 81 (2014) | | Senior Counsel since 2017, Of Counsel from 2007 to 2016, and Partner prior to that, 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. | | | 78 | | | None |
| * | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department – Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
| ** | There is no stated term of office for the Fund’s Directors. |
| *** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
| # | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
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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. |
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James T. Tierney 53 | | Vice President | | Senior Vice President, Chief Investment Officer of Concentrated U.S. Growth of the Adviser**, with which he has been associated since prior to 2015. |
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Emilie D. Wrapp 64 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2015. |
| | | | |
Michael B. Reyes 44 | | Senior Analyst | | Vice President of the Adviser**, with which he has been associated since prior to 2015. |
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Joseph J. Mantineo 61 | | Treasurer and Chief Financial Officer | | Senior Vice President of ABIS**, with which he has been associated since prior to 2015. |
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Phyllis J. Clarke 59 | | Controller | | Vice President of ABIS,** with which she has been associated since prior to 2015. |
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Vincent S. Noto 55 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2015. |
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| * | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Adviser, ABI and ABIS are affiliates of the Fund. |
| | The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-800-227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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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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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Cap Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser as proposed to be amended to effect a fee reduction (as so amended, the “Advisory Agreement”) in respect of AB Concentrated Growth Fund (the “Fund”) at a meeting held by video conference on May 5-7, 2020 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund, and the money market fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the proposed advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the proposed advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The directors noted that the proposed lowering of the advisory fee would benefit the Fund and its shareholders. The directors noted that the Adviser was reducing the advisory fee for business reasons, and had assured them that there would be no diminution in the nature or
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quality of services to the Fund. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of 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
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before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable. The directors noted that the proposed reduction in the advisory fee rate would likely impact the Adviser’s profitability analysis in future years.
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 soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended February 29, 2020 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the proposed advisory fee rate payable by the Fund to the Adviser and information prepared by 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 paid by other funds. The directors compared the Fund’s pro forma contractual advisory fee rate (reflecting the 15 basis
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point fee waiver the Adviser implemented on March 2, 2020, which the Adviser proposed be reflected in the Advisory Agreement as a fee reduction) with a peer group median. The directors also took into account the impact on the proposed advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s proposed fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and 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 shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the 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 may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending
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purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
In connection with their review of the Fund’s proposed advisory fee, the directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The Adviser implemented a 15 basis point advisory fee waiver effective March 2, 2020, which the Adviser proposed be reflected in the Advisory Agreement as a fee reduction. The information reviewed by the directors included a pro forma expense ratio that gave effect to the reduction for the entire fiscal year. The Adviser had agreed to cap the Fund’s expenses, but the directors noted that the Fund’s pro forma expense ratio was currently below the level of the Adviser’s cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the proposed advisory fee schedule for the Fund, while reflecting a reduction in the advisory fee rate, does not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and 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 Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors
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informed the Adviser that they would monitor the Fund’s asset level (which was well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
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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
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GROWTH
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Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
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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
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond 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
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
| 1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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| 60 | AB CONCENTRATED GROWTH FUND | | abfunds.com |
AB CONCENTRATED GROWTH FUND
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
CG-0151-0620 
JUN 06.30.20
ANNUAL REPORT
AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
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| 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.
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| FROM THE PRESIDENT | |  |
Dear Shareholder,
We are pleased to provide this report for AB Concentrated International Growth 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
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 1 |
ANNUAL REPORT
August 14, 2020
This report provides management’s discussion of fund performance for AB Concentrated International Growth Portfolio for the annual reporting period ended June 30, 2020.
The Fund’s investment objective is to seek long-term growth of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
| | | | | | | | |
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| | | 6 Months | | | 12 Months | |
|
| AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO1 | |
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| Class A Shares | | | -1.69% | | | | 6.75% | |
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| Class C Shares | | | -1.99% | | | | 5.97% | |
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| Advisor Class Shares2 | | | -1.51% | | | | 7.11% | |
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| MSCI EAFE Index (net) | | | -11.34% | | | | -5.13% | |
| 1 | Includes the impact of reimbursements from the Adviser, which enhanced the performance of all share classes of the Fund for the six- and 12-month periods ended June 30, 2020, by 0.01% and 0.01%, respectively. |
| 2 | Please note that this share class is for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Morgan Stanley Capital International Europe, Australasia and the Far East (“MSCI EAFE”) Index (net), for the six- and 12-month periods ended June 30, 2020.
All share classes of the Fund outperformed the benchmark for both periods, before sales charges. Positive security selection drove the majority of outperformance, relative to the benchmark. During the 12-month period, stock selection within consumer discretionary and communication services contributed most, while selection within the consumer-staples sector detracted. Sector positioning was also positive over the period. From a positioning standpoint, an overweight to technology and having no energy exposure contributed most, while owning no utilities detracted. Top absolute contributors to performance included ASML, Cellnex Telecom and Genmab. Top absolute detractors included HDFC Bank, NMC Health and Compass Group.
For the six-month period, stock selection within communication services and health care contributed most, while selection within consumer staples
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| 2 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
detracted. As in the 12-month period, an overweight to technology and not owning energy added most, while having no exposure to utilities detracted modestly. Top absolute contributors to performance included Lonza, Genmab and Cellnex. Top absolute detractors included HDFC Bank, Compass Group and NMC.
During both periods, the Fund utilized derivatives in the form of currency forwards for hedging purposes (to reduce volatility), which had an immaterial impact on absolute returns.
MARKET REVIEW AND INVESTMENT STRATEGY
International markets produced negative returns over both periods, having been significantly impacted from the COVID-19 pandemic, which took form early in the first quarter of 2020. The six-month period produced the quickest bear market ever, followed by the fastest bull market in history. During both periods, the Fund benefited from specific style factors in the market. The Fund’s high-quality secular growth focus added to performance, as cyclical and value companies that carried higher debt loads lagged. Market leadership was consistent over both periods, led by health care and technology, while energy was the worst-performing sector.
The Fund’s Senior Investment Management Team (the “Team”) will continue to look for strong earners that have continued to grow, even in this difficult year. The Team will also continue to look for some very high-quality businesses that have struggled due to the lockdown but the Team believes their long-term outlook is attractive.
INVESTMENT POLICIES
The Adviser seeks to achieve the Fund’s investment objective by investing, under normal circumstances, primarily in common stocks of non-US companies, and in companies in at least three countries other than the United States.
The Fund invests in companies that are determined by the Adviser to offer favorable long-term growth potential and that are trading at attractive valuations. The Adviser employs an appraisal method which attempts to measure each prospective company’s quality and growth rate by numerous factors. Such factors include: a company’s record and projections of profit and earnings growth, accuracy and availability of information with respect to the company, success and experience of management, accessibility of management to the Adviser, product lines and competitive position both in the United States and abroad, lack of cyclicality, large market capitalization and liquidity of the company’s securities. The Adviser compares these results to the
(continued on next page)
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 3 |
characteristics of the general stock markets to determine the relative attractiveness of each company at a given time. The Adviser weighs economic, political and market factors in making investment decisions; this appraisal technique attempts to measure each investment candidate not only against other stocks of the same industry and region, but also against a broad spectrum of investments.
The Fund invests in a relatively small number of individual stocks, generally 25 to 35 companies. The Fund primarily invests in mid- and large-capitalization companies, which are currently defined for the Fund as companies that have market capitalizations of $2.0 billion or more. The Fund’s holdings of non-US companies may include some companies located in emerging markets, and at times emerging-market companies may make up a significant portion of the Fund.
Fluctuations in currency exchange rates can have a dramatic impact on the returns of equity securities. While the Adviser may hedge the foreign currency exposure resulting from the Fund’s security positions through the use of currency-related derivatives, it is not required to do so.
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| 4 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The MSCI EAFE Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI EAFE Index (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets, excluding the US and Canada. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns include the reinvestment of dividends after deduction of non-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the 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. It includes the risk that a particular style of investing, such as growth, may underperform the market generally.
Focused Portfolio Risk: Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s net asset value (“NAV”).
Sector Risk: The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information-technology sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
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.
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 5 |
DISCLOSURES AND RISKS (continued)
Capitalization Risk: Investments in mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in mid-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
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 for the Fund, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. NAV returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
Please note: References to specific securities are presented to illustrate the Fund’s investment philosophy and are not to be considered advice or recommendations. This information reflects prevailing market conditions and the Adviser’s judgments as of the date indicated, which are subject to change. In preparing this report, the Adviser has relied upon and assumed without independent verification, the accuracy and completeness of all information available from third-party sources. It should not be assumed that any investments made in the future will be profitable or will equal the performance of the selected investments referenced herein.
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| 6 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
4/15/20151 TO 6/30/2020
This chart illustrates the total value of an assumed $10,000 investment in AB Concentrated International Growth Portfolio Class A shares (from 4/15/20151 to 6/30/2020) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
| 1 | Inception date: 4/15/2015. |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 7 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
| | | | | | | | |
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| | | NAV Returns | | | SEC Returns (reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | | | | | |
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| 1 Year | | | 6.75% | | | | 2.21% | |
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| 5 Years | | | 6.10% | | | | 5.19% | |
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| Since Inception1 | | | 5.38% | | | | 4.51% | |
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| CLASS C SHARES | | | | | | | | |
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| 1 Year | | | 5.97% | | | | 4.97% | |
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| 5 Years | | | 5.34% | | | | 5.34% | |
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| Since Inception1 | | | 4.61% | | | | 4.61% | |
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| ADVISOR CLASS SHARES2 | | | | | | | | |
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| 1 Year | | | 7.11% | | | | 7.11% | |
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| 5 Years | | | 6.38% | | | | 6.38% | |
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| Since Inception1 | | | 5.65% | | | | 5.65% | |
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 1.48%, 2.24% and 1.23% for Class A, Class C and Advisor Class shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios exclusive of acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense and extraordinary expenses to 1.15%, 1.90% and 0.90% for Class A, Class C and Advisor Class shares, respectively. These waivers/reimbursements may not be terminated before October 31, 2021. Any fees waived and expenses borne by the Adviser through February 13, 2018 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 ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
| 1 | Inception date: 4/15/2015. |
| 2 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that this share class is for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| 8 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
| | | | |
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| | | SEC Returns (reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | |
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| 1 Year | | | 2.21% | |
| |
| 5 Years | | | 5.19% | |
| |
| Since Inception1 | | | 4.51% | |
| |
| CLASS C SHARES | | | | |
| |
| 1 Year | | | 4.97% | |
| |
| 5 Years | | | 5.34% | |
| |
| Since Inception1 | | | 4.61% | |
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| ADVISOR CLASS SHARES2 | | | | |
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| 1 Year | | | 7.11% | |
| |
| 5 Years | | | 6.38% | |
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| Since Inception1 | | | 5.65% | |
| 1 | Inception date: 4/15/2015. |
| 2 | Please note that this share class is for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| 10 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
EXPENSE EXAMPLE (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Beginning
Account
Value
January 1,
2020 | | | Ending
Account
Value
June 30,
2020 | | | Expenses
Paid
During
Period* | | | Annualized
Expense
Ratio* | | | Total
Expenses
Paid
During
Period+ | | | Total
Annualized
Expense
Ratio+ | |
| Class A | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 983.10 | | | $ | 5.87 | | | | 1.19 | % | | $ | 5.92 | | | | 1.20 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,018.95 | | | $ | 5.97 | | | | 1.19 | % | | $ | 6.02 | | | | 1.20 | % |
| Class C | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 980.10 | | | $ | 9.65 | | | | 1.96 | % | | $ | 9.70 | | | | 1.97 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.12 | | | $ | 9.82 | | | | 1.96 | % | | $ | 9.87 | | | | 1.97 | % |
| Advisor Class | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 984.90 | | | $ | 4.64 | | | | 0.94 | % | | $ | 4.69 | | | | 0.95 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.19 | | | $ | 4.72 | | | | 0.94 | % | | $ | 4.77 | | | | 0.95 | % |
| * | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| ** | Assumes 5% annual return before expenses. |
| + | In connection with the Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 11 |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $162.4
| 1 | All data are as of June 30, 2020. The Fund’s sector and country breakdowns are expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund’s prospectus.
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| 12 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
PORTFOLIO SUMMARY (continued)
June 30, 2020 (unaudited)
TEN LARGEST HOLDINGS1
| | | | | | | | |
| | |
| Company | | U.S. $ Value | | | Percent of
Net Assets | |
| | |
| ASML Holding NV | | $ | 7,346,985 | | | | 4.5 | % |
| | |
| Genmab A/S | | | 7,220,313 | | | | 4.5 | |
| | |
| Lonza Group AG | | | 6,961,811 | | | | 4.3 | |
| | |
| Murata Manufacturing Co., Ltd. | | | 6,802,654 | | | | 4.2 | |
| | |
| Nidec Corp. | | | 6,642,559 | | | | 4.1 | |
| | |
| Nestle SA | | | 6,346,456 | | | | 3.9 | |
| | |
| Keyence Corp. | | | 6,076,392 | | | | 3.7 | |
| | |
| Partners Group Holding AG | | | 5,751,936 | | | | 3.5 | |
| | |
| B&M European Value Retail SA | | | 5,705,781 | | | | 3.5 | |
| | |
| Cellnex Telecom SA | | | 5,531,383 | | | | 3.4 | |
| | |
| | $ | 64,386,270 | | | | 39.6 | % |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS
June 30, 2020
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
COMMON STOCKS – 95.6% | | | | | | | | |
Information Technology – 20.9% | | | | | | | | |
Electronic Equipment, Instruments & Components – 7.9% | | | | | | | | |
Keyence Corp. | | | 14,500 | | | $ | 6,076,392 | |
Murata Manufacturing Co., Ltd. | | | 115,400 | | | | 6,802,654 | |
| | | | | | | | |
| | | | | | | 12,879,046 | |
| | | | | | | | |
IT Services – 3.2% | | | | | | | | |
Capgemini SE | | | 44,865 | | | | 5,177,486 | |
| | | | | | | | |
| | |
Semiconductors & Semiconductor Equipment – 4.5% | | | | | | | | |
ASML Holding NV | | | 20,084 | | | | 7,346,985 | |
| | | | | | | | |
| | |
Software – 5.3% | | | | | | | | |
TeamViewer AG(a)(b) | | | 66,422 | | | | 3,626,779 | |
Temenos AG | | | 31,993 | | | | 4,972,478 | |
| | | | | | | | |
| | | | | | | 8,599,257 | |
| | | | | | | | |
| | | | | | | 34,002,774 | |
| | | | | | | | |
Consumer Staples – 16.2% | | | | | | | | |
Beverages – 4.3% | | | | | | | | |
Budweiser Brewing Co. APAC Ltd.(a) | | | 939,600 | | | | 2,750,615 | |
Treasury Wine Estates Ltd. | | | 590,819 | | | | 4,298,725 | |
| | | | | | | | |
| | | | | | | 7,049,340 | |
| | | | | | | | |
Food Products – 7.6% | | | | | | | | |
Calbee, Inc. | | | 99,900 | | | | 2,761,200 | |
Kerry Group PLC – Class A | | | 25,942 | | | | 3,222,703 | |
Nestle SA | | | 57,242 | | | | 6,346,456 | |
| | | | | | | | |
| | | | | | | 12,330,359 | |
| | | | | | | | |
Household Products – 2.3% | |
Reckitt Benckiser Group PLC | | | 40,119 | | | | 3,690,885 | |
| | | | | | | | |
|
Personal Products – 2.0% | |
Kose Corp.(c) | | | 27,600 | | | | 3,340,899 | |
| | | | | | | | |
| | | | | | | 26,411,483 | |
| | | | | | | | |
Industrials – 15.2% | | | | | | | | |
Electrical Equipment – 4.1% | | | | | | | | |
Nidec Corp. | | | 98,600 | | | | 6,642,559 | |
| | | | | | | | |
| | |
Machinery – 6.2% | | | | | | | | |
Alstom SA | | | 101,230 | | | | 4,717,407 | |
KION Group AG | | | 86,074 | | | | 5,299,560 | |
| | | | | | | | |
| | | | | | | 10,016,967 | |
| | | | | | | | |
Professional Services – 2.6% | | | | | | | | |
Recruit Holdings Co., Ltd. | | | 125,400 | | | | 4,312,527 | |
| | | | | | | | |
| | |
| |
| 14 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Trading Companies & Distributors – 2.3% | | | | | | | | |
Ashtead Group PLC | | | 110,508 | | | $ | 3,727,773 | |
| | | | | | | | |
| | | | | | | 24,699,826 | |
| | | | | | | | |
Consumer Discretionary – 13.3% | | | | | | | | |
Hotels, Restaurants & Leisure – 3.9% | | | | | | | | |
Compass Group PLC | | | 231,774 | | | | 3,188,853 | |
Yum China Holdings, Inc. | | | 66,393 | | | | 3,191,512 | |
| | | | | | | | |
| | | | | | | 6,380,365 | |
| | | | | | | | |
Internet & Direct Marketing Retail – 3.2% | |
Alibaba Group Holding Ltd. (Sponsored ADR)(b) | | | 23,848 | | | | 5,144,014 | |
| | | | | | | | |
|
Multiline Retail – 3.5% | |
B&M European Value Retail SA | | | 1,159,145 | | | | 5,705,781 | |
| | | | | | | | |
|
Textiles, Apparel & Luxury Goods – 2.7% | |
LVMH Moet Hennessy Louis Vuitton SE | | | 9,890 | | | | 4,366,385 | |
| | | | | | | | |
| | | | | | | 21,596,545 | |
| | | | | | | | |
Health Care – 12.1% | | | | | | | | |
Biotechnology – 4.4% | | | | | | | | |
Genmab A/S(b) | | | 21,413 | | | | 7,220,313 | |
| | | | | | | | |
|
Health Care Providers & Services – 0.0% | |
NMC Health PLC(b)(d) | | | 110,100 | | | | – 0 | – |
| | | | | | | | |
|
Life Sciences Tools & Services – 7.7% | |
Eurofins Scientific SE(b) | | | 8,741 | | | | 5,513,248 | |
Lonza Group AG | | | 13,143 | | | | 6,961,811 | |
| | | | | | | | |
| | | | | | | 12,475,059 | |
| | | | | | | | |
| | | | | | | 19,695,372 | |
| | | | | | | | |
Financials – 8.1% | | | | | | | | |
Capital Markets – 6.0% | | | | | | | | |
Partners Group Holding AG | | | 6,316 | | | | 5,751,936 | |
St. James’s Place PLC | | | 336,062 | | | | 3,951,573 | |
| | | | | | | | |
| | | | | | | 9,703,509 | |
| | | | | | | | |
Insurance – 2.1% | |
AIA Group Ltd. | | | 364,000 | | | | 3,406,166 | |
| | | | | | | | |
| | | | | | | 13,109,675 | |
| | | | | | | | |
Communication Services – 6.5% | | | | | | | | |
Diversified Telecommunication Services – 3.4% | | | | | |
Cellnex Telecom SA(a)(c) | | | 90,563 | | | | 5,531,383 | |
| | | | | | | | |
|
Interactive Media & Services – 3.1% | |
Tencent Holdings Ltd. | | | 77,500 | | | | 4,966,035 | |
| | | | | | | | |
| | | | | | | 10,497,418 | |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Materials – 3.3% | |
Chemicals – 3.3% | |
Sika AG | | | 27,566 | | | $ | 5,313,961 | |
| | | | | | | | |
| | |
Total Common Stocks
(cost $135,960,675) | | | | | | | 155,327,054 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM INVESTMENTS – 3.8% | | | | | | | | |
Investment Companies – 3.8% | | | | | | | | |
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.13%(e)(f)(g)
(cost $6,170,708) | | | 6,170,708 | | | | 6,170,708 | |
| | | | | | | | |
| | |
Total Investments Before Security Lending Collateral for Securities Loaned – 99.4%
(cost $142,131,383) | | | | | | | 161,497,762 | |
| | | | | | | | |
| | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED – 3.5% | | | | | | | | |
Investment Companies – 3.5% | | | | | | | | |
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.13%(e)(f)(g)
(cost $5,623,173) | | | 5,623,173 | | | | 5,623,173 | |
| | | | | | | | |
| | |
Total Investments – 102.9%
(cost $147,754,556) | | | | | | | 167,120,935 | |
Other assets less liabilities – (2.9)% | | | | | | | (4,701,276 | ) |
| | | | | | | | |
| | |
Net Assets – 100.0% | | | | | | $ | 162,419,659 | |
| | | | | | | | |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Barclays Bank PLC | | JPY | 316,224 | | | USD | 2,945 | | | | 09/14/2020 | | | $ | 13,188 | |
Barclays Bank PLC | | USD | 754 | | | AUD | 1,144 | | | | 09/14/2020 | | | | 36,110 | |
Barclays Bank PLC | | USD | 976 | | | EUR | 897 | | | | 09/14/2020 | | | | 32,944 | |
Barclays Bank PLC | | USD | 9,618 | | | JPY | 1,030,711 | | | | 09/14/2020 | | | | (63,103 | ) |
BNP Paribas SA | | CNY | 2,448 | | | USD | 343 | | | | 09/14/2020 | | | | (2,109 | ) |
Citibank, NA | | CHF | 1,521 | | | USD | 1,594 | | | | 09/14/2020 | | | | (15,316 | ) |
Citibank, NA | | CNY | 51,590 | | | USD | 7,276 | | | | 09/14/2020 | | | | 6,247 | |
Citibank, NA | | EUR | 1,294 | | | USD | 1,472 | | | | 09/14/2020 | | | | 16,150 | |
Citibank, NA | | EUR | 2,580 | | | USD | 2,879 | | | | 09/14/2020 | | | | (24,742 | ) |
Citibank, NA | | USD | 5,169 | | | AUD | 7,391 | | | | 09/14/2020 | | | | (66,795 | ) |
Citibank, NA | | USD | 2,257 | | | EUR | 2,028 | | | | 09/14/2020 | | | | 25,217 | |
Citibank, NA | | USD | 8,829 | | | EUR | 7,792 | | | | 09/14/2020 | | | | (60,732 | ) |
Citibank, NA | | USD | 573 | | | JPY | 61,420 | | | | 09/14/2020 | | | | (3,434 | ) |
Goldman Sachs Bank USA | | CNY | 4,217 | | | USD | 595 | | | | 09/14/2020 | | | | 1,099 | |
Goldman Sachs Bank USA | | CNY | 6,971 | | | USD | 974 | | | | 09/14/2020 | | | | (8,229 | ) |
Goldman Sachs Bank USA | | USD | 1,070 | | | JPY | 113,940 | | | | 09/14/2020 | | | | (13,848 | ) |
Natwest Markets PLC | | CHF | 2,739 | | | USD | 2,833 | | | | 09/14/2020 | | | | (64,695 | ) |
| | |
| |
| 16 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Natwest Markets PLC | | CNY | 5,205 | | | USD | 727 | | | | 09/14/2020 | | | $ | (6,459 | ) |
Natwest Markets PLC | | EUR | 897 | | | USD | 988 | | | | 09/14/2020 | | | | (21,871 | ) |
Natwest Markets PLC | | USD | 953 | | | EUR | 840 | | | | 09/14/2020 | | | | (7,899 | ) |
Natwest Markets PLC | | USD | 1,712 | | | JPY | 182,518 | | | | 09/14/2020 | | | | (20,279 | ) |
State Street Bank & Trust Co. | | AUD | 634 | | | USD | 436 | | | | 09/14/2020 | | | | (1,791 | ) |
State Street Bank & Trust Co. | | CHF | 419 | | | USD | 444 | | | | 09/14/2020 | | | | 1,049 | |
State Street Bank & Trust Co. | | CHF | 905 | | | USD | 935 | | | | 09/14/2020 | | | | (21,826 | ) |
State Street Bank & Trust Co. | | EUR | 1,324 | | | USD | 1,508 | | | | 09/14/2020 | | | | 17,626 | |
State Street Bank & Trust Co. | | JPY | 190,097 | | | USD | 1,775 | | | | 09/14/2020 | | | | 12,923 | |
State Street Bank & Trust Co. | | USD | 962 | | | AUD | 1,471 | | | | 09/14/2020 | | | | 53,408 | |
State Street Bank & Trust Co. | | USD | 410 | | | CHF | 389 | | | | 09/14/2020 | | | | 1,632 | |
State Street Bank & Trust Co. | | USD | 613 | | | CHF | 579 | | | | 09/14/2020 | | | | (182 | ) |
State Street Bank & Trust Co. | | USD | 1,023 | | | CNY | 7,271 | | | | 09/14/2020 | | | | 1,674 | |
State Street Bank & Trust Co. | | USD | 747 | | | EUR | 661 | | | | 09/14/2020 | | | | (2,953 | ) |
State Street Bank & Trust Co. | | USD | 2,251 | | | JPY | 241,315 | | | | 09/14/2020 | | | | (13,762 | ) |
UBS AG | | CHF | 6,421 | | | USD | 6,812 | | | | 09/14/2020 | | | | 19,887 | |
UBS AG | | CHF | 591 | | | USD | 623 | | | | 09/14/2020 | | | | (1,645 | ) |
UBS AG | | USD | 900 | | | EUR | 802 | | | | 09/14/2020 | | | | 2,714 | |
UBS AG | | USD | 536 | | | JPY | 58,460 | | | | 09/14/2020 | | | | 5,766 | |
| | | | | | | | | | | | | | | | |
| | | $ | (174,036 | ) |
| | | | | | | | | | | | | | | | |
| (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 June 30, 2020, the aggregate market value of these securities amounted to $11,908,777 or 7.3% of net assets. |
| (b) | Non-income producing security. |
| (c) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (d) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (e) | Affiliated investments. |
| (f) | The rate shown represents the 7-day yield as of period end. |
| (g) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
Currency Abbreviations:
AUD – Australian Dollar
CHF – Swiss Franc
CNY – Chinese Yuan Renminbi
EUR – Euro
JPY – Japanese Yen
USD – United States Dollar
Glossary:
ADR – American Depositary Receipt
See notes to financial statements.
| | |
| |
| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 17 |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020
| | | | |
| Assets | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $135,960,675) | | $ | 155,327,054 | (a) |
Affiliated issuers (cost $11,793,881—including investment of cash collateral for securities loaned of $5,623,173) | | | 11,793,881 | |
Foreign currencies, at value (cost $115,315) | | | 115,596 | |
Receivable for capital stock sold | | | 837,703 | |
Receivable for investment securities sold and foreign currency transactions | | | 832,065 | |
Unrealized appreciation on forward currency exchange contracts | | | 247,634 | |
Unaffiliated dividends receivable | | | 100,369 | |
Affiliated dividends receivable | | | 1,092 | |
| | | | |
Total assets | | | 169,255,394 | |
| | | | |
| Liabilities | | | | |
Payable for collateral received on securities loaned | | | 5,623,173 | |
Payable for investment securities purchased and foreign currency transactions | | | 617,647 | |
Unrealized depreciation on forward currency exchange contracts | | | 421,670 | |
Advisory fee payable | | | 65,445 | |
Administrative fee payable | | | 22,971 | |
Payable for capital stock redeemed | | | 5,864 | |
Transfer Agent fee payable | | | 774 | |
Distribution fee payable | | | 703 | |
Accrued expenses | | | 77,488 | |
| | | | |
Total liabilities | | | 6,835,735 | |
| | | | |
Net Assets | | $ | 162,419,659 | |
| | | | |
| Composition of Net Assets | | | | |
Capital stock, at par | | $ | 1,385 | |
Additional paid-in capital | | | 141,524,039 | |
Distributable earnings | | | 20,894,235 | |
| | | | |
| | $ | 162,419,659 | |
| | | | |
Net Asset Value Per Share—11 billion shares of capital stock authorized, $.0001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| |
| A | | $ | 1,728,548 | | | | 148,279 | | | $ | 11.66 | * |
| |
| C | | $ | 425,751 | | | | 37,622 | | | $ | 11.32 | |
| |
| Advisor | | $ | 160,265,360 | | | | 13,668,431 | | | $ | 11.73 | |
| |
| (a) | Includes securities on loan with a value of $7,633,729 (see Note E). |
| * | The maximum offering price per share for Class A shares was $12.18 which reflects a sales charge of 4.25%. |
See notes to financial statements.
| | |
| |
| 18 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
STATEMENT OF OPERATIONS
Year Ended June 30, 2020
| | | | | | | | |
| Investment Income | | | | | | | | |
Dividends | | | | | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $126,011) | | $ | 1,249,941 | | | | | |
Affiliated issuers | | | 78,602 | | | | | |
Securities lending income | | | 10,977 | | | $ | 1,339,520 | |
| | | | | | | | |
| Expenses | | | | | | | | |
Advisory fee (see Note B) | | | 820,664 | | | | | |
Distribution fee—Class A | | | 2,328 | | | | | |
Distribution fee—Class C | | | 3,942 | | | | | |
Transfer agency—Class A | | | 302 | | | | | |
Transfer agency—Class C | | | 200 | | | | | |
Transfer agency—Advisor Class | | | 31,224 | | | | | |
Custody and accounting | | | 100,964 | | | | | |
Administrative | | | 78,414 | | | | | |
Registration fees | | | 61,109 | | | | | |
Audit and tax | | | 43,929 | | | | | |
Legal | | | 34,789 | | | | | |
Printing | | | 21,334 | | | | | |
Directors’ fees | | | 19,660 | | | | | |
Miscellaneous | | | 11,860 | | | | | |
| | | | | | | | |
Total expenses | | | 1,230,719 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | | | (252,123 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 978,596 | |
| | | | | | | | |
Net investment income | | | | | | | 360,924 | |
| | | | | | | | |
| Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | |
Investment transactions | | | | | | | 3,486,608 | |
Forward currency exchange contracts | | | | | | | (352,135 | ) |
Foreign currency transactions | | | | | | | 23,296 | |
Net change in unrealized appreciation/depreciation of: | | | | | | | | |
Investments | | | | | | | 11,079,862 | |
Forward currency exchange contracts | | | | | | | (207,327 | ) |
Foreign currency denominated assets and liabilities | | | | | | | 3,097 | |
| | | | | | | | |
Net gain on investment and foreign currency transactions | | | | | | | 14,033,401 | |
| | | | | | | | |
Contributions from Affiliates (see Note B) | | | | | | | 17,872 | |
| | | | | | | | |
Net Increase in Net Assets from Operations | | | | | | $ | 14,412,197 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 19 |
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
Net investment income | | $ | 360,924 | | | $ | 267,252 | |
Net realized gain (loss) on investment transactions and foreign currency | | | 3,157,769 | | | | (1,079,231 | ) |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 10,875,632 | | | | 4,463,194 | |
Contributions from Affiliates (see Note B) | | | 17,872 | | | | – 0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 14,412,197 | | | | 3,651,215 | |
Distributions to Shareholders | | | | | | | | |
Class A | | | (7,218 | ) | | | (32,224 | ) |
Class C | | | (3,676 | ) | | | (9,241 | ) |
Advisor Class | | | (925,445 | ) | | | (2,830,791 | ) |
| Capital Stock Transactions | | | | | | | | |
Net increase | | | 81,101,111 | | | | 21,182,111 | |
| | | | | | | | |
Total increase | | | 94,576,969 | | | | 21,961,070 | |
| Net Assets | | | | | | | | |
Beginning of period | | | 67,842,690 | | | | 45,881,620 | |
| | | | | | | | |
End of period | | $ | 162,419,659 | | | $ | 67,842,690 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 20 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020
NOTE A
Significant Accounting Policies
AB Cap Fund, Inc. (the “Company”), which is a Maryland corporation, is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company operates as a series company currently comprised of 15 portfolios. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Concentrated International Growth 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 R, Class K, Class I, Class Z, Class T, Class 1 and Class 2 shares have not been issued. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class shares are sold without any initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock
| | |
| |
| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 21 |
NOTES TO FINANCIAL STATEMENTS (continued)
Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value
| | |
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| 22 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 23 |
NOTES TO FINANCIAL STATEMENTS (continued)
significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
| | | | | | | | | | | | | | | | |
Investments in Securities: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | |
Common Stocks: | | | | | | | | | | | | |
Information Technology | | $ | 3,626,779 | | | $ | 30,375,995 | | | $ | – 0 | – | | $ | 34,002,774 | |
Consumer Staples | | | – 0 | – | | | 26,411,483 | | | | – 0 | – | | | 26,411,483 | |
Industrials | | | – 0 | – | | | 24,699,826 | | | | – 0 | – | | | 24,699,826 | |
Consumer Discretionary | | | 8,335,526 | | | | 13,261,019 | | | | – 0 | – | | | 21,596,545 | |
Health Care | | | – 0 | – | | | 19,695,372 | | | | 0 | (a) | | | 19,695,372 | |
Financials | | | – 0 | – | | | 13,109,675 | | | | – 0 | – | | | 13,109,675 | |
Communication Services | | | – 0 | – | | | 10,497,418 | | | | – 0 | – | | | 10,497,418 | |
Materials | | | – 0 | – | | | 5,313,961 | | | | – 0 | – | | | 5,313,961 | |
Short-Term Investments | | | 6,170,708 | | | | – 0 | – | | | – 0 | – | | | 6,170,708 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 5,623,173 | | | | – 0 | – | | | – 0 | – | | | 5,623,173 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 23,756,186 | | | | 143,364,749 | (b) | | | – 0 | – | | | 167,120,935 | |
Other Financial Instruments(c): | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Forward Currency Exchange Contracts | | | – 0 | – | | | 247,634 | | | | – 0 | – | | | 247,634 | |
Liabilities: | | | | | | | | | | | | | | | | |
Forward Currency Exchange Contracts | | | – 0 | – | | | (421,670 | ) | | | – 0 | – | | | (421,670 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 23,756,186 | | | $ | 143,190,713 | | | $ | – 0 | – | | $ | 166,946,899 | |
| | | | | | | | | | | | | | | | |
| (a) | The Fund held securities with zero market value at period end. |
| (b) | A significant portion of the Fund’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
| (c) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
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| 24 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, 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.
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 25 |
NOTES TO FINANCIAL STATEMENTS (continued)
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Effective May 7, 2020, under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of .75% of the Fund’s average daily net assets. Prior to May 7, 2020, the investment advisory agreement provided for the payment of an advisory fee at an annual rate of .85% of the Fund’s average daily net assets. For the period from March 2, 2020 until May 6, 2020, the Adviser waived a portion of the advisory fee in order to reduce the advisory fee rate from .85% to .75% of the Fund’s average daily net assets; such waiver amounted to $19,760. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding acquired fund fees and expenses other than the advisory fees of any AB Mutual Funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs) on an annual basis (the “Expense Caps”) to 1.15%, 1.90% and 0.90% of the daily average net assets for Class A, Class C and Advisor Class shares, respectively. The Expense Caps may not be terminated by the Adviser before October 31, 2021. For the year ended June 30, 2020, the reimbursements/waivers amounted to $226,084. Prior to March 2, 2020, the Adviser had agreed to waive it’s fees and bear certain expenses (excluding 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 the extent necessary to limit total operating expenses on an annual basis to 1.30%, 2.05%, and 1.05% of the daily average net assets for Class A, Class C and Advisor Class shares, respectively. Any fees waived and expenses borne by the Adviser through February 13, 2018 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; such waivers that are subject to repayment amounted to $264,793 and $160,748 for the years ended June 30, 2017 and June 30, 2018, respectively. In any case, no reimbursement payment will be made that would cause the Fund’s total annual fund operating expenses to exceed the Expense Caps’ net fee percentages set forth above.
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| 26 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Pursuant to the investment advisory agreement, the Fund may reimburse the Adviser for certain legal and accounting services provided to the Fund by the Adviser. For the year ended June 30, 2020, the reimbursement for such services amounted to $78,414.
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 $18,845 for the year ended June 30, 2020.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales charges of $222 from the sale of Class A shares and received $6 and $14 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended June 30, 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 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 June 30, 2020, such waiver amounted to $5,621.
A summary of the Fund’s transactions in AB mutual funds for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
6/30/19
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
6/30/20
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 4,863 | | | $ | 91,662 | | | $ | 90,354 | | | $ | 6,171 | | | $ | 64 | |
Government Money Market Portfolio* | | | 1,857 | | | | 44,412 | | | | 40,646 | | | | 5,623 | | | | 15 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 11,794 | | | $ | 79 | |
| | | | | | | | | | | | | | | | | | | | |
| * | Investments of cash collateral for securities lending transactions (see Note E). |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 27 |
NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended June 30, 2020, the Adviser reimbursed the Fund $17,872 for losses incurred due to a mispriced security.
During the second quarter of 2018, 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 approximately 65.2% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Fund’s average daily net assets attributable to Class A shares and 1% of the Fund’s average daily net assets attributable to Class C shares. There are no distribution and servicing fees on the Advisor Class shares. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the
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| 28 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
amount of $618 for Class C shares. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended June 30, 2020 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 109,942,111 | | | $ | 29,039,423 | |
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 | | $ | 147,944,673 | |
| | | | |
Gross unrealized appreciation | | $ | 26,491,663 | |
Gross unrealized depreciation | | | (7,315,401 | ) |
| | | | |
Net unrealized appreciation | | $ | 19,176,262 | |
| | | | |
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Fund, as well as the methods in which they may be used are:
| | • | | 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
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Fund. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended June 30, 2020, the Fund held forward currency exchange contracts for hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
During the year ended June 30, 2020, the Fund had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and
Liabilities
Location | | Fair Value | | | Statement of
Assets and
Liabilities
Location | | Fair Value | |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | $ | 247,634 | | | Unrealized depreciation on forward currency exchange contracts | | $ | 421,670 | |
| | | | | | | | | | | | |
Total | | | | $ | 247,634 | | | | | $ | 421,670 | |
| | | | | | | | | | | | |
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| 30 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | |
Derivative Type | | Location of Gain
or (Loss) on
Derivatives Within
Statement of
Operations | | Realized Gain
or (Loss) on
Derivatives | | | Change in
Unrealized
Appreciation or
(Depreciation) | |
Foreign currency contracts | | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | $ | (352,135 | ) | | $ | (207,327 | ) |
| | | | | | | | | | |
Total | | | | $ | (352,135 | ) | | $ | (207,327 | ) |
| | | | | | | | | | |
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended June 30, 2020:
| | | | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 31,195,655 | |
Average principal amount of sale contracts | | $ | 28,261,575 | |
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 June 30, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Assets
Subject
to a MA | | | Derivatives
Available
for Offset | | | Cash
Collateral
Received* | | | Security
Collateral
Received* | | | Net Amount
of Derivative
Assets | |
Barclays Bank PLC | | $ | 82,242 | | | $ | (63,103 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 19,139 | |
Citibank, NA | | | 47,614 | | | | (47,614 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
Goldman Sachs Bank USA | | | 1,099 | | | | (1,099 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
State Street Bank & Trust Co. | | | 88,312 | | | | (40,514 | ) | | | – 0 | – | | | – 0 | – | | | 47,798 | |
UBS AG | | | 28,367 | | | | (1,645 | ) | | | – 0 | – | | | – 0 | – | | | 26,722 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 247,634 | | | $ | (153,975 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 93,659 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Liabilities
Subject
to a MA | | | Derivatives
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount
of Derivative
Liabilities | |
Barclays Bank PLC | | $ | 63,103 | | | $ | (63,103 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | – 0 | – |
BNP Paribas SA | | | 2,109 | | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | 2,109 | |
Citibank, NA | | | 171,019 | | | | (47,614 | ) | | | – 0 | – | | | – 0 | – | | | 123,405 | |
Goldman Sachs Bank USA | | | 22,077 | | | | (1,099 | ) | | | – 0 | – | | | – 0 | – | | | 20,978 | |
Natwest Markets PLC | | | 121,203 | | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | 121,203 | |
State Street Bank & Trust Co. | | | 40,514 | | | | (40,514 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
UBS AG | | | 1,645 | | | | (1,645 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 421,670 | | | $ | (153,975 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 267,695 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
| ^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized continually by cash collateral and/or non-cash collateral. Non-cash collateral will include only securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The Fund cannot sell or repledge any non-cash collateral, such collateral will not be reflected in the portfolio of investments. If a loan is collateralized by cash, the Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Fund in connection with the loan), and payments are made for fees of the
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| 32 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
securities lending agent and for certain other administrative expenses. If the Fund receives non-cash collateral, the Fund will receive a fee from the borrower generally equal to a negotiated percentage of the market value of the loaned securities. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. The collateral will be adjusted the next business day to maintain the required collateral amount. The amounts of securities lending income from the borrowers and Government Money Market Portfolio are reflected in the statement of operations. When the Fund earns net securities lending income from Government Money Market Portfolio, the income is inclusive of a rebate expense paid to the borrower. In connection with the cash collateral investment by the Fund in Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower.
A summary of the Fund’s transactions surrounding securities lending for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Government Money
Market Portfolio | |
Market Value
of Securities
on Loan* | | Cash
Collateral* | | | Market Value
of Non-Cash
Collateral* | | | Income from
Borrowers | | | Income
Earned | | | Advisory Fee
Waived | |
| $ 7,633,729 | | $ | 5,623,173 | | | $ | 2,383,421 | | | $ | 10,977 | | | $ | 14,623 | | | $ | 658 | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE F
Capital Stock
Each class consists of 1,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | |
| | | | | | | | |
| Class A | | | | | |
Shares sold | | | 121,701 | | | | 32,811 | | | | | | | $ | 1,327,434 | | | $ | 347,703 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 592 | | | | 3,401 | | | | | | | | 6,989 | | | | 30,949 | | | | | |
| | | | | |
Shares converted from Class C | | | 4,142 | | | | – 0 | – | | | | | | | 39,395 | | | | – 0 | – | | | | |
| | | | | |
Shares redeemed | | | (23,342 | ) | | | (15,775 | ) | | | | | | | (252,896 | ) | | | (156,878 | ) | | | | |
| | | | | |
Net increase | | | 103,093 | | | | 20,437 | | | | | | | $ | 1,120,922 | | | $ | 221,774 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class C | | | | | |
Shares sold | | | 22,270 | | | | 18,111 | | | | | | | $ | 252,479 | | | $ | 178,853 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 291 | | | | 958 | | | | | | | | 3,334 | | | | 8,556 | | | | | |
| | | | | |
Shares converted to Class A | | | (4,259 | ) | | | – 0 | – | | | | | | | (39,395 | ) | | | – 0 | – | | | | |
| | | | | |
Shares redeemed | | | (7,655 | ) | | | (7,178 | ) | | | | | | | (77,216 | ) | | | (75,734 | ) | | | | |
| | | | | |
Net increase | | | 10,647 | | | | 11,891 | | | | | | | $ | 139,202 | | | $ | 111,675 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Advisor Class | | | | | |
Shares sold | | | 12,416,655 | | | | 2,873,116 | | | | | | | $ | 133,075,273 | | | $ | 28,671,076 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 32,453 | | | | 21,308 | | | | | | | | 384,242 | | | | 194,328 | | | | | |
| | | | | |
Shares redeemed | | | (4,841,526 | ) | | | (760,969 | ) | | | | | | | (53,618,528 | ) | | | (8,016,742 | ) | | | | |
| | | | | |
Net increase | | | 7,607,582 | | | | 2,133,455 | | | | | | | $ | 79,840,987 | | | $ | 20,848,662 | | | | | |
| | | | | |
NOTE G
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. It includes the risk that a particular style of investing, such as growth, may underperform the market generally.
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| 34 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Fund’s net asset value, or NAV.
Sector Risk—The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information technology sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
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 as well as being subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Capitalization Risk—Investments in mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in mid-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to
| | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively-managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended June 30, 2020.
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| 36 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended June 30, 2020 and June 30, 2019 were as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 120,160 | | | $ | 2,258,527 | |
Net long-term capital gains | | | 816,179 | | | | 613,729 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 936,339 | | | $ | 2,872,256 | |
| | | | | | | | |
As of June 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 159,418 | |
Undistributed capital gains | | | 1,554,767 | (a) |
Unrealized appreciation/(depreciation) | | | 19,180,050 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 20,894,235 | |
| | | | |
| (a) | During the fiscal year, the Fund utilized $942,467 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 and the tax deferral of losses on wash sales. |
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 June 30, 2020, the Fund did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to contributions from the Adviser resulted in a net increase in distributable earnings and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
| | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 37 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
Net asset value, beginning of period | | | $ 11.02 | | | | $ 11.54 | | | | $ 10.50 | | | | $ 8.46 | | | | $ 9.77 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .01 | | | | .02 | | | | .08 | | | | .05 | | | | .03 | |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions and foreign currency | | | .74 | | | | .15 | | | | 1.32 | | | | 2.04 | | | | (1.34 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | .75 | | | | .17 | | | | 1.40 | | | | 2.09 | | | | (1.31 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | – 0 | – | | | (.00 | )(c) | | | (.08 | ) | | | (.05 | ) | | | (.00 | )(c) |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.11 | ) | | | (.69 | ) | | | (.28 | ) | | | – 0 | – | | | (.00 | )(c) |
| | | | |
Total dividends and distributions | | | (.11 | ) | | | (.69 | ) | | | (.36 | ) | | | (.05 | ) | | | – 0 | – |
| | | | |
Net asset value, end of period | | | $ 11.66 | | | | $ 11.02 | | | | $ 11.54 | | | | $ 10.50 | | | | $ 8.46 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 6.75 | % | | | 2.72 | % | | | 13.43 | % | | | 24.83 | % | | | (13.39 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $1,729 | | | | $498 | | | | $286 | | | | $11 | | | | $9 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | 1.22 | % | | | 1.29 | % | | | 1.29 | % | | | 1.29 | % | | | 1.30 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 1.47 | % | | | 1.85 | % | | | 2.08 | % | | | 8.96 | % | | | 17.79 | % |
| | | | | |
Net investment income(b) | | | .12 | % | | | .23 | % | | | .67 | % | | | .54 | % | | | .34 | % |
| | | | | |
Portfolio turnover rate | | | 30 | % | | | 34 | % | | | 34 | % | | | 66 | % | | | 42 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .01 | % | | | .01 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 41.
| | |
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| 38 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class C | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
Net asset value, beginning of period | | | $ 10.78 | | | | $ 11.38 | | | | $ 10.39 | | | | $ 8.39 | | | | $ 9.75 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | (.08 | ) | | | (.02 | ) | | | .00 | (c) | | | (.02 | ) | | | (.04 | ) |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions and foreign currency | | | .73 | | | | .11 | | | | 1.30 | | | | 2.02 | | | | (1.32 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | .65 | | | | .09 | | | | 1.30 | | | | 2.00 | | | | (1.36 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | – 0 | – | | | – 0 | – | | | (.03 | ) | | | – 0 | – | | | – 0 | – |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.11 | ) | | | (.69 | ) | | | (.28 | ) | | | – 0 | – | | | (.00 | )(c) |
| | | | |
Total dividends and distributions | | | (.11 | ) | | | (.69 | ) | | | (.31 | ) | | | – 0 | – | | | – 0 | – |
| | | | |
Net asset value, end of period | | | $ 11.32 | | | | $ 10.78 | | | | $ 11.38 | | | | $ 10.39 | | | | $ 8.39 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 5.97 | % | | | 2.00 | % | | | 12.57 | % | | | 23.84 | % | | | (13.93 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $426 | | | | $291 | | | | $172 | | | | $28 | | | | $8 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | 1.99 | % | | | 2.04 | % | | | 2.04 | % | | | 2.04 | % | | | 2.05 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 2.27 | % | | | 2.59 | % | | | 2.89 | % | | | 9.39 | % | | | 18.58 | % |
| | | | | |
Net investment income (loss)(b) | | | (.79 | )% | | | (.17 | )% | | | .02 | % | | | (.20 | )% | | | (.43 | )% |
| | | | | |
Portfolio turnover rate | | | 30 | % | | | 34 | % | | | 34 | % | | | 66 | % | | | 42 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .01 | % | | | .01 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 41.
| | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 39 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Advisor Class | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
Net asset value, beginning of period | | | $ 11.06 | | | | $ 11.57 | | | | $ 10.51 | | | | $ 8.47 | | | | $ 9.77 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .04 | | | | .06 | | | | .06 | | | | .20 | | | | .05 | |
| | | | | |
Net realized and unrealized gain (loss) on investment transactions and foreign currency | | | .75 | | | | .13 | | | | 1.37 | | | | 1.91 | | | | (1.33 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | .79 | | | | .19 | | | | 1.43 | | | | 2.11 | | | | (1.28 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.01 | ) | | | (.01 | ) | | | (.09 | ) | | | (.07 | ) | | | (.02 | ) |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.11 | ) | | | (.69 | ) | | | (.28 | ) | | | – 0 | – | | | (.00 | )(c) |
| | | | |
Total dividends and distributions | | | (.12 | ) | | | (.70 | ) | | | (.37 | ) | | | (.07 | ) | | | (.02 | ) |
| | | | |
Net asset value, end of period | | | $ 11.73 | | | | $ 11.06 | | | | $ 11.57 | | | | $ 10.51 | | | | $ 8.47 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 7.11 | % | | | 3.01 | % | | | 13.61 | % | | | 25.12 | % | | | (13.13 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $160,265 | | | | $67,054 | | | | $45,424 | | | | $32,602 | | | | $1,678 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)‡ | | | .98 | % | | | 1.04 | % | | | 1.04 | % | | | 1.04 | % | | | 1.05 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)‡ | | | 1.23 | % | | | 1.59 | % | | | 1.80 | % | | | 3.75 | % | | | 17.53 | % |
| | | | | |
Net investment income(b) | | | .37 | % | | | .54 | % | | | .53 | % | | | 2.04 | % | | | .58 | % |
| | | | | |
Portfolio turnover rate | | | 30 | % | | | 34 | % | | | 34 | % | | | 66 | % | | | 42 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .01 | % | | | .01 | % | | | .01 | % | | | .01 | % | | | .00 | % |
See footnote summary on page 41.
| | |
| |
| 40 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| (a) | Based on average shares outstanding. |
| (b) | Net of expenses waived/reimbursed by the Adviser. |
| (c) | Amount is less than $.005. |
| (d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
| (e) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the years ended June 30, 2020, ended June 30, 2019, June 30, 2018 and June 30, 2017, such waiver amounted to .01%, .01%, .01% and .01%, respectively. |
| * | Includes the impact of reimbursements from the Adviser which enhanced the Fund’s performance for the year ended June 30, 2020 by .01%. |
See notes to financial statements.
| | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 41 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AB Concentrated International Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Concentrated International Growth Portfolio (the “Fund”) (one of the funds constituting AB Cap Fund, Inc. (the “Company”)), including the portfolio of investments, as of June 30, 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 five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Cap Fund, Inc.) at June 30, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (”PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 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
August 26, 2020
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2020 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the earnings of the Fund for the taxable year ended June 30, 2020. For such taxable year, the Fund designates 100% as the maximum amount that may be considered qualified dividend income for individual shareholders.
The Fund intends to make an election to pass through foreign taxes to its shareholders. For the taxable year ended June 30, 2020, $50,401 of foreign taxes may be passed through and the associated foreign source income for information reporting purposes is $1,379,611.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2021.
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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 Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
| | |
Debasashi (Dev) Chakrabarti(2), Vice President Mark Phelps(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
Custodian and Accounting Agent State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 Transfer Agent AllianceBernstein Investor Services Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| 1 | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
| 2 | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the Concentrated International Growth Investment Team. Messrs. Phelps and Chakrabarti are the persons with the most significant responsibility for day-to-day management of the Fund’s portfolio. |
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MANAGEMENT OF THE FUND
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
| INTERESTED DIRECTOR | | | | | | | | |
| | | |
Robert M. Keith,#
1345 Avenue of the Americas
New York, NY 10105
60
(2015) | | 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. | | | 78 | | | None |
| | | | | | | | |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
| DISINTERESTED DIRECTORS | | | | | | |
| | | |
Marshall C. Turner, Jr.,## Chairman of the Board 78 (2015) | | Private Investor since prior to 2015. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of 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 such AB Funds since February 2014. | | | 78 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 47 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Jorge A. Bermudez,## 69 (2020) | | Private investor since prior to 2015. 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. | | | 78 | | | Moody’s Corporation since April 2011 |
| | | | | | | | |
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Michael J. Downey,## 76 (2015) | | Private Investor since prior to 2015. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2015 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Nancy P. Jacklin,## 72 (2015) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
| | | | | | | | |
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Jeanette 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. | | | 78 | | | Apollo Investment Corp. (business development company) since August 2011 |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 49 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Carol C. McMullen,## 65 (2016) | | Managing Director of Slalom Consulting (consulting) since 2015, 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 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Chief Investment Officer, Core and Growth and Head of Global Investment Research). She has served on a number of private company and nonprofit boards, and as a director or trustee of the AB Funds since June 2016. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Garry L. Moody,## 68 (2015) | | Private Investor since prior to 2015. 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 the 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. | | | 78 | | | None |
| | | | | | | | |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS*, AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Earl D. Weiner,## 81 (2015) | | 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. | | | 78 | | | None |
| * | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
| ** | There is no stated term of office for the Fund’s Directors. |
| *** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
| # | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
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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. |
| | | | |
Mark Phelps 60 | | Vice President | | Senior Vice President of the Adviser**, and Chief Investment Officer of Concentrated Global Growth, with which he has associated since prior to 2015. |
| | | | |
Debasashi (Dev) Chakrabarti 43 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2015. |
| | | | |
Emilie D. Wrapp 64 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI,** with which she has been associated since prior to 2015. |
| | | | |
Michael B. Reyes 44 | | Senior Analyst | | Vice President of the Adviser**, with which he has been associated since prior to 2015. |
| | | | |
Joseph J. Mantineo 61 | | Treasurer and Chief Financial Officer | | Senior Vice President of ABIS**, with which he has been associated since prior to 2015. |
| | | | |
Phyllis J. Clarke 59 | | Controller | | Vice President of ABIS,** with which she has been associated since prior to 2015. |
| | | | |
Vincent S. Noto 55 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2015. |
| * | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Fund’s Advisor, ABI and ABIS are affiliates of the fund. |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 53 |
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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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Cap Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser as proposed to be amended to effect a fee reduction (as so amended, the “Advisory Agreement”) in respect of AB Concentrated International Growth Portfolio (the “Fund”) at a meeting held by video conference on May 5-7, 2020 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the money market fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the proposed advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the proposed advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The directors noted that the proposed lowering of the advisory fee would benefit the Fund and its shareholders. The directors noted that the Adviser was reducing the advisory fee for business reasons,
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and had assured them that there would be no diminution in the nature or quality of services to the Fund. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The direc-
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tors 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 2018. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund in 2019 was not unreasonable. The directors noted that the proposed reduction in the advisory fee rate would likely impact the Adviser’s profitability analysis in future years.
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 soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s recent profitability to the Adviser would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provide (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1- and 3-year periods ended February 29, 2020 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the proposed advisory fee rate payable by the Fund to the Adviser and information prepared by 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
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 57 |
included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual advisory fee rate (reflecting a 10 basis point advisory fee waiver the Adviser implemented on March 2, 2020, which the Adviser proposed be reflected in the Advisory Agreement as a fee reduction) with a peer group median and took into account the impact on the pro forma advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s proposed fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and 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 shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the 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 may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory
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| 58 | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | | abfunds.com |
fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
In connection with their review of the Fund’s proposed advisory fee, the directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The Adviser implemented a 10 basis point advisory fee waiver effective March 2, 2020, which the Adviser proposed be reflected in the Advisory Agreement as a fee reduction. The information reviewed by the directors included a pro forma expense ratio to that gave effect to the reduction for the entire fiscal year. The directors considered the Adviser’s expense cap for the Fund which the Adviser lowered by 15 basis points effective March 2, 2020. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the proposed advisory fee schedule for the Fund, while reflecting a reduction in the advisory fee rate, does not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and 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 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
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 59 |
indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s asset level (which was well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
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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
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond 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
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
| 1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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| abfunds.com | | AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO | 61 |
NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB CONCENTRATED INTERNATIONAL GROWTH PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
CIG-0151-0620 
JUN 06.30.20
ANNUAL REPORT
AB GLOBAL CORE EQUITY PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
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| 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.
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| FROM THE PRESIDENT | |  |
Dear Shareholder,
We are pleased to provide this report for AB Global Core Equity 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
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 1 |
ANNUAL REPORT
August 7, 2020
This report provides management’s discussion of fund performance for AB Global Core Equity Portfolio for the annual reporting period ended June 30, 2020.
The Fund’s investment objective is to seek long-term growth of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | 6 Months | | | 12 Months | |
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| AB GLOBAL CORE EQUITY PORTFOLIO | | | | | | | | |
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| Class A Shares | | | -8.29% | | | | -0.48% | |
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| Class C Shares | | | -8.62% | | | | -1.17% | |
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| Advisor Class Shares1 | | | -8.20% | | | | -0.25% | |
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| MSCI ACWI (net) | | | -6.25% | | | | 2.11% | |
| 1 | Please note that this share class is for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared with its benchmark, the Morgan Stanley Capital International All Country World Index (“MSCI ACWI”) (net), for the six- and 12-month periods ended June 30, 2020.
All share classes of the Fund underperformed the benchmark for both periods, before sales charges. For the 12-month period, stock selection within the consumer-discretionary and technology sectors detracted, relative to the benchmark, while selection in financials and communication services contributed. An overweight to financials detracted, while an underweight to real estate contributed. Country positioning (a result of bottom-up security analysis combined with fundamental research) was positive. An overweight to Denmark contributed, while an overweight to Singapore detracted.
During the six-month period, stock selection within consumer discretionary and technology detracted, while selection within financials and communication services contributed. An overweight to financials and an underweight to technology detracted, while an overweight to communication services and an underweight to real estate contributed. Country positioning contributed to performance, led by an overweight to Denmark; an overweight to Singapore detracted.
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| 2 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
The Fund did not utilize derivatives during the six- or 12-month periods.
MARKET REVIEW AND INVESTMENT STRATEGY
Global stocks recorded gains during the 12-month period ended June 30, 2020. Amid increased volatility, all developed and emerging equity markets rallied throughout the final quarter of the period, rising off lows reached in March after suffering steep losses that wiped out previous gains as a result of the worldwide COVID-19 pandemic. Continued support from central banks, early stage reopening of global economies and the prospect of a potential vaccine helped lift investor sentiment, despite a sharp contraction of economic growth, a resurgence of US-China tensions and rising rates of COVID-19 cases in parts of the US and large emerging markets. Growth stocks outperformed their value-style peers in all categories. Small-cap stocks continued to rally, outperforming large-caps in the final quarter of the period; year to date, large-caps have performed significantly better.
The Fund’s Senior Investment Management Team continues to invest in firms that are attractively valued in a core portfolio setup, and to minimize unintended factor risks.
INVESTMENT POLICIES
The Fund invests primarily in a portfolio of equity securities of issuers from markets around the world. Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities, at least 40% of its net assets in securities of non-US companies, and invests in companies in at least three countries (including the United States).
The Fund is principally comprised of companies considered by the Adviser to offer good prospects for attractive returns relative to the general stock market. The Adviser seeks companies that are attractively valued and have the ability to generate high and sustainable returns on invested capital. In addition to returns on invested capital, other criteria that the Adviser considers include strong business fundamentals, capable management, prudent corporate governance, a strong balance sheet, strong earnings power, high earnings quality, low downside risk and substantial upside potential. In managing the Fund, the Adviser does not seek to have a bias towards any investment style, economic sector, country or company size. The Fund’s holdings of non-US companies frequently include companies located in emerging markets, and at times emerging-market companies will make up a significant portion of the Fund.
Fluctuations in currency exchange rates can have a dramatic impact on the returns of equity securities. While the Adviser may hedge the foreign currency exposure resulting from the Fund’s security positions through the use of currency-related derivatives, it is not required to do so.
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 3 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The MSCI ACWI is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI ACWI (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed and emerging markets. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns include the reinvestment of dividends after deduction of non-US withholding tax. An investor cannot invest directly in an index 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. It includes the risk that a particular style of investing, such as growth, may underperform the market generally.
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 or dispose of due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Sector Risk: The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information-technology or financial-services sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
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 for the Fund,
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| 4 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
DISCLOSURES AND RISKS (continued)
but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. Net asset value (“NAV”) returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 5 |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
11/12/20141 TO 6/30/2020
This chart illustrates the total value of an assumed $10,000 investment in AB Global Core Equity Portfolio Class A shares (from 11/12/20141 to 6/30/2020) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
| 1 | Inception date: 11/12/2014. |
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| 6 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | NAV Returns | | | SEC Returns (reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | | | | | |
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| 1 Year | | | -0.48% | | | | -4.71% | |
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| 5 Years | | | 7.35% | | | | 6.42% | |
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| Since Inception1 | | | 6.82% | | | | 6.01% | |
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| CLASS C SHARES | | | | | | | | |
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| 1 Year | | | -1.17% | | | | -2.14% | |
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| 5 Years | | | 6.54% | | | | 6.54% | |
| | |
| Since Inception1 | | | 6.02% | | | | 6.02% | |
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| ADVISOR CLASS SHARES2 | | | | | | | | |
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| 1 Year | | | -0.25% | | | | -0.25% | |
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| 5 Years | | | 7.61% | | | | 7.61% | |
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| Since Inception1 | | | 7.08% | | | | 7.08% | |
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
| | | | |
| |
| | | SEC Returns (reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | |
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| 1 Year | | | -4.71% | |
| |
| 5 Years | | | 6.42% | |
| |
| Since Inception1 | | | 6.01% | |
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| CLASS C SHARES | | | | |
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| 1 Year | | | -2.14% | |
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| 5 Years | | | 6.54% | |
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| Since Inception1 | | | 6.02% | |
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| ADVISOR CLASS SHARES2 | | | | |
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| 1 Year | | | -0.25% | |
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| 5 Years | | | 7.61% | |
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| Since Inception1 | | | 7.08% | |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.13%, 1.90% and 0.90% for Class A, Class C and Advisor Class shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
| 1 | Inception date: 11/12/2014. |
| 2 | Please note that this share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. Please note that this share class is for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 7 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| | | Beginning
Account Value
1/1/2020 | | | Ending
Account Value
6/30/2020 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
| Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 917.10 | | | $ | 5.20 | | | | 1.09 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,019.44 | | | $ | 5.47 | | | | 1.09 | % |
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| 8 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
EXPENSE EXAMPLE (continued)
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| | | Beginning
Account Value
1/1/2020 | | | Ending
Account Value
6/30/2020 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
| Class C | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 913.80 | | | $ | 8.80 | | | | 1.85 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.66 | | | $ | 9.27 | | | | 1.85 | % |
| Advisor Class | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 918.00 | | | $ | 4.01 | | | | 0.84 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.69 | | | $ | 4.22 | | | | 0.84 | % |
| * | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| ** | Assumes 5% annual return before expenses. |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 9 |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,233.2
| 1 | All data are as of June 30, 2020. The Fund’s country breakdowns are expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund’s prospectus.
| | |
| |
| 10 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
PORTFOLIO SUMMARY (continued)
June 30, 2020 (unaudited)
TEN LARGEST HOLDINGS1
| | | | | | | | |
| | |
| Company | | U.S. $ Value | | | Percent of
Net Assets | |
| | |
| Alphabet, Inc. | | $ | 56,393,144 | | | | 4.6 | % |
| | |
| Anthem, Inc. | | | 53,086,458 | | | | 4.3 | |
| | |
| International Flavors & Fragrances, Inc. | | | 45,728,033 | | | | 3.7 | |
| | |
| Secom Co., Ltd. | | | 42,897,406 | | | | 3.5 | |
| | |
| Microsoft Corp. | | | 41,133,441 | | | | 3.3 | |
| | |
| Cognizant Technology Solutions Corp | | | 38,190,711 | | | | 3.1 | |
| | |
| SoftBank Group Corp. | | | 37,896,394 | | | | 3.0 | |
| | |
| Otis Worldwide Corp. | | | 36,572,409 | | | | 3.0 | |
| | |
| Koninklijke Philips NV | | | 35,761,775 | | | | 2.9 | |
| | |
| 3M Co. | | | 34,652,398 | | | | 2.8 | |
| | |
| | $ | 422,312,169 | | | | 34.2 | % |
| | |
| |
| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 11 |
PORTFOLIO OF INVESTMENTS
June 30, 2020
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| |
COMMON STOCKS – 99.2% | | | | | | | | | | | | |
Information Technology – 20.3% | | | | | | | | | | | | |
Electronic Equipment, Instruments & Components – 0.8% | | | | | | | | | | | | |
IPG Photonics Corp. | | | | | | | 58,768 | | | $ | 9,425,800 | |
| | | | | | | | | | | | |
| | | |
IT Services – 7.2% | | | | | | | | | | | | |
Automatic Data Processing, Inc. | | | | | | | 159,100 | | | | 23,688,399 | |
Cognizant Technology Solutions Corp. – Class A | | | | | | | 672,135 | | | | 38,190,711 | |
Visa, Inc. – Class A | | | | | | | 142,021 | | | | 27,434,196 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 89,313,306 | |
| | | | | | | | | | | | |
Semiconductors & Semiconductor Equipment – 1.1% | | | | | | | | | | | | |
Xilinx, Inc. | | | | | | | 139,401 | | | | 13,715,664 | |
| | | | | | | | | | | | |
| | | |
Software – 8.6% | | | | | | | | | | | | |
Microsoft Corp. | | | | | | | 202,120 | | | | 41,133,441 | |
SAP SE | | | | | | | 165,629 | | | | 23,153,198 | |
Trend Micro, Inc./Japan | | | | | | | 505,900 | | | | 28,271,966 | |
VMware, Inc. – Class A(a) | | | | | | | 85,767 | | | | 13,281,878 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 105,840,483 | |
| | | | | | | | | | | | |
Technology Hardware, Storage & Peripherals – 2.6% | | | | | | | | | | | | |
Samsung Electronics Co., Ltd. | | | | | | | 719,292 | | | | 31,841,354 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 250,136,607 | |
| | | | | | | | | | | | |
Financials – 14.6% | | | | | | | | | | | | |
Banks – 4.2% | | | | | | | | | | | | |
DBS Group Holdings Ltd. | | | | | | | 1,238,600 | | | | 18,637,007 | |
Jyske Bank A/S(a) | | | | | | | 564,012 | | | | 16,596,426 | |
Wells Fargo & Co. | | | | | | | 644,146 | | | | 16,490,138 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 51,723,571 | |
| | | | | | | | | | | | |
Capital Markets – 6.3% | | | | | | | | | | | | |
BlackRock, Inc. – Class A | | | | | | | 12,631 | | | | 6,872,401 | |
CME Group, Inc. – Class A | | | | | | | 58,358 | | | | 9,485,509 | |
Goldman Sachs Group, Inc. (The) | | | | | | | 34,245 | | | | 6,767,497 | |
Julius Baer Group Ltd. | | | | | | | 806,250 | | | | 33,860,562 | |
Moody’s Corp. | | | | | | | 24,211 | | | | 6,651,488 | |
Singapore Exchange Ltd. | | | | | | | 2,403,900 | | | | 14,465,860 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 78,103,317 | |
| | | | | | | | | | | | |
Diversified Financial Services – 3.5% | | | | | | | | | | | | |
Berkshire Hathaway, Inc. – Class B(a) | | | | | | | 180,330 | | | | 32,190,708 | |
Groupe Bruxelles Lambert SA | | | | | | | 130,959 | | | | 10,969,139 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 43,159,847 | |
| | | | | | | | | | | | |
Insurance – 0.6% | | | | | | | | | | | | |
PICC Property & Casualty Co., Ltd. – Class H | | | | | | | 8,472,000 | | | | 7,040,791 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 180,027,526 | |
| | | | | | | | | | | | |
| | |
| |
| 12 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| |
Communication Services – 14.2% | | | | | | | | | | | | |
Diversified Telecommunication Services – 1.8% | | | | | | | | | | | | |
Comcast Corp. – Class A | | | | | | | 555,315 | | | $ | 21,646,179 | |
| | | | | | | | | | | | |
| | | |
Entertainment – 1.8% | | | | | | | | | | | | |
Nintendo Co., Ltd. | | | | | | | 49,400 | | | | 22,085,201 | |
| | | | | | | | | | | | |
| | | |
Interactive Media & Services – 6.1% | | | | | | | | | | | | |
Alphabet, Inc. – Class C(a) | | | | | | | 39,893 | | | | 56,393,144 | |
Facebook, Inc. – Class A(a) | | | | | | | 84,540 | | | | 19,196,498 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 75,589,642 | |
| | | | | | | | | | | | |
Wireless Telecommunication Services – 4.5% | | | | | | | | | | | | |
China Mobile Ltd. | | | | | | | 2,611,000 | | | | 17,629,630 | |
SoftBank Group Corp. | | | | | | | 751,500 | | | | 37,896,394 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 55,526,024 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 174,847,046 | |
| | | | | | | | | | | | |
Health Care – 13.4% | | | | | | | | | | | | |
Health Care Equipment & Supplies – 2.9% | | | | | | | | | | | | |
Koninklijke Philips NV | | | | | | | 766,635 | | | | 35,761,775 | |
| | | | | | | | | | | | |
| | | |
Health Care Providers & Services – 5.6% | | | | | | | | | | | | |
Anthem, Inc. | | | | | | | 201,865 | | | | 53,086,458 | |
Henry Schein, Inc.(a) | | | | | | | 278,942 | | | | 16,287,423 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 69,373,881 | |
| | | | | | | | | | | | |
Pharmaceuticals – 4.9% | | | | | | | | | | | | |
Johnson & Johnson | | | | | | | 133,930 | | | | 18,834,576 | |
Roche Holding AG | | | | | | | 50,544 | | | | 17,510,945 | |
Sanofi | | | | | | | 228,170 | | | | 23,269,847 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 59,615,368 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 164,751,024 | |
| | | | | | | | | | | | |
Industrials – 11.5% | | | | | | | | | | | | |
Building Products – 3.0% | | | | | | | | | | | | |
Otis Worldwide Corp. | | | | | | | 643,201 | | | | 36,572,409 | |
| | | | | | | | | | | | |
| | | |
Commercial Services & Supplies – 3.5% | | | | | | | | | | | | |
Secom Co., Ltd. | | | | | | | 488,900 | | | | 42,897,406 | |
| | | | | | | | | | | | |
| | | |
Industrial Conglomerates – 2.8% | | | | | | | | | | | | |
3M Co. | | | | | | | 222,145 | | | | 34,652,398 | |
| | | | | | | | | | | | |
| | | |
Machinery – 1.3% | | | | | | | | | | | | |
Dover Corp. | | | | | | | 172,727 | | | | 16,678,519 | |
| | | | | | | | | | | | |
| | | |
Professional Services – 0.9% | | | | | | | | | | | | |
RELX PLC(b) | | | | | | | 461,057 | | | | 10,670,749 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 141,471,481 | |
| | | | | | | | | | | | |
| | |
| |
| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| |
Consumer Discretionary – 11.2% | | | | | | | | | | | | |
Diversified Consumer Services – 2.6% | | | | | | | | | | | | |
Service Corp. International/US | | | | | | | 836,349 | | | $ | 32,525,613 | |
| | | | | | | | | | | | |
| | | |
Hotels, Restaurants & Leisure – 2.1% | | | | | | | | | | | | |
Accor SA(a) | | | | | | | 246,838 | | | | 6,736,611 | |
Compass Group PLC | | | | | | | 941,497 | | | | 12,953,545 | |
Starbucks Corp. | | | | | | | 92,414 | | | | 6,800,746 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 26,490,902 | |
| | | | | | | | | | | | |
Internet & Direct Marketing Retail – 5.9% | |
Alibaba Group Holding Ltd. (Sponsored ADR)(a) | | | | | | | 91,790 | | | | 19,799,103 | |
Naspers Ltd. – Class N | | | | | | | 182,976 | | | | 33,627,399 | |
Prosus NV(a) | | | | | | | 202,151 | | | | 18,791,631 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 72,218,133 | |
| | | | | | | | | | | | |
Textiles, Apparel & Luxury Goods – 0.6% | |
adidas AG(a) | | | | | | | 26,669 | | | | 7,031,330 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 138,265,978 | |
| | | | | | | | | | | | |
Consumer Staples – 6.4% | |
Beverages – 2.4% | | | | | | | | | | | | |
Asahi Group Holdings Ltd. | | | | | | | 397,300 | | | | 13,954,075 | |
Coca-Cola Co. (The) | | | | | | | 342,935 | | | | 15,322,336 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 29,276,411 | |
| | | | | | | | | | | | |
Food Products – 1.8% | | | | | | | | | | | | |
Danone SA | | | | | | | 315,886 | | | | 21,926,656 | |
| | | | | | | | | | | | |
| | | |
Household Products – 1.0% | | | | | | | | | | | | |
Procter & Gamble Co. (The) | | | | | | | 109,056 | | | | 13,039,826 | |
| | | | | | | | | | | | |
| | | |
Personal Products – 1.2% | | | | | | | | | | | | |
L’Oreal SA(a) | | | | | | | 47,280 | | | | 15,259,467 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 79,502,360 | |
| | | | | | | | | | | | |
Materials – 4.3% | | | | | | | | | | | | |
Chemicals – 3.7% | | | | | | | | | | | | |
International Flavors & Fragrances, Inc.(b) | | | | | | | 373,412 | | | | 45,728,033 | |
| | | | | | | | | | | | |
| | | |
Paper & Forest Products – 0.6% | | | | | | | | | | | | |
Mondi PLC | | | | | | | 393,408 | | | | 7,358,686 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 53,086,719 | |
| | | | | | | | | | | | |
Energy – 2.1% | | | | | | | | | | | | |
Oil, Gas & Consumable Fuels – 2.1% | | | | | | | | | | | | |
LUKOIL PJSC (Sponsored ADR) | | | | | | | 180,240 | | | | 13,377,413 | |
Marathon Petroleum Corp. | | | | | | | 338,429 | | | | 12,650,476 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 26,027,889 | |
| | | | | | | | | | | | |
| | |
| |
| 14 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| |
Real Estate – 1.2% | | | | | | | | | | | | |
Real Estate Management & Development – 1.2% | | | | | | | | | | | | |
CBRE Group, Inc. – Class A(a) | | | | | | | 337,817 | | | $ | 15,276,085 | |
| | | | | | | | | | | | |
| | | |
Total Common Stocks
(cost $1,102,776,581) | | | | | | | | | | | 1,223,392,715 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
SHORT-TERM INVESTMENTS – 1.4% | | | | | | | | | | | | |
Investment Companies – 1.4% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB,
0.13%(c)(d)(e)
(cost $16,580,832) | | | | | | | 16,580,832 | | | | 16,580,832 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal
Amount
(000) | | | | |
Time Deposits – 0.0% | | | | | | | | | | | | |
BBH Grand Cayman
(1.53)%, 07/01/2020 | | | CHF | | | | 114 | | | | 120,833 | |
(0.16)%, 07/01/2020 | | | DKK | | | | 5 | | | | 818 | |
(0.10)%, 07/01/2020 | | | AUD | | | | 0 | * | | | 1 | |
(0.00)%, 07/01/2020 | | | SGD | | | | 2 | | | | 1,130 | |
0.01%, 07/01/2020 | | | GBP | | | | 0 | * | | | 431 | |
0.02%, 07/02/2020 | | | CAD | | | | 0 | * | | | 1 | |
3.03%, 07/01/2020 | | | ZAR | | | | 2 | | | | 141 | |
Citibank, London
(0.68)%, 07/01/2020 | | | EUR | | | | 107 | | | | 120,350 | |
Hong Kong & Shanghai Bank, Hong Kong
0.04%, 07/02/2020 | | | HKD | | | | 596 | | | | 76,940 | |
Sumitomo, Tokyo
(0.25)%, 07/01/2020 | | | JPY | | | | 12,872 | | | | 119,217 | |
| | | | | | | | | | | | |
| | | |
Total Time Deposits
(cost $439,862) | | | | | | | | | | | 439,862 | |
| | | | | | | | | | | | |
| | | |
Total Short-Term Investments
(cost $17,020,694) | | | | | | | | | | | 17,020,694 | |
| | | | | | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned – 100.6%
(cost $1,119,797,275) | | | | | | | | | | | 1,240,413,409 | |
| | | | | | | | | | | | |
| | |
| |
| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED – 3.9% | | | | | | | | | | | | |
Investment Companies – 3.9% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.13%(c)(d)(e)
(cost $48,007,861) | | | | | | | 48,007,861 | | | $ | 48,007,861 | |
| | | | | | | | | | | | |
| | | |
Total Investments – 104.5%
(cost $1,167,805,136) | | | | | | | | | | | 1,288,421,270 | |
Other assets less liabilities – (4.5)% | | | | | | | | | | | (55,175,521 | ) |
| | | | | | | | | | | | |
| | | |
Net Assets – 100.0% | | | | | | | | | | $ | 1,233,245,749 | |
| | | | | | | | | | | | |
| * | Principal amount less than 500. |
| (a) | Non-income producing security. |
| (b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (c) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
| (d) | Affiliated investments. |
| (e) | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD – Australian Dollar
CAD – Canadian Dollar
CHF – Swiss Franc
DKK – Danish Krone
EUR – Euro
GBP – Great British Pound
HKD – Hong Kong Dollar
JPY – Japanese Yen
SGD – Singapore Dollar
ZAR – South African Rand
Glossary:
ADR – American Depositary Receipt
PJSC – Public Joint Stock Company
See notes to financial statements.
| | |
| |
| 16 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020
| | | | |
| Assets | | | | |
Investments in securities, at value
Unaffiliated issuers (cost $1,103,216,443) | | $ | 1,223,832,577 | (a) |
Affiliated issuers (cost $64,588,693—including investment of cash collateral for securities loaned of $48,007,861) | | | 64,588,693 | |
Receivable for capital stock sold | | | 8,003,579 | |
Unaffiliated dividends receivable | | | 2,436,405 | |
Receivable for investment securities sold and foreign currency transactions | | | 1,802,603 | |
Affiliated dividends receivable | | | 5,631 | |
| | | | |
Total assets | | | 1,300,669,488 | |
| | | | |
| Liabilities | | | | |
Due to Custodian (includes foreign currency overdraft of $69 with a cost of $70) | | | 181 | |
Payable for collateral received on securities loaned | | | 48,007,861 | |
Payable for investment securities purchased | | | 18,292,855 | |
Advisory fee payable | | | 741,732 | |
Payable for capital stock redeemed | | | 132,129 | |
Administrative fee payable | | | 17,576 | |
Transfer Agent fee payable | | | 10,290 | |
Distribution fee payable | | | 4,200 | |
Accrued expenses and other liabilities | | | 216,915 | |
| | | | |
Total liabilities | | | 67,423,739 | |
| | | | |
Net Assets | | $ | 1,233,245,749 | |
| | | | |
| Composition of Net Assets | | | | |
Capital stock, at par | | $ | 9,581 | |
Additional paid-in capital | | | 1,164,471,131 | |
Distributable earnings | | | 68,765,037 | |
| | | | |
| | $ | 1,233,245,749 | |
| | | | |
Net Asset Value Per Share—11 billion shares of capital stock authorized, $.0001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| |
| A | | $ | 17,100,893 | | | | 1,332,918 | | | $ | 12.83 | * |
| |
| C | �� | $ | 904,477 | | | | 71,729 | | | $ | 12.61 | |
| |
| Advisor | | $ | 1,215,240,379 | | | | 94,409,148 | | | $ | 12.87 | |
| |
| (a) | Includes securities on loan with a value of $47,127,232 (see Note E). |
| * | The maximum offering price per share for Class A shares was $13.40 which reflects a sales charge of 4.25%. |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 17 |
STATEMENT OF OPERATIONS
Year Ended June 30, 2020
| | | | | | | | |
| Investment Income | | | | | | | | |
Dividends | | | | | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $1,008,708) | | $ | 19,585,212 | | | | | |
Affiliated issuers | | | 143,166 | | | | | |
Securities lending income | | | 40,539 | | | | | |
Interest | | | 1,971 | | | $ | 19,770,888 | |
| | | | | | | | |
| Expenses | | | | | | | | |
Advisory fee (see Note B) | | | 7,387,947 | | | | | |
Transfer agency—Class A | | | 3,175 | | | | | |
Transfer agency—Class C | | | 176 | | | | | |
Transfer agency—Advisor Class | | | 197,881 | | | | | |
Distribution fee—Class A | | | 39,641 | | | | | |
Distribution fee—Class C | | | 6,598 | | | | | |
Custody and accounting | | | 245,874 | | | | | |
Registration fees | | | 122,537 | | | | | |
Administrative | | | 72,528 | | | | | |
Audit and tax | | | 65,575 | | | | | |
Printing | | | 41,133 | | | | | |
Legal | | | 38,714 | | | | | |
Directors’ fees | | | 27,212 | | | | | |
Miscellaneous | | | 36,222 | | | | | |
| | | | | | | | |
Total expenses | | | 8,285,213 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Note B and Note E) | | | (11,603 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 8,273,610 | |
| | | | | | | | |
Net investment income | | | | | | | 11,497,278 | |
| | | | | | | | |
| Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | | | | | | | | |
Net realized loss on: | | | | | | | | |
Investment transactions | | | | | | | (49,842,225 | ) |
Foreign currency transactions | | | | | | | (206,398 | ) |
Net change in unrealized appreciation/depreciation on: | | | | | | | | |
Investments | | | | | | | 34,050,199 | |
Foreign currency denominated assets and liabilities | | | | | | | 14,629 | |
| | | | | | | | |
Net loss on investment and foreign currency transactions | | | | | | | (15,983,795 | ) |
| | | | | | | | |
Contributions from Affiliates (see Note B) | | | | | | | 158 | |
| | | | | | | | |
Net Decrease in Net Assets from Operations | | | | | | $ | (4,486,359 | ) |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 18 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
Net investment income | | $ | 11,497,278 | | | $ | 9,511,272 | |
Net realized gain (loss) on investment and foreign currency transactions | | | (50,048,623 | ) | | | 20,592,138 | |
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | | | 34,064,828 | | | | 34,416,991 | |
Contributions from Affiliates (see Note B) | | | 158 | | | | – 0 | – |
| | | | | | | | |
Net increase (decrease) in net assets from operations | | | (4,486,359 | ) | | | 64,520,401 | |
| Distributions to Shareholders | | | | | | | | |
Class A | | | (508,231 | ) | | | (279,015 | ) |
Class C | | | (16,441 | ) | | | (7,430 | ) |
Advisor Class | | | (32,759,004 | ) | | | (14,141,980 | ) |
| Capital Stock Transactions | | | | | | | | |
Net increase | | | 465,443,816 | | | | 277,141,388 | |
| | | | | | | | |
Total increase | | | 427,673,781 | | | | 327,233,364 | |
| Net Assets | | | | | | | | |
Beginning of period | | | 805,571,968 | | | | 478,338,604 | |
| | | | | | | | |
End of period | | $ | 1,233,245,749 | | | $ | 805,571,968 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 19 |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020
NOTE A
Significant Accounting Policies
AB Cap Fund, Inc. (the “Company”), which is a Maryland corporation, is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company operates as a series company comprised of 15 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 Global Core Equity 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 R, Class K, Class I, Class Z, Class T, Class 1, and Class 2 shares are not currently being offered. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national
| | |
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| 20 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements
| | |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 21 |
NOTES TO FINANCIAL STATEMENTS (continued)
or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are
| | |
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| 22 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
| | | | | | | | | | | | | | | | |
Investments in Securities | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Information Technology | | $ | 166,870,089 | | | $ | 83,266,518 | | | $ | – 0 | – | | $ | 250,136,607 | |
Financials | | | 78,457,741 | | | | 101,569,785 | | | | – 0 | �� | | | 180,027,526 | |
Communication Services | | | 97,235,821 | | | | 77,611,225 | | | | – 0 | – | | | 174,847,046 | |
Health Care | | | 123,970,232 | | | | 40,780,792 | | | | – 0 | – | | | 164,751,024 | |
Industrials | | | 98,574,075 | | | | 42,897,406 | | | | – 0 | – | | | 141,471,481 | |
Consumer Discretionary | | | 77,917,093 | | | | 60,348,885 | | | | – 0 | – | | | 138,265,978 | |
Consumer Staples | | | 28,362,162 | | | | 51,140,198 | | | | – 0 | – | | | 79,502,360 | |
Materials | | | 45,728,033 | | | | 7,358,686 | | | | – 0 | – | | | 53,086,719 | |
Energy | | | 26,027,889 | | | | – 0 | – | | | – 0 | – | | | 26,027,889 | |
Real Estate | | | 15,276,085 | | | | – 0 | – | | | – 0 | – | | | 15,276,085 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Investment Companies | | | 16,580,832 | | | | – 0 | – | | | – 0 | – | | | 16,580,832 | |
Time Deposits | | | – 0 | – | | | 439,862 | | | | – 0 | – | | | 439,862 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 48,007,861 | | | | – 0 | – | | | – 0 | – | | | 48,007,861 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 823,007,913 | | | | 465,413,357 | † | | | – 0 | – | | | 1,288,421,270 | |
Other Financial Instruments* | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | | | | | | | | | | | | |
Total | | $ | 823,007,913 | | | $ | 465,413,357 | | | $ | – 0 | – | | $ | 1,288,421,270 | |
| | | | | | | | | | | | | | | | |
| † | A significant portion of the Fund’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
| * | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 23 |
NOTES TO FINANCIAL STATEMENTS (continued)
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation 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.
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| 24 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion of the Fund’s average daily net assets, .65% of the excess over $2.5 billion up to $5 billion, and .60% of the excess of $5 billion. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs) on an annual basis (the “Expense Caps”) to 1.15%, 1.90% and .90% of the daily average net assets for Class A, Class C and Advisor Class shares, respectively. For the year ended June 30, 2020, there was no such reimbursement. The expense caps may not be terminated by the Adviser before October 31, 2020.
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 June 30, 2020, the reimbursement for such services amounted to $72,528.
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
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 25 |
NOTES TO FINANCIAL STATEMENTS (continued)
provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $111,485 for the year ended June 30, 2020.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales charges of $553 from the sale of Class A shares and received $4 and $120 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended June 30, 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 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 fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended June 30, 2020, such waiver amounted to $2,972.
A summary of the Fund’s transactions in AB mutual funds for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
6/30/19
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
6/30/20
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 6,186 | | | $ | 198,474 | | | $ | 188,079 | | | $ | 16,581 | | | $ | 41 | |
Government Money Market Portfolio* | | | 4,250 | | | | 313,823 | | | | 270,065 | | | | 48,008 | | | | 102 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 64,589 | | | $ | 143 | |
| | | | | | | | | | | | | | | | | | | | |
| * | Investment of cash collateral for securities lending transactions (see Note E). |
During the year ended June 30, 2020, the Adviser reimbursed the Fund $158 for trading losses incurred due to a trade entry error.
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
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| 26 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
approximately 65.2% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Fund’s average daily net assets attributable to Class A shares and 1% of the Fund’s average daily net assets attributable to Class C shares. There are no distribution and servicing fees on the Advisor Class. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amount of $2,316 for Class C shares. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 27 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended June 30, 2020, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 958,957,937 | | | $ | 511,757,822 | |
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 | | $ | 1,190,625,980 | |
| | | | |
Gross unrealized appreciation | | $ | 167,556,563 | |
Gross unrealized depreciation | | | (69,761,273 | ) |
| | | | |
Net unrealized appreciation | | $ | 97,795,290 | |
| | | | |
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Fund did not engage in derivative transactions for the year ended June 30, 2020.
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized
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| 28 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
continually by cash collateral and/or non-cash collateral. Non-cash collateral will include only securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The Fund cannot sell or repledge any non-cash collateral, such collateral will not be reflected in the portfolio of investments. If a loan is collateralized by cash, the Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Fund in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. If the Fund receives non-cash collateral, the Fund will receive a fee from the borrower generally equal to a negotiated percentage of the market value of the loaned securities. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. The collateral will be adjusted the next business day to maintain the required collateral amount. The amounts of securities lending income from the borrowers and Government Money Market Portfolio are reflected in the statement of operations. When the Fund earns net securities lending income from Government Money Market Portfolio, the income is inclusive of a rebate expense paid to the borrower. In connection with the cash collateral investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower.
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of the Fund’s transactions surrounding securities lending for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Government Money
Market Portfolio | |
Market Value
of Securities
on Loan* | | | Cash
Collateral* | | | Market Value
of Non-Cash
Collateral* | | | Income from
Borrowers | | | Income
Earned | | | Advisory Fee
Waived | |
| $ | 47,127,232 | | | $ | 48,007,861 | | | $ | – 0 | – | | $ | 40,539 | | | $ | 101,703 | | | $ | 8,631 | |
NOTE F
Capital Stock
Each class consists of 1,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30, 2020 | | | Year Ended June 30, 2019 | | | | | | Year Ended
June 30, 2020 | | | Year Ended June 30, 2019 | | | | |
| | | | | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 320,910 | | | | 608,989 | | | | | | | $ | 4,205,517 | | | $ | 7,770,707 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 36,958 | | | | 24,056 | | | | | | | | 506,320 | | | | 277,606 | | | | | |
| | | | | |
Shares converted from Class C | | | 6 | | | | 749 | | | | | | | | 63 | | | | 9,288 | | | | | |
| | | | | |
Shares redeemed | | | (215,989 | ) | | | (483,567 | ) | | | | | | | (2,782,909 | ) | | | (5,913,209 | ) | | | | |
| | | | | |
Net increase | | | 141,885 | | | | 150,227 | | | | | | | $ | 1,928,991 | | | $ | 2,144,392 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 39,706 | | | | 36,215 | | | | | | | $ | 527,043 | | | $ | 435,241 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 1,071 | | | | 620 | | | | | | | | 14,482 | | | | 7,073 | | | | | |
| | | | | |
Shares converted to Class A | | | (6 | ) | | | (758 | ) | | | | | | | (63 | ) | | | (9,288 | ) | | | | |
| | | | | |
Shares redeemed | | | (11,244 | ) | | | (6,087 | ) | | | | | | | (136,210 | ) | | | (74,397 | ) | | | | |
| | | | | |
Net increase | | | 29,527 | | | | 29,990 | | | | | | | $ | 405,252 | | | $ | 358,629 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 49,123,853 | | | | 27,998,052 | | | | | | | $ | 635,710,293 | | | $ | 354,208,178 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 2,276,159 | | | | 1,171,379 | | | | | | | | 31,251,667 | | | | 13,541,137 | | | | | |
| | | | | |
Shares redeemed | | | (16,112,612 | ) | | | (7,392,238 | ) | | | | | | | (203,852,387 | ) | | | (93,110,948 | ) | | | | |
| | | | | |
Net increase | | | 35,287,400 | | | | 21,777,193 | | | | | | | $ | 463,109,573 | | | $ | 274,638,367 | | | | | |
| | | | | |
| | |
| |
| 30 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
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. It includes the risk that a particular style of investing, such as growth, may underperform the market generally.
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 as well as being subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Sector Risk—The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information technology or financial services sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance
| | |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended June 30, 2020.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended June 30, 2020 and June 30, 2019 were as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 22,774,797 | | | $ | 8,004,769 | |
Long-term capital gains | | | 10,508,879 | | | | 6,423,656 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 33,283,676 | | | $ | 14,428,425 | |
| | | | | | | | |
| | |
| |
| 32 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
As of June 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 5,085,736 | |
Accumulated capital and other losses | | | (34,123,360 | )(a) |
Unrealized appreciation/(depreciation) | | | 97,802,662 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 68,765,038 | |
| | | | |
| (a) | As of June 30, 2020, the Fund had a net capital loss carryforward of $34,123,360. |
| (b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax treatment of passive foreign investment companies (PFICs) and the tax deferral of losses on wash sales. |
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 June 30, 2020, the Fund had a net short-term capital loss carryforward of $24,774,047 and a net long-term capital loss carryforward of $9,349,313, which may be carried forward for an indefinite period.
During the current fiscal year, permanent differences primarily due to contributions from the Adviser resulted in a net increase in distributable earnings and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
| | |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 33 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended June 30, | |
| | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | $ 13.31 | | | | $ 12.42 | | | | $ 11.72 | | | | $ 9.70 | | | | $ 10.15 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .12 | | | | .17 | | | | .16 | | | | .16 | | | | .16 | |
| | | | | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | (.16 | ) | | | 1.02 | | | | 1.09 | | | | 1.94 | | | | (.51 | ) |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | (.04 | ) | | | 1.19 | | | | 1.25 | | | | 2.10 | | | | (.35 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.13 | ) | | | (.12 | ) | | | (.13 | ) | | | (.08 | ) | | | (.07 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (.31 | ) | | | (.18 | ) | | | (.42 | ) | | | – 0 | – | | | (.03 | ) |
| | | | |
Total dividends and distributions | | | (.44 | ) | | | (.30 | ) | | | (.55 | ) | | | (.08 | ) | | | (.10 | ) |
| | | | |
Net asset value, end of period | | | $ 12.83 | | | | $ 13.31 | | | | $ 12.42 | | | | $ 11.72 | | | | $ 9.70 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | (.48 | )% | | | 9.95 | % | | | 10.72 | % | | | 21.81 | % | | | (3.40 | )% |
| | | | | |
Ratios/Supplemental
Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period
(000’s omitted) | | | $17,101 | | | | $15,851 | | | | $12,925 | | | | $5,911 | | | | $939 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements | | | 1.08 | % | | | 1.13 | % | | | 1.15 | % | | | 1.15 | % | | | 1.15 | % |
| | | | | |
Expenses, before waivers/reimbursements | | | 1.08 | % | | | 1.13 | % | | | 1.15 | % | | | 1.22 | % | | | 1.38 | % |
| | | | | |
Net investment income(b) | | | .89 | % | | | 1.33 | % | | | 1.31 | % | | | 1.43 | % | | | 1.64 | % |
| | | | | |
Portfolio turnover rate | | | 52 | % | | | 47 | % | | | 45 | % | | | 51 | % | | | 51 | % |
See footnote summary on page 36.
| | |
| |
| 34 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class C | |
| | | Year Ended June 30, | |
| | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | $ 13.10 | | | | $ 12.29 | | | | $ 11.63 | | | | $ 9.67 | | | | $ 10.11 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .02 | | | | .09 | | | | .06 | | | | .05 | | | | .06 | |
| | | | | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | (.15 | ) | | | .99 | | | | 1.08 | | | | 1.96 | | | | (.47 | ) |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | (.13 | ) | | | 1.08 | | | | 1.14 | | | | 2.01 | | | | (.41 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.05 | ) | | | (.09 | ) | | | (.06 | ) | | | (.05 | ) | | | – 0 | – |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (.31 | ) | | | (.18 | ) | | | (.42 | ) | | | – 0 | – | | | (.03 | ) |
| | | | |
Total dividends and distributions | | | (.36 | ) | | | (.27 | ) | | | (.48 | ) | | | (.05 | ) | | | (.03 | ) |
| | | | |
Net asset value, end of period | | | $ 12.61 | | | | $ 13.10 | | | | $ 12.29 | | | | $ 11.63 | | | | $ 9.67 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | (1.17 | )% | | | 9.12 | % | | | 9.87 | % | | | 20.80 | % | | | (4.09 | )% |
| | | | | |
Ratios/Supplemental
Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period
(000’s omitted) | | | $905 | | | | $553 | | | | $150 | | | | $70 | | | | $16 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements | | | 1.84 | % | | | 1.90 | % | | | 1.90 | % | | | 1.90 | % | | | 1.90 | % |
| | | | | |
Expenses, before waivers/reimbursements | | | 1.84 | % | | | 1.90 | % | | | 1.92 | % | | | 2.06 | % | | | 2.09 | % |
| | | | | |
Net investment income(b) | | | .15 | % | | | .69 | % | | | .49 | % | | | .49 | % | | | .61 | % |
| | | | | |
Portfolio turnover rate | | | 52 | % | | | 47 | % | | | 45 | % | | | 51 | % | | | 51 | % |
See footnote summary on page 36.
| | |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 35 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Advisor Class | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value,
beginning of period | | | $ 13.35 | | | | $ 12.46 | | | | $ 11.75 | | | | $ 9.72 | | | | $ 10.16 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .15 | | | | .20 | | | | .18 | | | | .16 | | | | .15 | |
| | | | | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | (.15 | ) | | | 1.02 | | | | 1.10 | | | | 1.97 | | | | (.48 | ) |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | .00 | (c) | | | 1.22 | | | | 1.28 | | | | 2.13 | | | | (.33 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.17 | ) | | | (.15 | ) | | | (.15 | ) | | | (.10 | ) | | | (.08 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (.31 | ) | | | (.18 | ) | | | (.42 | ) | | | – 0 | – | | | (.03 | ) |
| | | | |
Total dividends and distributions | | | (.48 | ) | | | (.33 | ) | | | (.57 | ) | | | (.10 | ) | | | (.11 | ) |
| | | | |
Net asset value, end of period | | | $ 12.87 | | | | $ 13.35 | | | | $ 12.46 | | | | $ 11.75 | | | | $ 9.72 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | (.25 | )% | | | 10.21 | % | | | 11.02 | % | | | 22.09 | % | | | (3.17 | )% |
| | | | | |
Ratios/Supplemental
Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period
(000’s omitted) | | | $1,215,240 | | | | $789,168 | | | | $465,263 | | | | $310,829 | | | | $156,608 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements | | | .84 | % | | | .90 | % | | | .90 | % | | | .90 | % | | | .90 | % |
| | | | | |
Expenses, before waivers/reimbursements | | | .84 | % | | | .90 | % | | | .90 | % | | | .97 | % | | | 1.08 | % |
| | | | | |
Net investment income(b) | | | 1.17 | % | | | 1.61 | % | | | 1.42 | % | | | 1.52 | % | | | 1.59 | % |
| | | | | |
Portfolio turnover rate | | | 52 | % | | | 47 | % | | | 45 | % | | | 51 | % | | | 51 | % |
| (a) | Based on average shares outstanding. |
| (b) | Net of expenses waived/reimbursed by the Adviser. |
| (c) | Amount is less than $0.005. |
| (d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charge or contingent deferred sales charge is not reflected in the calculation of total investment return. Total investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return for a period of less than one year is not annualized. |
See notes to financial statements.
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| 36 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AB Global Core Equity Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Global Core Equity Portfolio (the “Fund”) (one of the funds constituting AB Cap Fund, Inc. (the “Company”)), including the portfolio of investments, as of June 30, 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 five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Cap Fund, Inc.) at June 30, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 37 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 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
August 26, 2020
| | |
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| 38 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
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 taxable year ended June 30, 2020.
For corporate shareholders, 43.73% of dividends paid qualify for the dividends received deduction. For individual shareholders, the Fund designates 69.04% of dividends paid as qualified dividend income.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2021.
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 39 |
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 Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
| | |
David Dalgas(2), Vice President Klaus Ingemann(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
Custodian and Accounting Agent 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 Investment Policy Team. Messrs. Dalgas and Ingemann are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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| 40 | AB GLOBAL CORE EQUITY PORTFOLIO | | abfunds.com |
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 COMPANY 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. | | | 78 | | | None |
| | |
| |
| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 41 |
MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
| DISINTERESTED DIRECTORS | | | | | | |
| | | |
Marshall C. Turner, Jr.,## Chairman of the Board 78 (2014) | | Private Investor since prior to 2015. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of 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 such AB Funds since February 2014. | | | 78 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Jorge A. Bermudez,## 69 (2020) | | Private investor since prior to 2015. 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. | | | 78 | | | Moody’s Corporation since April 2011 |
| | | | | | | | |
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Michael J. Downey,## 76 (2014) | | Private Investor since prior to 2015. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2015 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. | | | 78 | | | None |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 43 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Nancy P. Jacklin,## 72 (2014) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
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Jeanette 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 a Director of the AB Funds since April 2020. | | | 78 | | | 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 INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Carol C. McMullen,## 65 (2014) | | 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 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included 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. | | | 78 | | | None |
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| abfunds.com | | AB GLOBAL CORE EQUITY PORTFOLIO | 45 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
Garry L. Moody,## 68 (2014) | | Private Investor since prior to 2015. 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 the 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | |
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. | | | 78 | | | None |
| * | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
| ** | There is no stated term of office for the Fund’s Directors. |
| *** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
| # | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below:
| | | | |
Robert M. Keith
60 | | President and Chief Executive Officer | | See biography above. |
| | | | |
David Dalgas
49 | | Vice President | | Senior Vice President of the Adviser**, since prior to 2015. Co-Chief Investment Officer - Global Core Equity since 2018. |
| | | | |
Klaus Ingemann 46 | | Vice President | | Senior Vice President of the Adviser**, since prior to 2015. Co-Chief Investment Officer - Global Core Equity since 2018. |
| | | | |
Emilie D. Wrapp
64 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2015. |
| | | | |
Michael B. Reyes 44 | | Senior Analyst | | Vice President of the Adviser**, with which he has been associated since prior to 2015. |
| | | | |
Joseph J. Mantineo
61 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2015. |
| | | | |
Phyllis J. Clarke
59 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2015. |
| | | | |
Vincent S. Noto 55 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2015. |
| * | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at (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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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Cap Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Core Equity Portfolio (the “Fund”) at a meeting held by video conference on May 5-7, 2020 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the money market fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
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Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
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Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the money market fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended February 29, 2020 (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser 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 paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the
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Adviser’s Form ADV in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to the Fund’s, 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 shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the 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 may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
In connection with their review of the Fund’s advisory fee, the directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the
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Fund’s latest fiscal year. The Adviser had agreed to cap the Fund’s expenses, but the directors noted that the Fund’s expense ratio was currently below the level of the Adviser’s cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and 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 Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
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
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond 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
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
| 1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB GLOBAL CORE EQUITY PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
GCE-0151-0620 
JUN 06.30.20
ANNUAL REPORT
AB INTERNATIONAL STRATEGIC CORE PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
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| 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.
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| FROM THE PRESIDENT | |  |
Dear Shareholder,
We are pleased to provide this report for AB International Strategic Core 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
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 1 |
ANNUAL REPORT
August 6, 2020
This report provides management’s discussion of fund performance for AB International Strategic Core Portfolio for the annual reporting period ended June 30, 2020.
The Fund’s investment objective is to seek long-term growth of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | 6 Months | | | 12 Months | |
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| AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | | | | | | | |
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| Class A Shares | | | -9.13% | | | | -4.33% | |
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| Class C Shares | | | -9.46% | | | | -5.01% | |
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| Advisor Class Shares1 | | | -9.02% | | | | -4.14% | |
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| Class Z Shares1 | | | -9.02% | | | | -6.91% | 2 |
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| MSCI EAFE Index (net) | | | -11.34% | | | | -5.13% | |
| 1 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
| 2 | Since inception on 11/20/2019. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Morgan Stanley Capital International Europe, Australasia and the Far East (“MSCI EAFE”) Index (net), for the six- and 12-month periods ended June 30, 2020. The inception date for Class Z shares was November 20, 2019; due to limited performance history, there is no discussion of comparison to the benchmark for this share class for the 12-month period.
For the 12-month period, all share classes of the Fund, outperformed the benchmark; all share classes of the Fund outperformed the benchmark for the six-month period, before sales charges. During the 12-month period, stock selection within the financials and real estate sectors contributed, while selection in consumer discretionary and energy detracted. An overweight to technology and an underweight to energy contributed, while an underweight to health care and an overweight to financials detracted. Country allocation (a result of bottom-up security analysis combined with fundamental research) detracted, particularly an underweight to Japan; an underweight to Australia contributed.
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| 2 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
For the six-month period, overall stock selection contributed, led by selection in financials and real estate, while selection in communication services and consumer discretionary detracted. An overweight to technology and an underweight to energy contributed, while an underweight to health care and an overweight to real estate detracted. Country selection contributed to performance, led by an underweight to France; an overweight to Singapore detracted.
The Fund utilized derivatives in the form of currency forwards for hedging purposes, which added to absolute performance for both periods, and futures for investment purposes, which detracted from performance for both periods.
MARKET REVIEW AND INVESTMENT STRATEGY
International stocks experienced moderate losses during the 12-month period ended June 30, 2020. Amid increased volatility, all developed and emerging equity markets rallied throughout the final quarter of the period, rising off lows reached in March after suffering steep losses that wiped out previous gains as a result of the worldwide COVID-19 pandemic. Continued support from central banks, early stage reopening of global economies and the prospect of a potential vaccine helped lift investor sentiment, despite a sharp contraction of economic growth, a resurgence of US-China tensions and rising rates of COVID-19 cases in parts of the US and large emerging markets. Growth stocks outperformed their value-style peers in all categories. Small-cap stocks continued to rally, outperforming large-caps in the final quarter of the period; year to date, large-caps have performed significantly better.
While the unprecedented threat of COVID-19 appeared to be receding, given the multitude of macro, political and healthcare-related risks still outstanding, the Fund’s Senior Investment Management Team (the “Team”) believes that investors should focus on investing in well-capitalized companies with strong business fundamentals rather than timing the market. The pandemic could serve to accelerate many of the pre-existing structural trends that were already in place. Most notably, continued transition to a more knowledge-based economy means that companies with strong brands, intellectual property, and research and development (“R&D”) capabilities could see opportunities for profitable growth. The Team has positions in technology companies with recurring cash-flow streams and strong R&D capabilities, leading pharmaceutical companies, branded food and beverage makers, and companies with proprietary data or intellectual property. The Team believes these defensive business models should lead to success over the long run, regardless of the direction of the pandemic or macroeconomic conditions. Furthermore, many defensive businesses are trading at attractive valuations.
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 3 |
The Team continues to strive to build a macro-resilient portfolio and to invest in companies that it believes will succeed over time, regardless of how the pandemic unfolds or how geopolitical or macro risks rear their heads.
INVESTMENT POLICIES
The Adviser seeks to achieve the Fund’s investment objective by investing, under normal circumstances, primarily in common stocks of non-US companies, and in companies in at least three countries other than the United States.
The Fund invests in companies that are determined by the Adviser to offer favorable long-term sustainable profitability, price stability, and attractive valuations. The Adviser employs an integrated approach that combines both fundamental and quantitative research to identify attractive investment opportunities. Factors that the Adviser considers in this regard include: a company’s record and projections of profitability, accuracy and availability of information with respect to the company, success and experience of management, competitive advantage, low stock price volatility, and liquidity of the company’s securities. The Adviser compares these results to the characteristics of the general stock markets to determine the relative attractiveness of each company at a given time. The Adviser weighs economic, political and market factors in making investment decisions. The Adviser seeks to manage the Fund so that it is subject to less share price volatility than many other international mutual funds, although there can be no guarantee that the Adviser will be successful in this regard.
The Fund primarily invests in mid- and large-capitalization companies, which are currently defined for the Fund as companies that have market capitalizations of $1.5 billion or more. The Fund’s holdings of non-US companies will generally include some companies located in emerging markets.
Fluctuations in currency exchange rates can have a dramatic impact on the returns of equity securities. The Adviser may adjust the foreign currency exposure resulting from the Fund’s security positions through the use of currency-related derivatives, primarily in an effort to minimize the currency risk to which the Fund is subject. However, the Adviser is not required to use such derivatives.
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| 4 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The MSCI EAFE Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI EAFE Index (net, free float-adjusted market capitalization weighted) represents the equity market performance of developed markets, excluding the US and Canada. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns include the reinvestment of dividends after deduction of non-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the 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.
Sector Risk: The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information-technology or financial-services sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
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. These risks may be heightened with respect to investments in emerging-market countries, where there may be an increased amount of economic, political and social instability.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Capitalization Risk: Investments in mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in mid-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
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.
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 5 |
DISCLOSURES AND RISKS (continued)
Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. Net asset value (“NAV”) returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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| 6 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
7/29/20151 TO 6/30/2020
This chart illustrates the total value of an assumed $10,000 investment in AB International Strategic Core Portfolio Class A shares (from 7/29/20151 to 6/30/2020) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
| 1 | Inception date: 7/29/2015. |
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 7 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | NAV Returns | | | SEC Returns
(reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | | | | | |
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| 1 Year | | | -4.33% | | | | -8.40% | |
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| Since Inception1 | | | 3.53% | | | | 2.63% | |
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| CLASS C SHARES | | | | | | | | |
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| 1 Year | | | -5.01% | | | | -5.95% | |
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| Since Inception1 | | | 2.75% | | | | 2.75% | |
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| ADVISOR CLASS SHARES2 | | | | | | | | |
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| 1 Year | | | -4.14% | | | | -4.14% | |
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| Since Inception1 | | | 3.77% | | | | 3.77% | |
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| CLASS Z SHARES2 | | | | | | | | |
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| Since Inception1 | | | -6.91% | | | | -6.91% | |
The Fund’s prospectus fee table shows the Fund’s total annual operating expense ratios as 1.51%, 2.28%, 1.26% and 1.25% for Class A, Class C, Advisor Class and Class Z shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios exclusive of acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs to 1.20%, 1.95%, 0.95% and 0.95% for Class A, Class C, Advisor Class and Class Z shares, respectively. These waivers/reimbursements may not be terminated before October 31, 2020. Any fees waived and expenses borne by the Adviser for Class A, Class C and Advisor Class shares through February 16, 2017 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 covered operating expenses to exceed the applicable expense limitations. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
| 1 | Inception dates: 7/29/2015 for all share classes except Class Z; 11/20/2019 for Class Z shares. |
| 2 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| 8 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
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| | | SEC Returns
(reflects applicable
sales charges) | |
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| CLASS A SHARES | | | | |
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| 1 Year | | | -8.40% | |
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| Since Inception1 | | | 2.63% | |
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| CLASS C SHARES | | | | |
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| 1 Year | | | -5.95% | |
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| Since Inception1 | | | 2.75% | |
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| ADVISOR CLASS SHARES2 | | | | |
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| 1 Year | | | -4.14% | |
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| Since Inception1 | | | 3.77% | |
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| CLASS Z SHARES2 | | | | |
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| Since Inception1 | | | -6.91% | |
| 1 | Inception dates: 7/29/2015 for all share classes except Class Z; 11/20/2019 for Class Z shares. |
| 2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| | | Beginning
Account
Value
1/1/2020 | | | Ending
Account
Value
6/30/2020 | | | Expenses
Paid
During
Period* | | | Annualized
Expense
Ratio* | | | Total
Expenses
Paid
During
Period+ | | | Total
Annualized
Expense
Ratio+ | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 908.70 | | | $ | 5.65 | | | | 1.19 | % | | $ | 5.69 | | | | 1.20 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,018.95 | | | $ | 5.97 | | | | 1.19 | % | | $ | 6.02 | | | | 1.20 | % |
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| 10 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
EXPENSE EXAMPLE (continued)
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| | | Beginning
Account
Value
1/1/2020 | | | Ending
Account
Value
6/30/2020 | | | Expenses
Paid
During
Period* | | | Annualized
Expense
Ratio* | | | Total
Expenses
Paid
During
Period+ | | | Total
Annualized
Expense
Ratio+ | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 905.40 | | | $ | 9.24 | | | | 1.95 | % | | $ | 9.24 | | | | 1.95 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.17 | | | $ | 9.77 | | | | 1.95 | % | | $ | 9.77 | | | | 1.95 | % |
| Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 909.80 | | | $ | 4.51 | | | | 0.95 | % | | $ | 4.51 | | | | 0.95 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.14 | | | $ | 4.77 | | | | 0.95 | % | | $ | 4.77 | | | | 0.95 | % |
| Class Z | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 909.80 | | | $ | 4.42 | | | | 0.93 | % | | $ | 4.42 | | | | 0.93 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,020.24 | | | $ | 4.67 | | | | 0.93 | % | | $ | 4.67 | | | | 0.93 | % |
| * | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| + | In connection with the Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| ** | Assumes 5% annual return before expenses. |
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 11 |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $445.8
| 1 | All data are as of June 30, 2020. The Fund’s sector and country breakdowns are expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). “Other” country weightings represent 1.8% or less in the following: Belgium, Denmark, Finland, Norway, Portugal, South Korea, Spain, Taiwan and United States. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund’s prospectus.
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| 12 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
PORTFOLIO SUMMARY (continued)
June 30, 2020 (unaudited)
TEN LARGEST HOLDINGS1
| | | | | | | | |
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| Company | | U.S. $ Value | | | Percent of
Net Assets | |
| | |
| Roche Holding AG | | $ | 15,779,737 | | | | 3.5 | % |
| | |
| RELX PLC | | | 12,509,707 | | | | 2.8 | |
| | |
| Oracle Corp. Japan | | | 11,825,683 | | | | 2.7 | |
| | |
| Constellation Software, Inc./Canada | | | 11,384,892 | | | | 2.6 | |
| | |
| Wolters Kluwer NV | | | 10,650,808 | | | | 2.4 | |
| | |
| Nestle SA (REG) | | | 10,142,445 | | | | 2.3 | |
| | |
| Partners Group Holding AG | | | 9,473,937 | | | | 2.1 | |
| | |
| Koninklijke Ahold Delhaize NV | | | 8,582,851 | | | | 1.9 | |
| | |
| Enel SpA | | | 8,291,871 | | | | 1.9 | |
| | |
| Astellas Pharma, Inc. | | | 8,241,234 | | | | 1.8 | |
| | |
| | $ | 106,883,165 | | | | 24.0 | % |
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS
June 30, 2020
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
COMMON STOCKS – 92.3% | |
Information Technology – 15.6% | |
IT Services – 3.0% | |
Amadeus IT Group SA – Class A | | | 60,804 | | | $ | 3,192,342 | |
Capgemini SE | | | 46,130 | | | | 5,323,472 | |
Otsuka Corp. | | | 95,700 | | | | 5,054,460 | |
| | | | | | | | |
| | | | | | | 13,570,274 | |
| | | | | | | | |
Semiconductors & Semiconductor Equipment – 0.5% | | | | | | | | |
Taiwan Semiconductor Manufacturing Co., Ltd. | | | 202,000 | | | | 2,157,263 | |
| | | | | | | | |
|
Software – 10.7% | |
Avast PLC(a) | | | 825,130 | | | | 5,392,937 | |
Check Point Software Technologies Ltd.(b) | | | 60,213 | | | | 6,468,683 | |
Constellation Software, Inc./Canada | | | 10,083 | | | | 11,384,892 | |
Nice Ltd.(b) | | | 38,158 | | | | 7,192,866 | |
Oracle Corp. Japan | | | 99,700 | | | | 11,825,683 | |
SAP SE | | | 37,959 | | | | 5,306,270 | |
| | | | | | | | |
| | | | | | | 47,571,331 | |
| | | | | | | | |
Technology Hardware, Storage & Peripherals – 1.4% | | | | | | | | |
Logitech International SA | | | 36,070 | | | | 2,363,646 | |
Samsung Electronics Co., Ltd. | | | 88,480 | | | | 3,916,800 | |
| | | | | | | | |
| | | | | | | 6,280,446 | |
| | | | | | | | |
| | | | | | | 69,579,314 | |
| | | | | | | | |
Financials – 15.0% | |
Banks – 6.4% | |
Bank Leumi Le-Israel BM | | | 869,380 | | | | 4,371,168 | |
DBS Group Holdings Ltd. | | | 389,300 | | | | 5,857,732 | |
Hang Seng Bank Ltd. | | | 151,500 | | | | 2,551,604 | |
KBC Group NV | | | 77,220 | | | | 4,436,386 | |
Oversea-Chinese Banking Corp., Ltd. | | | 618,372 | | | | 4,030,420 | |
Royal Bank of Canada | | | 75,919 | | | | 5,150,928 | |
Westpac Banking Corp. | | | 174,190 | | | | 2,183,191 | |
| | | | | | | | |
| | | | | | | 28,581,429 | |
| | | | | | | | |
Capital Markets – 3.9% | |
Euronext NV(a) | | | 23,151 | | | | 2,330,247 | |
Partners Group Holding AG | | | 10,403 | | | | 9,473,937 | |
Singapore Exchange Ltd. | | | 887,700 | | | | 5,341,879 | |
| | | | | | | | |
| | | | | | | 17,146,063 | |
| | | | | | | | |
Insurance – 4.7% | |
Admiral Group PLC | | | 228,920 | | | | 6,491,933 | |
Allianz SE (REG) | | | 9,920 | | | | 2,027,077 | |
Sampo Oyj – Class A | | | 157,380 | | | | 5,424,858 | |
Swiss Re AG | | | 35,270 | | | | 2,734,643 | |
Zurich Insurance Group AG | | | 12,620 | | | | 4,471,651 | |
| | | | | | | | |
| | | | | | | 21,150,162 | |
| | | | | | | | |
| | | | | | | 66,877,654 | |
| | | | | | | | |
| | |
| |
| 14 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Industrials – 13.0% | |
Aerospace & Defense – 0.7% | |
BAE Systems PLC | | | 551,170 | | | $ | 3,295,700 | |
| | | | | | | | |
|
Air Freight & Logistics – 2.3% | |
Kuehne & Nagel International AG(b) | | | 24,800 | | | | 4,130,901 | |
SG Holdings Co., Ltd. | | | 179,400 | | | | 5,854,475 | |
| | | | | | | | |
| | | | | | | 9,985,376 | |
| | | | | | | | |
Commercial Services & Supplies – 1.2% | |
Secom Co., Ltd. | | | 59,500 | | | | 5,220,691 | |
| | | | | | | | |
|
Professional Services – 8.8% | |
Experian PLC | | | 167,850 | | | | 5,891,343 | |
Intertek Group PLC | | | 39,930 | | | | 2,689,327 | |
Intertrust NV | | | 171,020 | | | | 2,912,857 | |
Meitec Corp. | | | 95,900 | | | | 4,639,753 | |
RELX PLC | | | 540,475 | | | | 12,509,707 | |
Wolters Kluwer NV | | | 136,364 | | | | 10,650,808 | |
| | | | | | | | |
| | | | | | | 39,293,795 | |
| | | | | | | | |
| | | | | | | 57,795,562 | |
| | | | | | | | |
Consumer Staples – 12.5% | |
Food & Staples Retailing – 1.9% | |
Koninklijke Ahold Delhaize NV | | | 314,920 | | | | 8,582,851 | |
| | | | | | | | |
|
Food Products – 4.9% | |
Calbee, Inc. | | | 79,200 | | | | 2,189,060 | |
Morinaga & Co., Ltd./Japan | | | 73,600 | | | | 2,858,113 | |
Nestle SA (REG) | | | 91,480 | | | | 10,142,445 | |
Salmar ASA | | | 134,860 | | | | 6,460,525 | |
| | | | | | | | |
| | | | | | | 21,650,143 | |
| | | | | | | | |
Personal Products – 0.9% | |
Unilever PLC | | | 78,180 | | | | 4,217,113 | |
| | | | | | | | |
|
Tobacco – 4.8% | |
British American Tobacco PLC | | | 168,031 | | | | 6,444,461 | |
Philip Morris International, Inc. | | | 98,420 | | | | 6,895,305 | |
Swedish Match AB | | | 116,060 | | | | 8,188,689 | |
| | | | | | | | |
| | | | | | | 21,528,455 | |
| | | | | | | | |
| | | | | | | 55,978,562 | |
| | | | | | | | |
Health Care – 10.9% | |
Health Care Equipment & Supplies – 0.5% | |
ConvaTec Group PLC(a) | | | 882,190 | | | | 2,130,573 | |
| | | | | | | | |
|
Health Care Providers & Services – 0.8% | |
Galenica AG(a) | | | 50,690 | | | | 3,634,234 | |
| | | | | | | | |
|
Pharmaceuticals – 9.6% | |
Astellas Pharma, Inc. | | | 493,500 | | | | 8,241,234 | |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
GlaxoSmithKline PLC | | | 331,850 | | | $ | 6,703,267 | |
Novo Nordisk A/S – Class B | | | 121,070 | | | | 7,887,436 | |
Roche Holding AG | | | 45,547 | | | | 15,779,737 | |
Sanofi | | | 41,090 | | | | 4,190,551 | |
| | | | | | | | |
| | | | | | | 42,802,225 | |
| | | | | | | | |
| | | | | | | 48,567,032 | |
| | | | | | | | |
Communication Services – 7.8% | |
Diversified Telecommunication Services – 3.6% | | | | | | | | |
HKT Trust & HKT Ltd. – Class SS | | | 3,906,000 | | | | 5,731,932 | |
Nippon Telegraph & Telephone Corp. | | | 308,600 | | | | 7,190,211 | |
TELUS Corp. | | | 178,050 | | | | 2,986,298 | |
| | | | | | | | |
| | | | | | | 15,908,441 | |
| | | | | | | | |
Interactive Media & Services – 2.7% | |
Auto Trader Group PLC | | | 1,062,650 | | | | 6,918,654 | |
Kakaku.com, Inc. | | | 194,600 | | | | 4,957,287 | |
| | | | | | | | |
| | | | | | | 11,875,941 | |
| | | | | | | | |
Media – 1.5% | |
Cogeco Communications, Inc. | | | 66,318 | | | | 4,777,964 | |
Informa PLC | | | 353,000 | | | | 2,040,955 | |
| | | | | | | | |
| | | | | | | 6,818,919 | |
| | | | | | | | |
| | | | | | | 34,603,301 | |
| | | | | | | | |
Consumer Discretionary – 6.3% | |
Hotels, Restaurants & Leisure – 2.2% | |
Aristocrat Leisure Ltd. | | | 365,804 | | | | 6,550,272 | |
Compass Group PLC | | | 242,810 | | | | 3,340,690 | |
| | | | | | | | |
| | | | | | | 9,890,962 | |
| | | | | | | | |
Internet & Direct Marketing Retail – 0.9% | |
Moneysupermarket.com Group PLC | | | 1,032,520 | | | | 4,141,849 | |
| | | | | | | | |
|
Leisure Products – 1.3% | |
Bandai Namco Holdings, Inc. | | | 113,300 | | | | 5,963,894 | |
| | | | | | | | |
|
Specialty Retail – 0.9% | |
Hikari Tsushin, Inc. | | | 16,500 | | | | 3,772,695 | |
| | | | | | | | |
|
Textiles, Apparel & Luxury Goods – 1.0% | |
adidas AG(b) | | | 17,120 | | | | 4,513,719 | |
| | | | | | | | |
| | | | | | | 28,283,119 | |
| | | | | | | | |
Real Estate – 5.3% | |
Equity Real Estate Investment Trusts (REITs) – 3.8% | | | | | | | | |
Merlin Properties Socimi SA | | | 448,050 | | | | 3,733,716 | |
Nippon Building Fund, Inc. | | | 1,017 | | | | 5,791,986 | |
Nippon Prologis REIT, Inc. | | | 2,459 | | | | 7,472,001 | |
| | | | | | | | |
| | | | | | | 16,997,703 | |
| | | | | | | | |
| | |
| |
| 16 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Real Estate Management & Development – 1.5% | | | | | | | | |
Vonovia SE | | | 111,430 | | | $ | 6,810,944 | |
| | | | | | | | |
| | | | | | | 23,808,647 | |
| | | | | | | | |
Utilities – 4.8% | |
Electric Utilities – 3.5% | |
EDP – Energias de Portugal SA | | | 1,517,070 | | | | 7,241,372 | |
Enel SpA | | | 958,770 | | | | 8,291,871 | |
| | | | | | | | |
| | | | | | | 15,533,243 | |
| | | | | | | | |
Gas Utilities – 1.3% | |
Tokyo Gas Co., Ltd. | | | 240,300 | | | | 5,753,891 | |
| | | | | | | | |
| | | | | | | 21,287,134 | |
| | | | | | | | |
Energy – 1.1% | |
Oil, Gas & Consumable Fuels – 1.1% | |
Royal Dutch Shell PLC – Class B | | | 313,711 | | | | 4,755,951 | |
| | | | | | | | |
| | |
Total Common Stocks
(cost $392,796,070) | | | | | | | 411,536,276 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM INVESTMENTS – 5.1% | |
Investment Companies – 5.1% | |
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.13%(c)(d)(e)
(cost $22,862,729) | | | 22,862,729 | | | | 22,862,729 | |
| | | | | | | | |
| | |
Total Investments – 97.4%
(cost $415,658,799) | | | | | | | 434,399,005 | |
Other assets less liabilities – 2.6% | | | | | | | 11,381,879 | |
| | | | | | | | |
| | |
Net Assets – 100.0% | | | | | | $ | 445,780,884 | |
| | | | | | | | |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | CAD | 1,504 | | | USD | 1,121 | | | | 07/17/2020 | | | $ | 13,207 | |
Bank of America, NA | | CAD | 1,451 | | | USD | 1,037 | | | | 07/17/2020 | | | | (31,559 | ) |
Bank of America, NA | | GBP | 658 | | | USD | 812 | | | | 07/17/2020 | | | | (3,333 | ) |
Bank of America, NA | | ILS | 8,250 | | | USD | 2,274 | | | | 07/17/2020 | | | | (108,595 | ) |
Bank of America, NA | | NOK | 20,106 | | | USD | 1,907 | | | | 07/17/2020 | | | | (181,796 | ) |
Bank of America, NA | | USD | 5,248 | | | AUD | 8,288 | | | | 07/17/2020 | | | | 472,082 | |
Bank of America, NA | | USD | 10,091 | | | EUR | 9,231 | | | | 07/17/2020 | | | | 283,761 | |
Bank of America, NA | | USD | 721 | | | GBP | 584 | | | | 07/17/2020 | | | | 3,167 | |
Bank of America, NA | | USD | 2,839 | | | SEK | 28,424 | | | | 07/17/2020 | | | | 211,542 | |
Barclays Bank PLC | | CHF | 1,578 | | | USD | 1,628 | | | | 07/17/2020 | | | | (37,842 | ) |
Barclays Bank PLC | | GBP | 1,116 | | | USD | 1,394 | | | | 07/17/2020 | | | | 10,890 | |
Barclays Bank PLC | | USD | 5,766 | | | AUD | 9,228 | | | | 07/17/2020 | | | | 602,622 | |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Barclays Bank PLC | | USD | 789 | | | GBP | 645 | | | | 07/17/2020 | | | $ | 10,095 | |
Barclays Bank PLC | | USD | 712 | | | GBP | 569 | | | | 07/17/2020 | | | | (6,879 | ) |
Barclays Bank PLC | | GBP | 1,050 | | | USD | 1,303 | | | | 10/16/2020 | | | | 1,026 | |
Barclays Bank PLC | | USD | 1,105 | | | JPY | 118,018 | | | | 10/16/2020 | | | | (9,953 | ) |
BNP Paribas SA | | SGD | 1,792 | | | USD | 1,290 | | | | 10/16/2020 | | | | 3,570 | |
Brown Brothers Harriman & Co. | | AUD | 2,220 | | | USD | 1,545 | | | | 07/17/2020 | | | | 12,781 | |
Brown Brothers Harriman & Co. | | CAD | 9,608 | | | USD | 6,865 | | | | 07/17/2020 | | | | (212,397 | ) |
Brown Brothers Harriman & Co. | | CHF | 1,555 | | | USD | 1,616 | | | | 07/17/2020 | | | | (26,255 | ) |
Brown Brothers Harriman & Co. | | EUR | 1,723 | | | USD | 1,876 | | | | 07/17/2020 | | | | (60,099 | ) |
Brown Brothers Harriman & Co. | | GBP | 3,443 | | | USD | 4,278 | | | | 07/17/2020 | | | | 11,317 | |
Brown Brothers Harriman & Co. | | GBP | 4,986 | | | USD | 6,155 | | | | 07/17/2020 | | | | (23,767 | ) |
Brown Brothers Harriman & Co. | | ILS | 9,798 | | | USD | 2,787 | | | | 07/17/2020 | | | | (43,078 | ) |
Brown Brothers Harriman & Co. | | JPY | 653,027 | | | USD | 6,087 | | | | 07/17/2020 | | | | 38,180 | |
Brown Brothers Harriman & Co. | | JPY | 88,847 | | | USD | 821 | | | | 07/17/2020 | | | | (2,290 | ) |
Brown Brothers Harriman & Co. | | SGD | 3,180 | | | USD | 2,238 | | | | 07/17/2020 | | | | (43,755 | ) |
Brown Brothers Harriman & Co. | | USD | 767 | | | CAD | 1,080 | | | | 07/17/2020 | | | | 28,991 | |
Brown Brothers Harriman & Co. | | USD | 20,934 | | | EUR | 19,177 | | | | 07/17/2020 | | | | 618,843 | |
Brown Brothers Harriman & Co. | | USD | 1,663 | | | ILS | 5,773 | | | | 07/17/2020 | | | | 3,831 | |
Brown Brothers Harriman & Co. | | USD | 3,081 | | | JPY | 335,745 | | | | 07/17/2020 | | | | 28,570 | |
Brown Brothers Harriman & Co. | | USD | 10,923 | | | JPY | 1,173,675 | | | | 07/17/2020 | | | | (51,198 | ) |
Brown Brothers Harriman & Co. | | CAD | 1,732 | | | USD | 1,290 | | | | 10/16/2020 | | | | 13,516 | |
Brown Brothers Harriman & Co. | | CHF | 622 | | | USD | 661 | | | | 10/16/2020 | | | | 2,783 | |
Brown Brothers Harriman & Co. | | CHF | 2,880 | | | USD | 3,022 | | | | 10/16/2020 | | | | (27,443 | ) |
Brown Brothers Harriman & Co. | | GBP | 1,011 | | | USD | 1,282 | | | | 10/16/2020 | | | | 28,345 | |
Brown Brothers Harriman & Co. | | ILS | 4,538 | | | USD | 1,317 | | | | 10/16/2020 | | | | 3,072 | |
Brown Brothers Harriman & Co. | | USD | 1,200 | | | EUR | 1,066 | | | | 10/16/2020 | | | | 535 | |
Brown Brothers Harriman & Co. | | USD | 4,995 | | | EUR | 4,405 | | | | 10/16/2020 | | | | (33,774 | ) |
Brown Brothers Harriman & Co. | | USD | 2,621 | | | JPY | 280,830 | | | | 10/16/2020 | | | | (15,986 | ) |
Citibank, NA | | AUD | 1,250 | | | USD | 861 | | | | 07/17/2020 | | | | (1,621 | ) |
Citibank, NA | | EUR | 579 | | | USD | 650 | | | | 07/17/2020 | | | | (1,028 | ) |
Citibank, NA | | JPY | 615,358 | | | USD | 5,755 | | | | 07/17/2020 | | | | 54,677 | |
Citibank, NA | | USD | 1,838 | | | CAD | 2,488 | | | | 07/17/2020 | | | | (5,648 | ) |
Citibank, NA | | USD | 652 | | | GBP | 531 | | | | 07/17/2020 | | | | 6,434 | |
Citibank, NA | | USD | 2,544 | | | KRW | 3,046,293 | | | | 08/13/2020 | | | | (3,707 | ) |
Citibank, NA | | CAD | 1,794 | | | USD | 1,310 | | | | 10/16/2020 | | | | (11,701 | ) |
Citibank, NA | | USD | 1,522 | | | AUD | 2,204 | | | | 10/16/2020 | | | | (687 | ) |
Citibank, NA | | USD | 3,222 | | | JPY | 346,389 | | | | 10/16/2020 | | | | (8,698 | ) |
Citibank, NA | | USD | 1,412 | | | SEK | 13,025 | | | | 10/16/2020 | | | | (12,280 | ) |
Deutsche Bank AG | | ILS | 2,479 | | | USD | 696 | | | | 07/17/2020 | | | | (20,338 | ) |
Deutsche Bank AG | | USD | 649 | | | ILS | 2,244 | | | | 07/17/2020 | | | | (1,390 | ) |
Deutsche Bank AG | | USD | 8,118 | | | JPY | 871,841 | | | | 07/17/2020 | | | | (42,337 | ) |
Goldman Sachs Bank USA | | AUD | 2,348 | | | USD | 1,513 | | | | 07/17/2020 | | | | (107,683 | ) |
Goldman Sachs Bank USA | | CAD | 1,213 | | | USD | 880 | | | | 07/17/2020 | | | | (13,652 | ) |
Goldman Sachs Bank USA | | ILS | 2,831 | | | USD | 808 | | | | 07/17/2020 | | | | (9,629 | ) |
Goldman Sachs Bank USA | | JPY | 160,846 | | | USD | 1,509 | | | | 07/17/2020 | | | | 19,159 | |
Goldman Sachs Bank USA | | USD | 2,947 | | | AUD | 4,632 | | | | 07/17/2020 | | | | 249,527 | |
Goldman Sachs Bank USA | | USD | 4,269 | | | EUR | 3,912 | | | | 07/17/2020 | | | | 127,651 | |
Goldman Sachs Bank USA | | USD | 717 | | | EUR | 633 | | | | 07/17/2020 | | | | (5,871 | ) |
Goldman Sachs Bank USA | | USD | 1,068 | | | GBP | 850 | | | | 07/17/2020 | | | | (14,763 | ) |
Goldman Sachs Bank USA | | USD | 1,211 | | | JPY | 133,167 | | | | 07/17/2020 | | | | 22,422 | |
Goldman Sachs Bank USA | | USD | 2,635 | | | JPY | 281,062 | | | | 07/17/2020 | | | | (31,361 | ) |
| | |
| |
| 18 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
JPMorgan Chase Bank, NA | | CAD | 15,399 | | | USD | 10,975 | | | | 07/17/2020 | | | $ | (368,094 | ) |
JPMorgan Chase Bank, NA | | GBP | 990 | | | USD | 1,210 | | | | 07/17/2020 | | | | (16,647 | ) |
JPMorgan Chase Bank, NA | | SGD | 10,635 | | | USD | 7,461 | | | | 07/17/2020 | | | | (170,365 | ) |
JPMorgan Chase Bank, NA | | USD | 3,776 | | | AUD | 5,793 | | | | 07/17/2020 | | | | 222,571 | |
JPMorgan Chase Bank, NA | | USD | 4,644 | | | EUR | 4,221 | | | | 07/17/2020 | | | | 99,583 | |
JPMorgan Chase Bank, NA | | USD | 1,018 | | | JPY | 109,657 | | | | 07/17/2020 | | | | (2,178 | ) |
JPMorgan Chase Bank, NA | | KRW | 3,046,293 | | | USD | 2,489 | | | | 08/13/2020 | | | | (51,258 | ) |
Morgan Stanley Capital Services LLC | | EUR | 776 | | | USD | 884 | | | | 07/17/2020 | | | | 11,663 | |
Morgan Stanley Capital Services LLC | | NOK | 18,597 | | | USD | 1,961 | | | | 10/16/2020 | | | | 27,654 | |
Royal Bank of Scotland PLC | | ILS | 32,181 | | | USD | 8,965 | | | | 07/17/2020 | | | | (328,340 | ) |
Royal Bank of Scotland PLC | | JPY | 117,221 | | | USD | 1,087 | | | | 07/17/2020 | | | | 735 | |
Royal Bank of Scotland PLC | | NOK | 7,632 | | | USD | 716 | | | | 07/17/2020 | | | | (76,634 | ) |
Royal Bank of Scotland PLC | | USD | 2,515 | | | AUD | 4,089 | | | | 07/17/2020 | | | | 307,205 | |
Royal Bank of Scotland PLC | | USD | 3,274 | | | EUR | 2,944 | | | | 07/17/2020 | | | | 34,504 | |
Royal Bank of Scotland PLC | | USD | 836 | | | EUR | 736 | | | | 07/17/2020 | | | | (9,299 | ) |
Royal Bank of Scotland PLC | | USD | 4,160 | | | JPY | 449,290 | | | | 07/17/2020 | | | | 1,696 | |
Royal Bank of Scotland PLC | | USD | 1,127 | | | NOK | 10,741 | | | | 07/17/2020 | | | | (11,315 | ) |
Royal Bank of Scotland PLC | | USD | 831 | | | SGD | 1,163 | | | | 07/17/2020 | | | | 3,686 | |
Royal Bank of Scotland PLC | | USD | 1,524 | | | EUR | 1,338 | | | | 10/16/2020 | | | | (16,665 | ) |
Royal Bank of Scotland PLC | | USD | 2,613 | | | JPY | 278,896 | | | | 10/16/2020 | | | | (26,017 | ) |
Standard Chartered Bank | | USD | 1,294 | | | GBP | 1,021 | | | | 07/17/2020 | | | | (29,026 | ) |
UBS AG | | CAD | 4,096 | | | USD | 2,925 | | | | 07/17/2020 | | | | (92,490 | ) |
UBS AG | | EUR | 1,118 | | | USD | 1,253 | | | | 07/17/2020 | | | | (3,796 | ) |
UBS AG | | USD | 716 | | | CAD | 1,012 | | | | 07/17/2020 | | | | 29,686 | |
| | | | | | | | | | | | | | | | |
| | | $ | 1,207,062 | |
| | | | | | | | | | | | | | | | |
| (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 June 30, 2020, the aggregate market value of these securities amounted to $13,487,991 or 3.0% of net assets. |
| (b) | Non-income producing security. |
| (c) | The rate shown represents the 7-day yield as of period end. |
| (d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
| (e) | Affiliated investments. |
Currency Abbreviations:
| | |
AUD – Australian Dollar CAD – Canadian Dollar CHF – Swiss Franc EUR – Euro GBP – Great British Pound ILS – Israeli Shekel | | JPY – Japanese Yen KRW – South Korean Won NOK – Norwegian Krone SEK – Swedish Krona SGD – Singapore Dollar USD – United States Dollar |
Glossary:
REG – Registered Shares
See notes to financial statements.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 19 |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020
| | | | |
| Assets | | | | |
Investments in securities, at value
Unaffiliated issuers (cost $392,796,070) | | $ | 411,536,276 | |
Affiliated issuers (cost $22,862,729) | | | 22,862,729 | |
Foreign currencies, at value (cost $837,788) | | | 837,813 | |
Receivable for capital stock sold | | | 8,697,479 | |
Unrealized appreciation on forward currency exchange contracts | | | 3,621,579 | |
Unaffiliated dividends receivable | | | 1,228,525 | |
Affiliated dividends receivable | | | 2,488 | |
Receivable for investment securities sold and foreign currency transactions | | | 444 | |
| | | | |
Total assets | | | 448,787,333 | |
| | | | |
| Liabilities | | | | |
Due to Custodian | | | 85,009 | |
Unrealized depreciation on forward currency exchange contracts | | | 2,414,517 | |
Advisory fee payable | | | 224,907 | |
Payable for capital stock redeemed | | | 69,965 | |
Transfer Agent fee payable | | | 2,967 | |
Distribution fee payable | | | 2,065 | |
Accrued expenses and other liabilities | | | 207,019 | |
| | | | |
Total liabilities | | | 3,006,449 | |
| | | | |
Net Assets | | $ | 445,780,884 | |
| | | | |
| Composition of Net Assets | | | | |
Capital stock, at par | | $ | 4,015 | |
Additional paid-in capital | | | 454,148,855 | |
Accumulated loss | | | (8,371,986 | ) |
| | | | |
| | $ | 445,780,884 | |
| | | | |
Net Asset Value Per Share—11 billion shares of capital stock authorized, $.0001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| |
| A | | $ | 9,438,648 | | | | 854,343 | | | $ | 11.05 | * |
| |
| C | | $ | 190,349 | | | | 17,453 | | | $ | 10.91 | |
| |
| Advisor | | $ | 436,142,687 | | | | 39,280,401 | | | $ | 11.10 | |
| |
| Z | | $ | 9,200 | | | | 829 | | | $ | 11.10 | |
| |
| * | The maximum offering price per share for Class A shares was $11.54, which reflects a sales charge of 4.25%. |
See notes to financial statements.
| | |
| |
| 20 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
STATEMENT OF OPERATIONS
Year Ended June 30, 2020
| | | | | | | | |
| Investment Income | | | | | | | | |
Dividends | | | | | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $840,310) | | $ | 8,323,677 | | | | | |
Affiliated issuers | | | 122,511 | | | | | |
Securities lending income | | | 24,103 | | | $ | 8,470,291 | |
| | | | | | | | |
| Expenses | | | | | | | | |
Advisory fee (see Note B) | | | 2,360,050 | | | | | |
Transfer agency—Class A | | | 925 | | | | | |
Transfer agency—Class C | | | 75 | | | | | |
Transfer agency—Advisor Class | | | 69,971 | | | | | |
Transfer agency—Class Z | | | 1 | | | | | |
Distribution fee—Class A | | | 9,139 | | | | | |
Distribution fee—Class C | | | 2,117 | | | | | |
Custody and accounting | | | 255,537 | | | | | |
Registration fees | | | 152,659 | | | | | |
Administrative | | | 78,896 | | | | | |
Audit and tax | | | 72,816 | | | | | |
Legal | | | 45,547 | | | | | |
Printing | | | 38,032 | | | | | |
Directors’ fees | | | 21,695 | | | | | |
Miscellaneous | | | 25,416 | | | | | |
| | | | | | | | |
Total expenses | | | 3,132,876 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Note B and Note E) | | | (144,260 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 2,988,616 | |
| | | | | | | | |
Net investment income | | | | | | | 5,481,675 | |
| | | | | | | | |
| Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | |
Investment transactions | | | | | | | (25,167,540 | ) |
Forward currency exchange contracts | | | | | | | 591,764 | |
Futures | | | | | | | (3,452,869 | ) |
Foreign currency transactions | | | | | | | (134,215 | ) |
Net change in unrealized appreciation/depreciation on: | | | | | | | | |
Investments | | | | | | | 7,196,564 | |
Forward currency exchange contracts | | | | | | | 1,245,669 | |
Foreign currency denominated assets and liabilities | | | | | | | (88 | ) |
| | | | | | | | |
Net loss on investment and foreign currency transactions | | | | | | | (19,720,715 | ) |
| | | | | | | | |
Net Decrease in Net Assets from Operations | | | | | | $ | (14,239,040 | ) |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 21 |
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Year Ended
June 30, 2020 | | | Year Ended
June 30, 2019 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
Net investment income | | $ | 5,481,675 | | | $ | 3,194,215 | |
Net realized loss on investment and foreign currency transactions | | | (28,162,860 | ) | | | (3,969,253 | ) |
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | | | 8,442,145 | | | | 6,497,326 | |
| | | | | | | | |
Net increase (decrease) in net assets from operations | | | (14,239,040 | ) | | | 5,722,288 | |
| Distributions to Shareholders | | | | | | | | |
Class A | | | (18,788 | ) | | | (17,654 | ) |
Class C | | | (2,354 | ) | | | (3,261 | ) |
Advisor Class | | | (4,281,763 | ) | | | (2,182,204 | ) |
Class Z | | | (139 | ) | | | – 0 | – |
| Capital Stock Transactions | | | | | | | | |
Net increase | | | 260,886,503 | | | | 122,865,849 | |
| | | | | | | | |
Total increase | | | 242,344,419 | | | | 126,385,018 | |
| Net Assets | | | | | | | | |
Beginning of period | | | 203,436,465 | | | | 77,051,447 | |
| | | | | | | | |
End of period | | $ | 445,780,884 | | | $ | 203,436,465 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 22 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020
NOTE A
Significant Accounting Policies
AB Cap Fund, Inc. (the “Company”), which is a Maryland corporation, is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company operates as a series company comprised of 15 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 International Strategic Core Portfolio (the “Fund”), a diversified portfolio. AB International Strategic Core Portfolio commenced operations on July 29, 2015. 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. Effective November 20, 2019 the Fund commenced offering of Class Z shares. Class B, Class R, Class K, Class I, Class T, Class 1, and Class 2 shares are not currently being offered. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Advisor Class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (the “Board”).
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 23 |
NOTES TO FINANCIAL STATEMENTS (continued)
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by
| | |
| |
| 24 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 25 |
NOTES TO FINANCIAL STATEMENTS (continued)
which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
| | | | | | | | | | | | | | | | |
Investments in
Securities | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Information Technology | | $ | 17,853,575 | | | $ | 51,725,739 | | | $ | – 0 | – | | $ | 69,579,314 | |
Financials | | | 5,150,928 | | | | 61,726,726 | | | | – 0 | – | | | 66,877,654 | |
Industrials | | | 13,563,665 | | | | 44,231,897 | | | | – 0 | – | | | 57,795,562 | |
Consumer Staples | | | 6,895,305 | | | | 49,083,257 | | | | – 0 | – | | | 55,978,562 | |
Health Care | | | – 0 | – | | | 48,567,032 | | | | – 0 | – | | | 48,567,032 | |
Communication Services | | | 7,764,262 | | | | 26,839,039 | | | | – 0 | – | | | 34,603,301 | |
Consumer Discretionary | | | – 0 | – | | | 28,283,119 | | | | – 0 | – | | | 28,283,119 | |
Real Estate | | | – 0 | – | | | 23,808,647 | | | | – 0 | – | | | 23,808,647 | |
Utilities | | | – 0 | – | | | 21,287,134 | | | | – 0 | – | | | 21,287,134 | |
Energy | | | – 0 | – | | | 4,755,951 | | | | – 0 | – | | | 4,755,951 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Investment Companies | | | 22,862,729 | | | | – 0 | – | | | – 0 | – | | | 22,862,729 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 74,090,464 | | | | 360,308,541 | + | | | – 0 | – | | | 434,399,005 | |
Other Financial Instruments*: | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Forward Currency Exchange Contracts | | | – 0 | – | | | 3,621,579 | | | | – 0 | – | | | 3,621,579 | |
Liabilities | | | | | | | | | | | | | | | | |
Forward Currency Exchange Contracts | | | – 0 | – | | | (2,414,517 | ) | | | – 0 | – | | | (2,414,517 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 74,090,464 | | | $ | 361,515,603 | | | $ | – 0 | – | | $ | 435,606,067 | |
| | | | | | | | | | | | | | | | |
| | |
| |
| 26 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
| + | A significant portion of the Fund’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
| * | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.
| | |
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 27 |
NOTES TO FINANCIAL STATEMENTS (continued)
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income. The Fund accounts for distributions received from REIT investments as dividend income, realized gain, or return of capital based on information provided by the REIT.
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the excess of $2.5 billion up to $5 billion and .60% of the excess over $5 billion of the Fund’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs) on an annual basis (the “Expense Caps”) to 1.20%, 1.95%, .95% and .95% of the daily average net assets for Class A, Class C, Advisor Class and Class Z shares, respectively. For the year ended June 30, 2020, such reimbursements/waivers amounted to $52,574. The Expense Caps may not be terminated by the Adviser before
| | |
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| 28 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020. Any fees waived and expenses borne by the Adviser through February 16, 2017 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 $194,037 for the period ended June 30, 2017. In any case, no repayment will be made that would cause the Fund’s total annual operating expenses to exceed the Expense Caps’ net fee percentages set forth above.
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 June 30, 2020, the Adviser voluntarily agreed to waive such fees in the amount of $78,896.
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 $30,059 for the year ended June 30, 2020.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales charges of $260 from the sale of Class A shares and received $4 and $14 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended June 30, 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 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 fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended June 30, 2020, such waiver amounted to $12,297.
| | |
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| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of the Fund’s transactions in AB mutual funds for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
6/30/19
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
6/30/20
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 4,106 | | | $ | 156,472 | | | $ | 137,715 | | | $ | 22,863 | | | $ | 119 | |
Government Money Market Portfolio* | | | – 0 | – | | | 56,595 | | | | 56,595 | | | | – 0 | – | | | 4 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 22,863 | | | $ | 123 | |
| | | | | | | | | | | | | | | | | | | | |
| * | Investment of cash collateral for securities lending transactions (see Note E). |
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 approximately 65.2% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
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| 30 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .25% of the Fund’s average daily net assets attributable to Class A shares and 1% of the Fund’s average daily net assets attributable to Class C shares. There are no distribution and servicing fees on the Advisor Class. The fees are accrued daily and paid monthly. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Fund’s operations, the Distributor has incurred no expenses in excess of the distribution costs reimbursed by the Fund for Class C shares. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended June 30, 2020 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 350,732,144 | | | $ | 117,679,059 | |
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 | | $ | 420,371,496 | |
| | | | |
Gross unrealized appreciation | | $ | 40,576,127 | |
Gross unrealized depreciation | | | (26,755,481 | ) |
| | | | |
Net unrealized appreciation | | $ | 13,820,646 | |
| | | | |
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.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
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 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 June 30, 2020, the Fund held forward currency exchange contracts for hedging purposes.
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
| | |
| |
| 32 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended June 30, 2020, the Fund held futures for non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended June 30, 2020, the Fund had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and
Liabilities
Location | | Fair Value | | | Statement of
Assets and
Liabilities
Location | | Fair Value | |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | $ | 3,621,579 | | | Unrealized depreciation on forward currency exchange contracts | | $ | 2,414,517 | |
| | | | | | | | | | | | |
Total | | | | $ | 3,621,579 | | | | | $ | 2,414,517 | |
| | | | | | | | | | | | |
| | | | | | | | | | |
Derivative Type | | Location of Gain
or (Loss) on
Derivatives Within
Statement of
Operations | | Realized Gain
or (Loss) on
Derivatives | | | Change in
Unrealized
Appreciation or
(Depreciation) | |
Foreign currency contracts | | Net realized gain/(loss) on Forward currency exchange contracts; Net change in unrealized appreciation/ depreciation on forward currency exchange contracts | | $ | 591,764 | | | $ | 1,245,669 | |
| | | |
Equity contracts | | Net realized gain/(loss) on futures; Net change in unrealized appreciation/depreciation on futures | | | (3,452,869 | ) | | | – 0 | – |
| | | | | | | | | | |
Total | | | | $ | (2,861,105 | ) | | $ | 1,245,669 | |
| | | | | | | | | | |
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended June 30, 2020:
| | | | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 77,396,025 | |
Average principal amount of sale contracts | | $ | 68,577,528 | |
Futures: | | | | |
Average notional amount of buy contracts | | $ | 8,800,057 | (a) |
| (a) | Positions were open for five months during the reporting period. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
| | |
| |
| 34 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of June 30, 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 | |
Bank of America, NA. | | $ | 983,759 | | | $ | (325,283 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 658,476 | |
Barclays Bank PLC | | | 624,633 | | | | (54,674 | ) | | | – 0 | – | | | – 0 | – | | | 569,959 | |
BNP Paribas SA. | | | 3,570 | | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | 3,570 | |
Brown Brothers Harriman & Co. | | | 790,764 | | | | (540,042 | ) | | | – 0 | – | | | – 0 | – | | | 250,722 | |
Citibank, NA | | | 61,111 | | | | (45,370 | ) | | | – 0 | – | | | – 0 | – | | | 15,741 | |
Goldman Sachs Bank USA/ Goldman Sachs International | | | 418,759 | | | | (182,959 | ) | | | – 0 | – | | | – 0 | – | | | 235,800 | |
JPMorgan Chase Bank, NA | | | 322,154 | | | | (322,154 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
Morgan Stanley Capital Services LLC. | | | 39,317 | | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | 39,317 | |
Royal Bank of Scotland PLC | | | 347,826 | | | | (347,826 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
UBS AG | | | 29,686 | | | | (29,686 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 3,621,579 | | | $ | (1,847,994 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 1,773,585 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Liabilities
Subject to
a MA | | | Derivatives
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount
of Derivative
Liabilities | |
Bank of America, NA. | | $ | 325,283 | | | $ | (325,283 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | – 0 | – |
Barclays Bank PLC | | | 54,674 | | | | (54,674 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
Brown Brothers Harriman & Co. | | | 540,042 | | | | (540,042 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
Citibank, NA | | | 45,370 | | | | (45,370 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
Deutsche Bank AG | | | 64,065 | | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | 64,065 | |
Goldman Sachs Bank USA/ Goldman Sachs International | | | 182,959 | | | | (182,959 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Liabilities
Subject to
a MA | | | Derivatives
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount
of Derivative
Liabilities | |
JPMorgan Chase Bank, NA | | $ | 608,542 | | | $ | (322,154 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 286,388 | |
Royal Bank of Scotland PLC | | | 468,270 | | | | (347,826 | ) | | | – 0 | – | | | – 0 | – | | | 120,444 | |
Standard Chartered Bank. | | | 29,026 | | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | 29,026 | |
UBS AG | | | 96,286 | | | | (29,686 | ) | | | – 0 | – | | | – 0 | – | | | 66,600 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,414,517 | | | $ | (1,847,994 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | 566,523 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | 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. |
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized continually by cash collateral and/or non-cash collateral. Non-cash collateral will include only securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The Fund cannot sell or repledge any non-cash collateral, such collateral will not be reflected in the portfolio of investments. If a loan is collateralized by cash, the Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Fund in connection with the loan), and payments are made for fees of the
| | |
| |
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NOTES TO FINANCIAL STATEMENTS (continued)
securities lending agent and for certain other administrative expenses. If the Fund receives non-cash collateral, the Fund will receive a fee from the borrower generally equal to a negotiated percentage of the market value of the loaned securities. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. The collateral will be adjusted the next business day to maintain the required collateral amount. The amounts of securities lending income from the borrowers and Government Money Market Portfolio are reflected in the statement of operations. When the Fund earns net securities lending income from Government Money Market Portfolio, the income is inclusive of a rebate expense paid to the borrower. In connection with the cash collateral investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower.
A summary of the Fund’s transactions surrounding securities lending for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Government Money
Market Portfolio | |
Market Value
of Securities
on Loan* | | Cash
Collateral* | | | Market Value
of Non-Cash
Collateral* | | | Income from
Borrowers | | | Income
Earned | | | Advisory
Fee Waived | |
| $ – 0 – | | $ | – 0 | – | | $ | – 0 | – | | $ | 24,103 | | | $ | 4,352 | | | $ | 493 | |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE F
Capital Stock
Each class consists of 1,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | | | | |
| | | | | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 836,254 | | | | 89,858 | | | | | | | $ | 9,513,368 | | | $ | 1,021,518 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends | | | 1,487 | | | | 1,563 | | | | | | | | 17,800 | | | | 16,506 | | | | | |
| | | | | |
Shares redeemed | | | (98,238 | ) | | | (14,772 | ) | | | | | | | (947,584 | ) | | | (167,070 | ) | | | | |
| | | | | |
Net increase | | | 739,503 | | | | 76,649 | | | | | | | $ | 8,583,584 | | | $ | 870,954 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 2,843 | | | | 15,865 | | | | | | | $ | 31,807 | | | $ | 181,583 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends | | | 176 | | | | 290 | | | | | | | | 2,088 | | | | 3,052 | | | | | |
| | | | | |
Shares redeemed | | | (4,377 | ) | | | (7,253 | ) | | | | | | | (49,919 | ) | | | (81,400 | ) | | | | |
| | | | | |
Net increase (decrease) | | | (1,358 | ) | | | 8,902 | | | | | | | $ | (16,024 | ) | | $ | 103,235 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 29,797,225 | | | | 13,078,757 | | | | | | | $ | 336,573,858 | | | $ | 147,502,871 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends | | | 306,062 | | | | 194,397 | | | | | | | | 3,675,808 | | | | 2,056,719 | | | | | |
| | | | | |
Shares redeemed | | | (8,018,592 | ) | | | (2,416,006 | ) | | | | | | | (87,940,744 | ) | | | (27,667,930 | ) | | | | |
| | | | | |
Net increase | | | 22,084,695 | | | | 10,857,148 | | | | | | | $ | 252,308,922 | | | $ | 121,891,660 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class Z* | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 829 | | | | – 0 | – | | | | | | $ | 10,021 | | | $ | – 0 | – | | | | |
| | | | | |
Net increase | | | 829 | | | | – 0 | – | | | | | | $ | 10,021 | | | $ | – 0 | – | | | | |
| | | | | |
| * | Commenced distributions on November 20, 2019. |
NOTE G
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.
| | |
| |
| 38 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Sector Risk—The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information technology or financial services sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
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. These risks may be heightened with respect to investments in emerging market countries, where there may be an increased amount of economic, political and social instability.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Capitalization Risk—Investments in mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in mid-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended June 30, 2020.
| | |
| |
| 40 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended June 30, 2020 and June 30, 2019 were as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 4,303,044 | | | $ | 1,702,282 | |
Net long-term capital gains | | | – 0 | – | | | 500,837 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 4,303,044 | | | $ | 2,203,119 | |
| | | | | | | | |
As of June 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 5,365,677 | |
Accumulated capital and other losses | | | (27,569,084 | )(a) |
Unrealized appreciation/(depreciation) | | | 13,831,421 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | (8,371,986 | ) |
| | | | |
| (a) | As of June 30, 2020, the Fund had a net capital loss carryforward of $27,569,084. |
| (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 passive foreign investment companies (PFICs), the tax deferral of losses on wash sales, and the tax treatment of partnership investments. |
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 June 30, 2020, the Fund had a net short-term capital loss carryforward of $19,002,906 and a net long-term capital loss carryforward of $8,566,178, 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 J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 41 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended June 30, | | | July 29,
2015(a) to
June 30,
2016 | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 11.70 | | | | $ 12.04 | | | | $ 11.04 | | | | $ 9.79 | | | | $ 10.00 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(b)(c) | | | .25 | | | | .27 | | | | .20 | | | | .22 | | | | .26 | |
| | | | | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | (.74 | ) | | | (.33 | ) | | | .93 | | | | 1.11 | | | | (.35 | ) |
| | | | |
Net increase (decrease) in net asset value from operations | | | (.49 | ) | | | (.06 | ) | | | 1.13 | | | | 1.33 | | | | (.09 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.16 | ) | | | (.16 | ) | | | (.07 | ) | | | (.08 | ) | | | (.12 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | – 0 | – | | | (.12 | ) | | | (.06 | ) | | | – 0 | – | | | – 0 | – |
| | | | |
Total dividends and distributions | | | (.16 | ) | | | (.28 | ) | | | (.13 | ) | | | (.08 | ) | | | (.12 | ) |
| | | | |
Net asset value, end of period | | | $ 11.05 | | | | $ 11.70 | | | | $ 12.04 | | | | $ 11.04 | | | | $ 9.79 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | (4.33 | )% | | | (.28 | )% | | | 10.25 | % | | | 13.72 | % | | | (.84 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $9,439 | | | | $1,344 | | | | $460 | | | | $234 | | | | $57 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 1.19 | % | | | 1.20 | % | | | 1.19 | % | | | 1.19 | % | | | 1.20 | %(f) |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | 1.27 | % | | | 1.51 | % | | | 1.93 | % | | | 5.13 | % | | | 23.67 | %(f) |
| | | | | |
Net investment income(c) | | | 2.31 | % | | | 2.38 | % | | | 1.71 | % | | | 2.15 | % | | | 2.87 | %(f) |
| | | | | |
Portfolio turnover rate | | | 39 | % | | | 51 | % | | | 53 | % | | | 64 | % | | | 52 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | %(f) |
See footnote summary on page 45.
| | |
| |
| 42 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class C | |
| | | Year Ended June 30, | | | July 29,
2015(a) to
June 30,
2016 | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 11.60 | | | | $ 11.95 | | | | $ 11.01 | | | | $ 9.75 | | | | $ 10.00 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(b)(c) | | | .06 | | | | .18 | | | | .10 | | | | .19 | | | | .12 | |
| | | | | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | (.63 | ) | | | (.32 | ) | | | .93 | | | | 1.07 | | | | (.28 | ) |
| | | | |
Net increase (decrease) in net asset value from operations | | | (.57 | ) | | | (.14 | ) | | | 1.03 | | | | 1.26 | | | | (.16 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.12 | ) | | | (.09 | ) | | | (.03 | ) | | | – 0 | – | | | (.09 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | – 0 | – | | | (.12 | ) | | | (.06 | ) | | | – 0 | – | | | – 0 | – |
| | | | |
Total dividends and distributions | | | (.12 | ) | | | (.21 | ) | | | (.09 | ) | | | – 0 | – | | | (.09 | ) |
| | | | |
Net asset value, end of period | | | $ 10.91 | | | | $ 11.60 | | | | $ 11.95 | | | | $ 11.01 | | | | $ 9.75 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | (5.01 | )% | | | (1.00 | )% | | | 9.34 | % | | | 12.92 | % | | | (1.55 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $190 | | | | $218 | | | | $118 | | | | $62 | | | | $10 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 1.95 | % | | | 1.95 | % | | | 1.94 | % | | | 1.94 | % | | | 1.95 | %(f) |
| | | | | |
Expenses, before waivers/ Reimbursements(e)† | | | 2.00 | % | | | 2.28 | % | | | 2.68 | % | | | 5.70 | % | | | 15.57 | %(f) |
| | | | | |
Net investment income(c) | | | .55 | % | | | 1.56 | % | | | .88 | % | | | 1.80 | % | | | 1.31 | %(f) |
| | | | | |
Portfolio turnover rate | | | 39 | % | | | 51 | % | | | 53 | % | | | 64 | % | | | 52 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | %(f) |
See footnote summary on page 45.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 43 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Advisor Class | |
| | | Year Ended June 30, | | | July 29,
2015(a) to
June 30,
2016 | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 11.74 | | | | $ 12.06 | | | | $ 11.06 | | | | $ 9.80 | | | | $ 10.00 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(b)(c) | | | .20 | | | | .32 | | | | .25 | | | | .27 | | | | .21 | |
| | | | | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | (.67 | ) | | | (.34 | ) | | | .90 | | | | 1.08 | | | | (.28 | ) |
| | | | |
Net increase (decrease) in net asset value from operations | | | (.47 | ) | | | (.02 | ) | | | 1.15 | | | | 1.35 | | | | (.07 | ) |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.17 | ) | | | (.18 | ) | | | (.09 | ) | | | (.09 | ) | | | (.13 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | – 0 | – | | | (.12 | ) | | | (.06 | ) | | | – 0 | – | | | – 0 | – |
| | | | |
Total dividends and distributions | | | (.17 | ) | | | (.30 | ) | | | (.15 | ) | | | (.09 | ) | | | (.13 | ) |
| | | | |
Net asset value, end of period | | | $ 11.10 | | | | $ 11.74 | | | | $ 12.06 | | | | $ 11.06 | | | | $ 9.80 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d) | | | (4.14 | )% | | | .06 | % | | | 10.45 | % | | | 13.98 | % | | | (.63 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $436,143 | | | | $201,875 | | | | $76,473 | | | | $35,275 | | | | $2,932 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | .95 | % | | | .95 | % | | | .94 | % | | | .94 | % | | | .95 | %(f) |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | .99 | % | | | 1.26 | % | | | 1.65 | % | | | 4.37 | % | | | 14.60 | %(f) |
| | | | | |
Net investment income(c) | | | 1.74 | % | | | 2.80 | % | | | 2.12 | % | | | 2.60 | % | | | 2.32 | %(f) |
| | | | | |
Portfolio turnover rate | | | 39 | % | | | 51 | % | | | 53 | % | | | 64 | % | | | 52 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .00 | % | | | .01 | % | | | .01 | % | | | .00 | %(f) |
See footnote summary on page 45.
| | |
| |
| 44 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | |
| | | Class Z | |
| | | November 20,
2019(g) to
June 30,
2020 | |
| | | | |
| | | | |
Net asset value, beginning of period | | | $ 12.09 | |
| | | | |
Income From Investment Operations | | | | |
| |
Net investment income(b)(c) | | | .12 | |
| |
Net realized and unrealized loss on investment and foreign currency transactions | | | (.94 | ) |
| | | | |
Net decrease in net asset value from operations | | | (.82 | ) |
| | | | |
Less: Dividends and Distributions | | | | |
| |
Dividends from net investment income | | | (.17 | ) |
| | | | |
Total dividends and distributions | | | (.17 | ) |
| | | | |
Net asset value, end of period | | | $ 11.10 | |
| | | | |
| |
Total Return | | | | |
| |
Total investment return based on net asset value(d) | | | (6.91 | )% |
| |
Ratios/Supplemental Data | | | | |
| |
Net assets, end of period (000’s omitted) | | | $9 | |
| |
Ratio to average net assets of: | | | | |
| |
Expenses, net of waivers/ reimbursements(e)† | | | .93 | %(f) |
| |
Expenses, before waivers/ reimbursements(e)† | | | .97 | %(f) |
| |
Net investment income(c) | | | 1.76 | %(f) |
| |
Portfolio turnover rate | | | 39 | % |
| | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | %(f) |
| (a) | Commencement of operations. |
| (b) | Based on average shares outstanding. |
| (c) | Net of expenses waived/reimbursed by the Adviser. |
| (d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charge or contingent deferred sales charge is not reflected in the calculation of total investment return. Total investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return for a period of less than one year is not annualized. |
| (e) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses but bears proportionate shares of the acquired fund fees and expenses (i.e. operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the years ended June 30, 2018 and June 30, 2017, such waiver amounted to 0.01% and 0.01%, respectively. |
| (g) | Commencement of distribution. |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 45 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of AB International Strategic Core Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB International Strategic Core Portfolio (the “Fund”) (one of the funds constituting AB Cap Fund, Inc. (the “Company”)), including the portfolio of investments, as of June 30, 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 four years in the period then ended and the period from July 29, 2015 (commencement of operations) to June 30, 2016 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Cap Fund, Inc.) at June 30, 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 four years in the period then ended and the period from July 29, 2015 (commencement of operations) to June 30, 2016, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
| | |
| |
| 46 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 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
August 26, 2020
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 47 |
2020 FEDERAL TAX INFORMATION
(unaudited)
For Federal income tax purposes, the following information is furnished with respect to the earnings of the Fund for the taxable year ended June 30, 2020.
For corporate shareholders, 3.00% of dividends paid qualify for the dividends received deduction. For individual shareholders, the Fund designates 97.21% of dividends paid as qualified dividend income.
The Fund intends to make an election to pass through foreign taxes to its shareholders. For the taxable year ended June 30, 2020, $631,103 of foreign taxes may be passed through and the associated foreign source income for information reporting purposes is $8,884,855.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2021.
| | |
| |
| 48 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
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 Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
| | |
Kent W. Hargis(2), Vice President Sammy Suzuki(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
Custodian and Accounting Agent 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 Strategic Core Investment Team. Messrs. Hargis and Suzuki are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 49 |
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 COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
| INTERESTED DIRECTOR | | | | | | | | |
| | | |
Robert M. Keith,#
1345 Avenue of the Americas
New York, NY 10105
60
(2015) | | 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. | | | 78 | | | None |
| | |
| |
| 50 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER
INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
| DISINTERESTED DIRECTORS | | | | | | |
| | | |
Marshall C. Turner, Jr.,## Chairman of the Board 78 (2015) | | Private Investor since prior to 2015. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi- conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of 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 such AB Funds since February 2014. | | | 78 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 51 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER
INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | |
Jorge A. Bermudez,## 69 (2020) | | Private investor since prior to 2015. 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. | | | 78 | | | Moody’s Corporation since April 2011 |
| | | | | | | | |
| | | |
Michael J. Downey,## 76 (2015) | | Private Investor since prior to 2015. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2015 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. | | | 78 | | | None |
| | |
| |
| 52 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER
INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | |
Nancy P. Jacklin,## 72 (2015) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
| | | | | | | | |
| | | |
Jeanette 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. | | | 78 | | | Apollo Investment Corp. (business development company) since August 2011 |
| | |
| |
| abfunds.com | | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | 53 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER
INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | |
Carol C. McMullen,## 65 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and 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 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included 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. | | | 78 | | | None |
| | |
| |
| 54 | AB INTERNATIONAL STRATEGIC CORE PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER
INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
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Garry L. Moody,## 68 (2015) | | Private Investor since prior to 2015. 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 the 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER
INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | |
Earl D. Weiner,## 81 (2015) | | Senior Counsel since 2017, Of Counsel from 2007 to 2016, and Partner prior to then, of the law firm Sullivan & Cromwell. 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. | | | 78 | | | None |
| * | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
| ** | There is no stated term of office for the Fund’s Directors. |
| *** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
| # | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
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Robert M. Keith 60 | | President and Chief Executive Officer | | See biography above. |
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Kent W. Hargis 51 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2015; Co-Chief Investment Officer – Strategic Core Equities since 2018. |
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Sammy Suzuki 49 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2015; Co-Chief Investment Officer – Strategic Core Equities since 2018. |
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Emilie D. Wrapp 64 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2015. |
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Michael B. Reyes 44 | | Senior Analyst | | Vice President of the Adviser**, with which he has been associated since prior to 2015. |
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Joseph J. Mantineo 61 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2015. |
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Phyllis J. Clarke 59 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2015. |
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Vincent S. Noto 55 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2015. |
| * | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAl”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at (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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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Cap Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Strategic Core Portfolio (the “Fund”) at a meeting held by video conference on May 5-7, 2020 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the money market fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the
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investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. The Adviser had not requested any reimbursements from the Fund in the Fund’s latest fiscal year. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of 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 2018. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund in 2019 was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the money market fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency
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transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s recent profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1- and 3-year periods ended February 29, 2020 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser 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 paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a 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 Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to those of the Fund, on the other. The directors 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
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with the Adviser its policies in respect of such arrangements. The directors previously discussed these matters with an independent fee consultant. The directors also compared the advisory fee rate for the Fund with those for two other funds advised by the Adviser utilizing similar investment strategies.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the 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 may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, 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 would be for services 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 advisory fee, the directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the 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
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lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and 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 Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
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
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond 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
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
| 1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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NOTES
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NOTES
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NOTES
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NOTES
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AB INTERNATIONAL STRATEGIC CORE PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
ISCP-0151-0620 
JUN 06.30.20
ANNUAL REPORT
AB SELECT US EQUITY PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
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| 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.
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| FROM THE PRESIDENT | |  |
Dear Shareholder,
We are pleased to provide this report for AB Select US Equity 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
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 1 |
ANNUAL REPORT
August 7, 2020
This report provides management’s discussion of fund performance for AB Select US Equity Portfolio for the annual reporting period ended June 30, 2020.
The Fund’s investment objective is long-term growth of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | 6 Months | | | 12 Months | |
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| AB SELECT US EQUITY PORTFOLIO1 | | | | | | | | |
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| Class A Shares | | | -5.60% | | | | 4.18% | |
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| Class C Shares | | | -5.93% | | | | 3.36% | |
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| Advisor Class Shares2 | | | -5.44% | | | | 4.44% | |
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| Class R Shares2 | | | -5.70% | | | | 3.87% | |
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| Class K Shares2 | | | -5.55% | | | | 4.16% | |
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| Class I Shares2 | | | -5.44% | | | | 4.45% | |
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| S&P 500 Index | | | -3.08% | | | | 7.51% | |
| 1 | Includes the impact of proceeds received and credited to the Fund resulting from class-action settlements, which enhanced the performance of the Fund for the six- and 12-month periods ended June 30, 2020, by 0.00% and 0.03%, respectively. |
| 2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Standard & Poor’s (“S&P”) 500 Index, for the six- and 12-month periods ended June 30, 2020.
During the 12-month period, all share classes underperformed the benchmark, before sales charges. The Fund’s underweight to the technology and energy sectors detracted, relative to the benchmark, as did its overweight to the financials sector. However, the Fund’s underweights to real estate and materials and overweight to communication services contributed. From a security selection perspective, selection within consumer discretionary, technology and energy contributed, more than offsetting selection within financials, materials and health care, which detracted.
During the six-month period, all share classes underperformed the benchmark, before sales charges. The Fund’s overweight to the financials sector and underweights to technology and energy detracted. However, the Fund’s transactional cash and underweights to the real estate and materials sectors
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| 2 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
contributed. From a security selection perspective, selection within financials, industrials and health care detracted, more than offsetting selection in consumer discretionary, technology and energy, which contributed.
The Fund utilized derivatives in the form of total return swaps for investment purposes, which added to absolute returns for the 12-month period.
MARKET REVIEW AND INVESTMENT STRATEGY
In the first half of the 12-month period ended June 30, 2020, US markets advanced, as it looked increasingly likely that a phase-one trade deal between the US and China was on the horizon and as monetary policy remained supportive. While investors remained concerned about slow economic and corporate profit growth and elevated equity valuations, there were signs late in the year that growth might be stabilizing in the US and globally.
In the second half of the 12-month period, global equity markets came under extreme pressure as the COVID-19 pandemic spread throughout the world. Global economies all but shut down as countries looked to slow the spread of the virus. Global central banks and governments responded to the pandemic with unprecedented levels of fiscal and monetary stimulus. Equity markets recovered strongly off their lows, as lockdown measures eased, and investors grew optimistic about a recovery in global economic growth. The S&P 500 Index returned -3.08% for the six-month period and 7.51% for the 12-month period.
The Fund’s Senior Investment Management Team (the “Team”) continues to seek attractive risk-adjusted returns from a flexible approach unconstrained by investment style, with an intense focus on downside risk. The Team uses bottom-up analysis to find companies with growth potential, adjusting expectations based on the short-term market environment.
INVESTMENT POLICIES
Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of US companies. For purposes of this policy, equity securities include common stock, preferred stock and derivatives related to common and preferred stocks.
The Adviser selects investments for the Fund through an intensive “bottom-up” approach that places an emphasis on companies that are engaged in business activities with solid long-term growth potential and operating in industries with high barriers to entry, that have strong cash flows and other financial metrics, and that have transparent financial statements and business models. The Adviser also evaluates the quality of company management based on a series of
(continued on next page)
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 3 |
criteria, including: (1) management’s focus on shareholder returns, such as through a demonstrated commitment to dividends and dividend growth, share buybacks or other shareholder-friendly corporate actions; (2) management’s employment of conservative accounting methodologies; (3) management incentives, such as direct equity ownership; and (4) management accessibility. The Adviser seeks to identify companies where events or catalysts may drive the company’s share price higher, such as earnings and/or revenue growth above consensus forecasts, potential market recognition of undervaluation or overstated market-risk discount, or the institution of shareholder-focused changes discussed in the preceding sentence. In light of this catalyst-focused approach, the Adviser expects to engage in active and frequent trading for the Fund. The Adviser may reduce or eliminate the Fund’s holdings in a company’s securities for a number of reasons, including if its evaluation of the above factors changes adversely, if the anticipated events or catalysts do not occur or do not affect the price of the securities as expected, or if the anticipated events or catalysts do occur and cause the securities to be, in the Adviser’s view, overvalued or fully valued. At any given time the Fund may emphasize growth stocks over value stocks, or vice versa.
The Fund’s investments will be focused on securities of companies with large- and medium-market capitalizations, but it may also invest in securities of small-capitalization companies. The Fund may invest in non-US companies, but will limit its investments in such companies to no more than 10% of its net assets. The Fund may purchase securities in initial public offerings (“IPOs”) and expects to do so on a regular basis.
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| 4 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The S&P 500® Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the 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.
Sector Risk: The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information-technology or financial-services sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in these companies may have additional risks because these companies may have limited product lines, markets or financial resources.
Active Trading Risk: The Fund expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate may greatly exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Fund’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Fund shareholders.
IPO Risk: Securities purchased in an IPO may be subject to substantial price volatility due to one or more factors such as unseasoned trading in the securities, the lack of investor knowledge of the issuer, the lack of an operating history of the issuer, and the dependence of the issuer on key personnel, suppliers or a limited number of customers.
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 for the Fund, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 5 |
DISCLOSURES AND RISKS (continued)
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. Net asset value (“NAV”) returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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| 6 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
12/8/20111 TO 6/30/2020
This chart illustrates the total value of an assumed $10,000 investment in AB Select US Equity Portfolio Class A shares (from 12/8/20111 to 6/30/2020) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
| 1 | Inception date: 12/8/2011. |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 7 |
HISTORICAL PERFORMANCE (continued)
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
| | | | | | | | |
| | |
| | | NAV Returns | | | SEC Returns (reflects applicable
sales charges) | |
| | |
| CLASS A SHARES | | | | | | | | |
| | |
| 1 Year | | | 4.18% | | | | -0.27% | |
| | |
| 5 Years | | | 9.15% | | | | 8.20% | |
| | |
| Since Inception1 | | | 12.54% | | | | 11.98% | |
| | |
| CLASS C SHARES | | | | | | | | |
| | |
| 1 Year | | | 3.36% | | | | 2.40% | |
| | |
| 5 Years | | | 8.32% | | | | 8.32% | |
| | |
| Since Inception1 | | | 11.72% | | | | 11.72% | |
| | |
| ADVISOR CLASS SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 4.44% | | | | 4.44% | |
| | |
| 5 Years | | | 9.41% | | | | 9.41% | |
| | |
| Since Inception1 | | | 12.85% | | | | 12.85% | |
| | |
| CLASS R SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 3.87% | | | | 3.87% | |
| | |
| 5 Years | | | 8.83% | | | | 8.83% | |
| | |
| Since Inception1 | | | 12.25% | | | | 12.25% | |
| | |
| CLASS K SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 4.16% | | | | 4.16% | |
| | |
| 5 Years | | | 9.06% | | | | 9.06% | |
| | |
| Since Inception1 | | | 12.49% | | | | 12.49% | |
| | |
| CLASS I SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 4.45% | | | | 4.45% | |
| | |
| 5 Years | | | 9.43% | | | | 9.43% | |
| | |
| Since Inception1 | | | 12.85% | | | | 12.85% | |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.52%, 2.27%, 1.27%, 1.80%, 1.68% and 1.26% for Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios to 1.52%, 2.27%, 1.27%, 1.80%, 1.57% and 1.25% for Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. These waivers/reimbursements may not be terminated prior to October 31, 2020 and may be extended by the Adviser for additional one-year terms. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
| 1 | Inception date: 12/8/2011. |
| 2 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| 8 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
| | | | |
| |
| | | SEC Returns (reflects applicable
sales charges) | |
| |
| CLASS A SHARES | | | | |
| |
| 1 Year | | | -0.27% | |
| |
| 5 Years | | | 8.20% | |
| |
| Since Inception1 | | | 11.98% | |
| |
| CLASS C SHARES | | | | |
| |
| 1 Year | | | 2.40% | |
| |
| 5 Years | | | 8.32% | |
| |
| Since Inception1 | | | 11.72% | |
| |
| ADVISOR CLASS SHARES2 | | | | |
| |
| 1 Year | | | 4.44% | |
| |
| 5 Years | | | 9.41% | |
| |
| Since Inception1 | | | 12.85% | |
| |
| CLASS R SHARES2 | | | | |
| |
| 1 Year | | | 3.87% | |
| |
| 5 Years | | | 8.83% | |
| |
| Since Inception1 | | | 12.25% | |
| |
| CLASS K SHARES2 | | | | |
| |
| 1 Year | | | 4.16% | |
| |
| 5 Years | | | 9.06% | |
| |
| Since Inception1 | | | 12.49% | |
| |
| CLASS I SHARES2 | | | | |
| |
| 1 Year | | | 4.45% | |
| |
| 5 Years | | | 9.43% | |
| |
| Since Inception1 | | | 12.85% | |
| 1 | Inception date: 12/8/2011. |
| 2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
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| 10 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
EXPENSE EXAMPLE (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Beginning
Account
Value
1/1/2020 | | | Ending
Account
Value
6/30/2020 | | | Expenses
Paid
During
Period* | | | Annualized
Expense
Ratio* | | | Total
Expenses
Paid
During
Period+ | | | Total
Annualized
Expense
Ratio+ | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 944.00 | | | $ | 7.49 | | | | 1.55 | % | | $ | 7.49 | | | | 1.55 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,017.16 | | | $ | 7.77 | | | | 1.55 | % | | $ | 7.77 | | | | 1.55 | % |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 940.70 | | | $ | 11.05 | | | | 2.29 | % | | $ | 11.10 | | | | 2.30 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,013.48 | | | $ | 11.46 | | | | 2.29 | % | | $ | 11.51 | | | | 2.30 | % |
| Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 945.60 | | | $ | 6.29 | | | | 1.30 | % | | $ | 6.29 | | | | 1.30 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,018.40 | | | $ | 6.52 | | | | 1.30 | % | | $ | 6.52 | | | | 1.30 | % |
| Class R | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 943.00 | | | $ | 8.70 | | | | 1.80 | % | | $ | 8.70 | | | | 1.80 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.91 | | | $ | 9.02 | | | | 1.80 | % | | $ | 9.02 | | | | 1.80 | % |
| Class K | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 944.50 | | | $ | 7.49 | | | | 1.55 | % | | $ | 7.49 | | | | 1.55 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,017.16 | | | $ | 7.77 | | | | 1.55 | % | | $ | 7.77 | | | | 1.55 | % |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 945.60 | | | $ | 6.19 | | | | 1.28 | % | | $ | 6.24 | | | | 1.29 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,018.50 | | | $ | 6.42 | | | | 1.28 | % | | $ | 6.47 | | | | 1.29 | % |
| * | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| + | In connection with the Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| ** | Assumes 5% annual return before expenses. |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 11 |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $198.1
TEN LARGEST HOLDINGS2
| | | | | | | | |
| | |
| Company | | U.S. $ Value | | | Percent of
Net Assets | |
| | |
| Microsoft Corp. | | $ | 13,879,586 | | | | 7.0 | % |
| | |
| Apple, Inc. | | | 11,390,515 | | | | 5.7 | |
| | |
| Procter & Gamble Co. (The) | | | 10,239,497 | | | | 5.2 | |
| | |
| Amazon.com, Inc. | | | 8,734,424 | | | | 4.4 | |
| | |
| Honeywell International, Inc. | | | 8,221,532 | | | | 4.2 | |
| | |
| Alphabet, Inc. – Class C | | | 7,093,495 | | | | 3.6 | |
| | |
| Merck & Co., Inc. | | | 5,822,949 | | | | 2.9 | |
| | |
| Activision Blizzard, Inc. | | | 5,499,866 | | | | 2.8 | |
| | |
| NextEra Energy, Inc. | | | 5,161,493 | | | | 2.6 | |
| | |
| Goldman Sachs Group, Inc. (The) | | | 4,638,932 | | | | 2.3 | |
| | |
| | $ | 80,682,289 | | | | 40.7 | % |
| 1 | All data are as of June 30, 2020. The Fund’s sector breakdown is expressed as a percentage of total investments and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund’s prospectus.
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| 12 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS
June 30, 2020
| | | | | | | | | | |
| Company | | | | Shares | | | U.S. $ Value | |
| |
COMMON STOCKS – 97.8% | | | | | | | | | | |
Information Technology – 25.0% | | | | | | | | | | |
Communications Equipment – 1.4% | | | | | | | | | | |
Cisco Systems, Inc. | | | | | 60,769 | | | $ | 2,834,266 | |
| | | | | | | | | | |
| | | |
IT Services – 3.1% | | | | | | | | | | |
PayPal Holdings, Inc.(a) | | | | | 9,995 | | | | 1,741,429 | |
Visa, Inc. – Class A | | | | | 22,925 | | | | 4,428,422 | |
| | | | | | | | | | |
| | | | | | | | | 6,169,851 | |
| | | | | | | | | | |
Semiconductors & Semiconductor Equipment – 5.5% | | | | | | | | | | |
Intel Corp. | | | | | 69,146 | | | | 4,137,005 | |
NVIDIA Corp. | | | | | 5,980 | | | | 2,271,862 | |
QUALCOMM, Inc. | | | | | 18,724 | | | | 1,707,816 | |
Texas Instruments, Inc. | | | | | 22,178 | | | | 2,815,941 | |
| | | | | | | | | | |
| | | | | | | | | 10,932,624 | |
| | | | | | | | | | |
Software – 9.2% | | | | | | | | | | |
Adobe, Inc.(a) | | | | | 4,361 | | | | 1,898,387 | |
Microsoft Corp. | | | | | 68,201 | | | | 13,879,586 | |
salesforce.com, Inc.(a) | | | | | 13,210 | | | | 2,474,629 | |
| | | | | | | | | | |
| | | | | | | | | 18,252,602 | |
| | | | | | | | | | |
Technology Hardware, Storage & Peripherals – 5.8% | | | | | | | | | | |
Apple, Inc. | | | | | 31,224 | | | | 11,390,515 | |
| | | | | | | | | | |
| | | | | | | | | 49,579,858 | |
| | | | | | | | | | |
Health Care – 15.5% | | | | | | | | | | |
Biotechnology – 1.5% | | | | | | | | | | |
Vertex Pharmaceuticals, Inc.(a) | | | | | 10,097 | | | | 2,931,260 | |
| | | | | | | | | | |
| | | |
Health Care Equipment & Supplies – 3.8% | | | | | | | | | | |
Abbott Laboratories | | | | | 24,896 | | | | 2,276,241 | |
Baxter International, Inc. | | | | | 21,712 | | | | 1,869,403 | |
Boston Scientific Corp.(a) | | | | | 49,787 | | | | 1,748,022 | |
Zimmer Biomet Holdings, Inc. | | | | | 12,738 | | | | 1,520,408 | |
| | | | | | | | | | |
| | | | | | | | | 7,414,074 | |
| | | | | | | | | | |
Health Care Providers & Services – 3.5% | | | | | | | | | | |
Cigna Corp.(a) | | | | | 10,778 | | | | 2,022,492 | |
Humana, Inc. | | | | | 3,112 | | | | 1,206,678 | |
UnitedHealth Group, Inc. | | | | | 12,618 | | | | 3,721,679 | |
| | | | | | | | | | |
| | | | | | | | | 6,950,849 | |
| | | | | | | | | | |
Pharmaceuticals – 6.7% | | | | | | | | | | |
Eli Lilly & Co. | | | | | 17,816 | | | | 2,925,031 | |
Johnson & Johnson | | | | | 32,431 | | | | 4,560,771 | |
Merck & Co., Inc. | | | | | 75,300 | | | | 5,822,949 | |
| | | | | | | | | | |
| | | | | | | | | 13,308,751 | |
| | | | | | | | | | |
| | | | | | | | | 30,604,934 | |
| | | | | | | | | | |
| | |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | |
| Company | | | | Shares | | | U.S. $ Value | |
| |
Communication Services – 12.3% | | | | | | | | | | |
Diversified Telecommunication Services – 0.8% | | | | | | | | | | |
Comcast Corp. – Class A | | | | | 40,795 | | | $ | 1,590,189 | |
| | | | | | | | | | |
| | | |
Entertainment – 5.0% | | | | | | | | | | |
Activision Blizzard, Inc. | | | | | 72,462 | | | | 5,499,866 | |
Netflix, Inc.(a) | | | | | 3,029 | | | | 1,378,316 | |
Vivendi SA | | | | | 80,515 | | | | 2,080,484 | |
Walt Disney Co. (The) | | | | | 7,898 | | | | 880,706 | |
| | | | | | | | | | |
| | | | | | | | | 9,839,372 | |
| | | | | | | | | | |
Interactive Media & Services – 5.7% | | | | | | | | | | |
Alphabet, Inc. – Class C(a) | | | | | 5,018 | | | | 7,093,495 | |
Facebook, Inc. – Class A(a) | | | | | 18,922 | | | | 4,296,618 | |
| | | | | | | | | | |
| | | | | | | | | 11,390,113 | |
| | | | | | | | | | |
Wireless Telecommunication Services – 0.8% | | | | | | | | | | |
T-Mobile US, Inc.(a) | | | | | 14,841 | | | | 1,545,690 | |
| | | | | | | | | | |
| | | | | | | | | 24,365,364 | |
| | | | | | | | | | |
Financials – 10.6% | | | | | | | | | | |
Banks – 5.5% | | | | | | | | | | |
Bank of America Corp. | | | | | 90,427 | | | | 2,147,641 | |
Citigroup, Inc. | | | | | 29,900 | | | | 1,527,890 | |
JPMorgan Chase & Co. | | | | | 41,908 | | | | 3,941,867 | |
PNC Financial Services Group, Inc. (The) | | | | | 29,943 | | | | 3,150,303 | |
| | | | | | | | | | |
| | | | | | | | | 10,767,701 | |
| | | | | | | | | | |
Capital Markets – 3.2% | | | | | | | | | | |
BlackRock, Inc. – Class A | | | | | 872 | | | | 474,446 | |
Charles Schwab Corp. (The) | | | | | 35,836 | | | | 1,209,107 | |
Goldman Sachs Group, Inc. (The) | | | | | 23,474 | | | | 4,638,932 | |
| | | | | | | | | | |
| | | | | | | | | 6,322,485 | |
| | | | | | | | | | |
Diversified Financial Services – 1.9% | | | | | | | | | | |
Berkshire Hathaway, Inc. – Class B(a) | | | | | 21,377 | | | | 3,816,008 | |
| | | | | | | | | | |
| | | | | | | | | 20,906,194 | |
| | | | | | | | | | |
Industrials – 10.0% | | | | | | | | | | |
Aerospace & Defense – 1.3% | | | | | | | | | | |
Northrop Grumman Corp. | | | | | 8,257 | | | | 2,538,532 | |
| | | | | | | | | | |
| | | |
Construction & Engineering – 2.1% | | | | | | | | | | |
Jacobs Engineering Group, Inc. | | | | | 49,614 | | | | 4,207,267 | |
| | | | | | | | | | |
| | | |
Industrial Conglomerates – 4.1% | | | | | | | | | | |
Honeywell International, Inc. | | | | | 56,861 | | | | 8,221,532 | |
| | | | | | | | | | |
| | | |
Road & Rail – 2.5% | | | | | | | | | | |
Norfolk Southern Corp. | | | | | 16,735 | | | | 2,938,164 | |
Union Pacific Corp. | | | | | 11,585 | | | | 1,958,676 | |
| | | | | | | | | | |
| | | | | | | | | 4,896,840 | |
| | | | | | | | | | |
| | | | | | | | | 19,864,171 | |
| | | | | | | | | | |
| | |
| |
| 14 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | |
| Company | | | | Shares | | | U.S. $ Value | |
| |
Consumer Discretionary – 8.9% | | | | | | | | | | |
Hotels, Restaurants & Leisure – 0.2% | | | | | | | | | | |
Starbucks Corp. | | | | | 6,667 | | | $ | 490,624 | |
| | | | | | | | | | |
| | | |
Internet & Direct Marketing Retail – 5.4% | | | | | | | | | | |
Alibaba Group Holding Ltd. (Sponsored ADR)(a) | | | | | 3,877 | | | | 836,269 | |
Amazon.com, Inc.(a) | | | | | 3,166 | | | | 8,734,424 | |
Booking Holdings, Inc.(a) | | | | | 669 | | | | 1,065,275 | |
| | | | | | | | | | |
| | | | | | | | | 10,635,968 | |
| | | | | | | | | | |
Multiline Retail – 0.3% | | | | | | | | | | |
Target Corp. | | | | | 5,204 | | | | 624,116 | |
| | | | | | | | | | |
| | | |
Specialty Retail – 3.0% | | | | | | | | | | |
Home Depot, Inc. (The) | | | | | 8,669 | | | | 2,171,671 | |
Lowe’s Cos., Inc. | | | | | 23,809 | | | | 3,217,072 | |
Ulta Beauty, Inc.(a) | | | | | 2,682 | | | | 545,573 | |
| | | | | | | | | | |
| | | | | | | | | 5,934,316 | |
| | | | | | | | | | |
| | | | | | | | | 17,685,024 | |
| | | | | | | | | | |
Consumer Staples – 8.1% | | | | | | | | | | |
Beverages – 0.6% | | | | | | | | | | |
Coca-Cola Co. (The) | | | | | 28,888 | | | | 1,290,716 | |
| | | | | | | | | | |
| | | |
Food & Staples Retailing – 1.9% | | | | | | | | | | |
Costco Wholesale Corp. | | | | | 3,716 | | | | 1,126,728 | |
Kroger Co. (The) | | | | | 26,874 | | | | 909,685 | |
Walmart, Inc. | | | | | 14,387 | | | | 1,723,275 | |
| | | | | | | | | | |
| | | | | | | | | 3,759,688 | |
| | | | | | | | | | |
Household Products – 5.2% | | | | | | | | | | |
Procter & Gamble Co. (The) | | | | | 85,636 | | | | 10,239,497 | |
| | | | | | | | | | |
| | | |
Personal Products – 0.4% | | | | | | | | | | |
Estee Lauder Cos., Inc. (The) – Class A | | | | | 4,140 | | | | 781,135 | |
| | | | | | | | | | |
| | | | | | | | | 16,071,036 | |
| | | | | | | | | | |
Utilities – 4.0% | | | | | | | | | | |
Electric Utilities – 4.0% | | | | | | | | | | |
NextEra Energy, Inc. | | | | | 21,491 | | | | 5,161,493 | |
NRG Energy, Inc. | | | | | 83,778 | | | | 2,727,812 | |
| | | | | | | | | | |
| | | | | | | | | 7,889,305 | |
| | | | | | | | | | |
Energy – 2.5% | | | | | | | | | | |
Oil, Gas & Consumable Fuels – 2.5% | | | | | | | | | | |
Chevron Corp. | | | | | 35,986 | | | | 3,211,031 | |
EOG Resources, Inc. | | | | | 35,812 | | | | 1,814,236 | |
| | | | | | | | | | |
| | | | | | | | | 5,025,267 | |
| | | | | | | | | | |
Materials – 0.9% | | | | | | | | | | |
Containers & Packaging – 0.9% | | | | | | | | | | |
Berry Global Group, Inc.(a) | | | | | 40,055 | | | | 1,775,238 | |
| | | | | | | | | | |
| | | |
Total Common Stocks
(cost $139,596,873) | | | | | | | | | 193,766,391 | |
| | | | | | | | | | |
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| |
PREFERRED STOCKS – 0.1% | | | | | | | | | | | | |
Consumer Discretionary – 0.1% | | | | | | | | | | | | |
Household Durables – 0.1% | | | | | | | | | | | | |
Honest Co., Inc. (The)
Series D
0.00%(a)(b)(c)
(cost $183,249) | | | | | | | 4,005 | | | $ | 114,959 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
SHORT-TERM INVESTMENTS – 2.3% | | | | | | | | | | | | |
Investment Companies – 2.3% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc. – Government
Money Market Portfolio – Class AB,
0.13%(d)(e)(f)
(cost $4,603,794) | | | | | | | 4,603,794 | | | | 4,603,794 | |
| | | | | | | | | | | | |
| | | |
| | | | | | Principal
Amount
(000) | | | | |
Time Deposits – 0.0% | | | | | | | | | | | | |
BBH Grand Cayman | | | | | | | | | | | | |
(0.25)%, 07/01/2020 | | | JPY | | | | 1,529 | | | | 14,157 | |
0.01%, 07/01/2020 | | | GBP | | | | 0 | * | | | 5 | |
0.02%, 07/02/2020 | | | CAD | | | | 5 | | | | 3,837 | |
Citibank, London
(0.68)%, 07/01/2020 | | | EUR | | | | 57 | | | | 63,902 | |
| | | | | | | | | | | | |
| | | |
Total Time Deposits
(cost $81,901) | | | | | | | | | | | 81,901 | |
| | | | | | | | | | | | |
| | | |
Total Short-Term Investments
(cost $4,685,695) | | | | | | | | | | | 4,685,695 | |
| | | | | | | | | | | | |
| | | |
Total Investments – 100.2%
(cost $144,465,817) | | | | | | | | | | | 198,567,045 | |
Other assets less liabilities – (0.2)% | | | | | | | | | | | (493,130 | ) |
| | | | | | | | | | | | |
| | | |
Net Assets – 100.0% | | | | | | | | | | $ | 198,073,915 | |
| | | | | | | | | | | | |
| * | Principal amount less than 500. |
| (a) | Non-income producing security. |
| (b) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (c) | Fair valued by the Adviser. |
| (d) | The rate shown represents the 7-day yield as of period end. |
| (e) | Affiliated investments. |
| (f) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
| | |
| |
| 16 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Currency Abbreviations:
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
JPY – Japanese Yen
Glossary:
ADR – American Depositary Receipt
See notes to financial statements.
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 17 |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020
| | | | |
| Assets | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $139,862,023) | | $ | 193,963,251 | |
Affiliated issuers (cost $4,603,794) | | | 4,603,794 | |
Receivable for investment securities sold | | | 1,617,211 | |
Unaffiliated dividends receivable | | | 77,830 | |
Receivable for capital stock sold | | | 651 | |
Affiliated dividends receivable | | | 508 | |
| | | | |
Total assets | | | 200,263,245 | |
| | | | |
| Liabilities | | | | |
Payable for investment securities purchased | | | 1,385,911 | |
Payable for capital stock redeemed | | | 471,443 | |
Advisory fee payable | | | 162,480 | |
Administrative fee payable | | | 17,736 | |
Distribution fee payable | | | 9,517 | |
Transfer Agent fee payable | | | 2,387 | |
Accrued expenses and other liabilities | | | 139,856 | |
| | | | |
Total liabilities | | | 2,189,330 | |
| | | | |
Net Assets | | $ | 198,073,915 | |
| | | | |
| Composition of Net Assets | | | | |
Capital stock, at par | | $ | 1,229 | |
Additional paid-in capital | | | 148,451,194 | |
Distributable earnings | | | 49,621,492 | |
| | | | |
| | $ | 198,073,915 | |
| | | | |
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.0001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| |
| A | | $ | 11,699,413 | | | | 722,450 | | | $ | 16.19 | * |
| |
| C | | $ | 8,436,503 | | | | 559,708 | | | $ | 15.07 | |
| |
| Advisor | | $ | 172,642,933 | | | | 10,677,881 | | | $ | 16.17 | |
| |
| R | | $ | 22,671 | | | | 1,441 | | | $ | 15.73 | |
| |
| K | | $ | 1,028,128 | | | | 64,300 | | | $ | 15.99 | |
| |
| I | | $ | 4,244,267 | | | | 265,500 | | | $ | 15.99 | |
| |
| * | The maximum offering price per share for Class A shares was $16.91, which reflects a sales charge of 4.25%. |
See notes to financial statements.
| | |
| |
| 18 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
STATEMENT OF OPERATIONS
Year Ended June 30, 2020
| | | | | | | | |
| Investment Income | | | | | | | | |
Dividends | | | | | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $8,590) | | $ | 3,528,131 | | | | | |
Affiliated issuers | | | 70,335 | | | | | |
Securities lending income | | | 496 | | | $ | 3,598,962 | |
| | | | | | | | |
| Expenses | | | | | | | | |
Advisory fee (see Note B) | | | 1,988,440 | | | | | |
Distribution fee—Class A | | | 27,777 | | | | | |
Distribution fee—Class C | | | 101,839 | | | | | |
Distribution fee—Class R | | | 108 | | | | | |
Distribution fee—Class K | | | 2,386 | | | | | |
Transfer agency—Class A | | | 3,204 | | | | | |
Transfer agency—Class C | | | 3,165 | | | | | |
Transfer agency—Advisor Class | | | 48,894 | | | | | |
Transfer agency—Class R | | | 23 | | | | | |
Transfer agency—Class K | | | 1,909 | | | | | |
Transfer agency—Class I | | | 1,025 | | | | | |
Custody and accounting | | | 172,166 | | | | | |
Registration fees | | | 86,657 | | | | | |
Administrative | | | 72,826 | | | | | |
Audit and tax | | | 57,813 | | | | | |
Legal | | | 33,574 | | | | | |
Printing | | | 29,166 | | | | | |
Directors’ fees | | | 20,305 | | | | | |
Miscellaneous | | | 17,765 | | | | | |
| | | | | | | | |
Total expenses | | | 2,669,042 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Note B and Note E) | | | (6,425 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 2,662,617 | |
| | | | | | | | |
Net investment income | | | | | | | 936,345 | |
| | | | | | | | |
| Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | |
Investment transactions | | | | | | | 12,461,269 | |
Swaps | | | | | | | 147,213 | |
Foreign currency transactions | | | | | | | (9,664 | ) |
Net change in unrealized appreciation/depreciation on: | | | | | | | | |
Investments | | | | | | | (3,375,078 | ) |
Swaps | | | | | | | (124,484 | ) |
Foreign currency denominated assets and liabilities | | | | | | | (401 | ) |
| | | | | | | | |
Net gain on investment and foreign currency transactions | | | | | | | 9,098,855 | |
| | | | | | | | |
Contributions from Affiliates (see Note B) | | | | | | | 9,695 | |
| | | | | | | | |
Net Increase in Net Assets from Operations | | | | | | $ | 10,044,895 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 19 |
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
Net investment income | | $ | 936,345 | | | $ | 1,084,478 | |
Net realized gain on investment and foreign currency transactions | | | 12,598,818 | | | | 11,345,738 | |
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | | | (3,499,963 | ) | | | 7,972,309 | |
Contributions from Affiliates (see Note B) | | | 9,695 | | | | – 0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 10,044,895 | | | | 20,402,525 | |
| Distributions to Shareholders | | | | | | | | |
Class A | | | (865,274 | ) | | | (1,107,493 | ) |
Class C | | | (835,262 | ) | | | (1,286,653 | ) |
Advisor Class | | | (13,144,837 | ) | | | (17,849,203 | ) |
Class R | | | (1,758 | ) | | | (1,703 | ) |
Class K | | | (77,392 | ) | | | (119,111 | ) |
Class I | | | (426,211 | ) | | | (3,300,315 | ) |
| Capital Stock Transactions | | | | | | | | |
Net decrease | | | (21,709,311 | ) | | | (25,031,571 | ) |
| | | | | | | | |
Total decrease | | | (27,015,150 | ) | | | (28,293,524 | ) |
| Net Assets | | | | | | | | |
Beginning of period | | | 225,089,065 | | | | 253,382,589 | |
| | | | | | | | |
End of period | | $ | 198,073,915 | | | $ | 225,089,065 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 20 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020
NOTE A
Significant Accounting Policies
AB Cap Fund, Inc. (the “Company”), which is a Maryland corporation, is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company operates as a series company comprised of 15 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 Select US Equity 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 T, Class 1, and Class 2 shares. Class B, Class T, Class 1, and Class 2 shares are not currently being offered. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class and Class I shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All ten classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 21 |
NOTES TO FINANCIAL STATEMENTS (continued)
securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements
| | |
| |
| 22 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 23 |
NOTES TO FINANCIAL STATEMENTS (continued)
which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
| | | | | | | | | | | | | | | | |
Investments in Securities | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Information Technology | | $ | 49,579,858 | | | $ | – 0 | – | | $ | – 0 | – | | $ | 49,579,858 | |
Health Care | | | 30,604,934 | | | | – 0 | – | | | – 0 | – | | | 30,604,934 | |
Communication Services | | | 22,284,880 | | | | 2,080,484 | | | | – 0 | – | | | 24,365,364 | |
Financials | | | 20,906,194 | | | | – 0 | – | | | – 0 | – | | | 20,906,194 | |
Industrials | | | 19,864,171 | | | | – 0 | – | | | – 0 | – | | | 19,864,171 | |
Consumer Discretionary | | | 17,685,024 | | | | – 0 | – | | | – 0 | – | | | 17,685,024 | |
Consumer Staples | | | 16,071,036 | | | | – 0 | – | | | – 0 | – | | | 16,071,036 | |
Utilities | | | 7,889,305 | | | | – 0 | – | | | – 0 | – | | | 7,889,305 | |
Energy | | | 5,025,267 | | | | – 0 | – | | | – 0 | – | | | 5,025,267 | |
Materials | | | 1,775,238 | | | | – 0 | – | | | – 0 | – | | | 1,775,238 | |
Preferred Stocks | | | – 0 | – | | | – 0 | – | | | 114,959 | | | | 114,959 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Investment Companies | | | 4,603,794 | | | | – 0 | – | | | – 0 | – | | | 4,603,794 | |
Time Deposits | | | – 0 | – | | | 81,901 | | | | – 0 | – | | | 81,901 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 196,289,701 | | | | 2,162,385 | | | | 114,959 | | | | 198,567,045 | |
Other Financial Instruments* | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | | | | | | | | | | | | |
Total | | $ | 196,289,701 | | | $ | 2,162,385 | | | $ | 114,959 | | | $ | 198,567,045 | |
| | | | | | | | | | | | | | | | |
| * | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
| | |
| |
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NOTES TO FINANCIAL STATEMENTS (continued)
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation 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
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 25 |
NOTES TO FINANCIAL STATEMENTS (continued)
adjustments to interest income. The Fund accounts for distributions received from REIT investments as dividend income, realized gain, or return of capital based on information provided by the REIT.
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of 1.00% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating (excluding acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs), on an annual basis (the “Expense Caps”) to 1.55%, 2.30%, 1.30%, 1.80%, 1.55% and 1.30% of the daily average net assets for Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. For the year ended June 30, 2020, such reimbursements/waivers amounted to $1,452. The Expense Caps may not be terminated before October 31, 2020.
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 June 30, 2020, the reimbursement for such services amounted to $72,826.
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NOTES TO FINANCIAL STATEMENTS (continued)
The Fund compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Fund. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. The compensation retained by ABIS amounted to $29,152 for the year ended June 30, 2020.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales charges of $1,118 from the sale of Class A shares and received $31 and $511 in contingent deferred sales charges imposed upon redemption by shareholders of Class A and Class C shares, respectively, for the year ended June 30, 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 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 June 30, 2020, such waiver amounted to $4,945.
A summary of the Fund’s transactions in AB mutual funds for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
6/30/19
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
6/30/20
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio. | | $ | 8,288 | | | $ | 102,299 | | | $ | 105,983 | | | $ | 4,604 | | | $ | 70 | |
Government Money Market Portfolio* | | | – 0 | – | | | 2,471 | | | | 2,471 | | | | – 0 | – | | | 0 | ** |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 4,604 | | | $ | 70 | |
| | | | | | | | | | | | | | | | | | | | |
| * | Investment of cash collateral for securities lending transactions (see Note E). |
| ** | Amount is less than $500. |
| | |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 27 |
NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended June 30, 2020, the Adviser reimbursed the Fund $9,695 for trading losses incurred due to a trade entry error.
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 approximately 65.2% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to Class C shares, .50% of the Fund’s average daily net assets attributable to Class R shares and .25% of the Fund’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on Advisor Class and Class I shares. The fees are accrued daily and paid monthly. Payments under the Agreement
| | |
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| 28 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
in respect of Class A shares are currently limited to an annual rate of .25% of Class A shares’ average daily net assets. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Fund’s operation, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $102,351, $0 and $3,213 for Class C, Class R and Class K shares, respectively. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs, incurred by the Distributor, beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended June 30, 2020, were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 358,815,764 | | | $ | 391,707,268 | |
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 | | $ | 154,135,220 | |
| | | | |
Gross unrealized appreciation | | $ | 54,973,029 | |
Gross unrealized depreciation | | | (10,541,204 | ) |
| | | | |
Net unrealized appreciation | | $ | 44,431,825 | |
| | | | |
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Fund, as well as the methods in which they may be used are:
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Fund may also enter into swaps
| | |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 29 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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
| | |
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| 30 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty.
During the year ended June 30, 2020, the Fund held total return swaps for non-hedging purposes.
During the year ended June 30, 2020, the Fund had entered into the following derivatives:
| | | | | | | | | | |
Derivative Type | | Location of Gain
or (Loss) on
Derivatives Within
Statement of
Operations | | Realized Gain
or (Loss) on
Derivatives | | | Change in
Unrealized
Appreciation or
(Depreciation) | |
Equity contracts | | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/depreciation on swaps | | $ | 147,213 | | | $ | (124,484 | ) |
| | | | | | | | | | |
Total | | | | $ | 147,213 | | | $ | (124,484 | ) |
| | | | | | | | | | |
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended June 30, 2020:
| | | | |
Total Return Swaps: | | | | |
Average notional amount | | $ | 465,832 | (a) |
| (a) | Positions were open for less than one month during the reporting period. |
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).
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 31 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized continually by cash collateral and/or non-cash collateral. Non-cash collateral will include only securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The Fund cannot sell or repledge any non-cash collateral, such collateral will not be reflected in the portfolio of investments. If a loan is collateralized by cash, the Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Fund in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. If the Fund receives non-cash collateral, the Fund will receive a fee from the borrower generally equal to a negotiated percentage of the market value of the loaned securities. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. The collateral will be adjusted the next business day to maintain the required collateral amount. The amounts of securities lending income from the borrowers and Government Money Market Portfolio are reflected in the statement of operations. When the Fund earns net securities lending income from Government Money Market Portfolio, the income is inclusive of a rebate expense paid to the borrower. In connection with the cash collateral investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the
| | |
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| 32 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
loaned securities. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower.
A summary of the Fund’s transactions surrounding securities lending for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Government Money
Market Portfolio | |
Market
Value of
Securities
on Loan* | | | Cash Collateral* | | | Market
Value of
Non-Cash
Collateral* | | | Income from
Borrowers | | | Income
Earned | | | Advisory Fee
Waived | |
| $ | – 0 | – | | $ | – 0 | – | | $ | – 0 | – | | $ | 496 | | | $ | 331 | | | $ | 28 | |
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30, 2019 | | | | | | Year Ended
June 30, 2020 | | | Year Ended
June 30, 2019 | | | | |
| | | | | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 221,797 | | | | 72,880 | | | | | | | $ | 3,453,847 | | | $ | 1,197,997 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 45,558 | | | | 67,560 | | | | | | | | 757,627 | | | | 1,020,155 | | | | | |
| | | | | |
Shares converted from Class C | | | 51,658 | | | | 6,236 | | | | | | | | 876,795 | | | | 97,750 | | | | | |
| | | | | |
Shares redeemed | | | (237,117 | ) | | | (209,212 | ) | | | | | | | (3,796,610 | ) | | | (3,504,595 | ) | | | | |
| | | | | |
Net increase (decrease) | | | 81,896 | | | | (62,536 | ) | | | | | | $ | 1,291,659 | | | $ | (1,188,693 | ) | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 58,884 | | | | 111,782 | | | | | | | $ | 931,948 | | | $ | 1,732,045 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 43,029 | | | | 69,798 | | | | | | | | 668,677 | | | | 993,220 | | | | | |
| | | | | |
Shares converted to Class A | | | (55,268 | ) | | | (6,627 | ) | | | | | | | (876,795 | ) | | | (97,750 | ) | | | | |
| | | | | |
Shares redeemed | | | (213,439 | ) | | | (236,354 | ) | | | | | | | (3,202,594 | ) | | | (3,549,110 | ) | | | | |
| | | | | |
Net decrease | | | (166,794 | ) | | | (61,401 | ) | | | | | | $ | (2,478,764 | ) | | $ | (921,595 | ) | | | | |
| | | | | |
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 33 |
NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30, 2019 | | | | | | Year Ended
June 30, 2020 | | | Year Ended
June 30, 2019 | | | | |
| | | | | | | | |
| Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 2,808,579 | | | | 2,444,112 | | | | | | | $ | 43,474,248 | | | $ | 40,304,087 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 571,383 | | | | 1,013,091 | | | | | | | | 9,473,528 | | | | 15,247,014 | | | | | |
| | | | | |
Shares redeemed | | | (4,416,704 | ) | | | (2,630,694 | ) | | | | | | | (72,711,605 | ) | | | (42,917,579 | ) | | | | |
| | | | | |
Net increase (decrease) | | | (1,036,742 | ) | | | 826,509 | | | | | | | $ | (19,763,829 | ) | | $ | 12,633,522 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class R | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 298 | | | | 184 | | | | | | | $ | 4,790 | | | $ | 2,809 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 27 | | | | 1 | | | | | | | | 439 | | | | 20 | | | | | |
| | | | | |
Shares redeemed | | | (68 | ) | | | (7 | ) | | | | | | | (876 | ) | | | (117 | ) | | | | |
| | | | | |
Net increase | | | 257 | | | | 178 | | | | | | | $ | 4,353 | | | $ | 2,712 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class K | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 19,495 | | | | 18,267 | | | | | | | $ | 302,616 | | | $ | 284,219 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 4,713 | | | | 7,989 | | | | | | | | 77,391 | | | | 119,110 | | | | | |
| | | | | |
Shares redeemed | | | (12,634 | ) | | | (139,432 | ) | | | | | | | (189,286 | ) | | | (2,282,834 | ) | | | | |
| | | | | |
Net increase (decrease) | | | 11,574 | | | | (113,176 | ) | | | | | | $ | 190,721 | | | $ | (1,879,505 | ) | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 10,147 | | | | 462,563 | | | | | | | $ | 169,313 | | | $ | 7,439,970 | | | | | |
| | | | | |
Shares issued in reinvestment of dividends and distributions | | | 26,004 | | | | 221,646 | | | | | | | | 426,211 | | | | 3,300,315 | | | | | |
| | | | | |
Shares redeemed | | | (96,038 | ) | | | (2,663,097 | ) | | | | | | | (1,548,975 | ) | | | (44,418,297 | ) | | | | |
| | | | | |
Net decrease | | | (59,887 | ) | | | (1,978,888 | ) | | | | | | $ | (953,451 | ) | | $ | (33,678,012 | ) | | | | |
| | | | | |
NOTE G
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.
| | |
| |
| 34 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
Sector Risk—The Fund may have more risk because it may invest to a significant extent in one or more particular market sectors, such as the information technology or financial services sector. To the extent it does so, market or economic factors affecting the relevant sector(s) could have a major effect on the value of the Fund’s investments.
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in these companies may have additional risks because these companies may have limited product lines, markets or financial resources.
Active Trading Risk—The Fund expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate may greatly exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Fund’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Fund shareholders.
IPO Risk—Securities purchased in an IPO may be subject to substantial price volatility due to one or more factors such as unseasoned trading in the securities, the lack of investor knowledge of the issuer, the lack of an operating history of the issuer, and the dependence of the issuer on key personnel, suppliers or a limited number of customers.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 35 |
NOTES TO FINANCIAL STATEMENTS (continued)
LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended June 30, 2020.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended June 30, 2020 and June 30, 2019 were as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 5,550,516 | | | $ | 16,289,097 | |
Net long-term capital gains | | | 9,800,218 | | | | 7,375,381 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 15,350,734 | | | $ | 23,664,478 | |
| | | | | | | | |
| | |
| |
| 36 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
As of June 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed capital gains | | $ | 5,190,073 | (a) |
Unrealized appreciation/(depreciation) | | | 44,431,419 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 49,621,492 | |
| | | | |
| (a) | As of June 30, 2020, the Fund had a post-October short term capital loss deferral of $85,402. |
| (b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of June 30, 2020, the Fund did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the utilization of earnings and profits distributed to shareholders on redemption of shares and contributions from the Adviser resulted in a net decrease in distributable earnings and a net increase in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 37 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 16.81 | | | | $ 17.15 | | | | $ 16.54 | | | | $ 14.70 | | | | $ 15.56 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .05 | | | | .05 | | | | .05 | | | | .06 | | | | .06 | |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .68 | | | | 1.32 | | | | 2.39 | | | | 2.32 | | | | .21 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .73 | | | | 1.37 | | | | 2.44 | | | | 2.38 | | | | .27 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.07 | ) | | | (.05 | ) | | | (.03 | ) | | | – 0 | – | | | (.02 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (1.28 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.54 | ) | | | (1.11 | ) |
| | | | |
Total dividends and distributions | | | (1.35 | ) | | | (1.71 | ) | | | (1.83 | ) | | | (.54 | ) | | | (1.13 | ) |
| | | | |
Net asset value, end of period | | | $ 16.19 | | | | $ 16.81 | | | | $ 17.15 | | | | $ 16.54 | | | | $ 14.70 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 4.18 | % | | | 9.08 | % | | | 15.03 | % | | | 16.47 | % | | | 1.74 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $11,699 | | | | $10,765 | | | | $12,060 | | | | $11,694 | | | | $42,856 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 1.53 | % | | | 1.50 | % | | | 1.45 | % | | | 1.45 | % | | | 1.45 | % |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | 1.53 | % | | | 1.50 | % | | | 1.46 | % | | | 1.45 | % | | | 1.45 | % |
| | | | | |
Net investment income(b) | | | .28 | % | | | .28 | % | | | .31 | % | | | .37 | % | | | .44 | % |
| | | | | |
Portfolio turnover rate | | | 183 | % | | | 209 | % | | | 236 | % | | | 292 | % | | | 269 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .02 | % | | | .02 | % | | | .02 | % | | | .00 | % |
See footnote summary on page 44.
| | |
| |
| 38 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class C | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 15.78 | | | | $ 16.28 | | | | $ 15.87 | | | | $ 14.23 | | | | $ 15.19 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.07 | ) | | | (.07 | ) | | | (.07 | ) | | | (.05 | ) | | | (.06 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .64 | | | | 1.23 | | | | 2.28 | | | | 2.23 | | | | .21 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .57 | | | | 1.16 | | | | 2.21 | | | | 2.18 | | | | .15 | |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (1.28 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.54 | ) | | | (1.11 | ) |
| | | | |
Net asset value, end of period | | | $ 15.07 | | | | $ 15.78 | | | | $ 16.28 | | | | $ 15.87 | | | | $ 14.23 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 3.36 | % | | | 8.27 | % | | | 14.19 | % | | | 15.59 | % | | | .98 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $8,437 | | | | $11,463 | | | | $12,825 | | | | $10,647 | | | | $12,613 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 2.27 | % | | | 2.25 | % | | | 2.21 | % | | | 2.20 | % | | | 2.20 | % |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | 2.28 | % | | | 2.25 | % | | | 2.21 | % | | | 2.21 | % | | | 2.20 | % |
| | | | | |
Net investment loss(b) | | | (.45 | )% | | | (.47 | )% | | | (.45 | )% | | | (.33 | )% | | | (.41 | )% |
| | | | | |
Portfolio turnover rate | | | 183 | % | | | 209 | % | | | 236 | % | | | 292 | % | | | 269 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .02 | % | | | .02 | % | | | .02 | % | | | .00 | % |
See footnote summary on page 44.
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO |�� 39 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Advisor Class | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 16.78 | | | | $ 17.14 | | | | $ 16.53 | | | | $ 14.73 | | | | $ 15.60 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .09 | | | | .09 | | | | .10 | | | | .10 | | | | .09 | |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .69 | | | | 1.31 | | | | 2.38 | | | | 2.33 | | | | .21 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .78 | | | | 1.40 | | | | 2.48 | | | | 2.43 | | | | .30 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.11 | ) | | | (.10 | ) | | | (.07 | ) | | | (.09 | ) | | | (.06 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (1.28 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.54 | ) | | | (1.11 | ) |
| | | | |
Total dividends and distributions | | | (1.39 | ) | | | (1.76 | ) | | | (1.87 | ) | | | (.63 | ) | | | (1.17 | ) |
| | | | |
Net asset value, end of period | | | $ 16.17 | | | | $ 16.78 | | | | $ 17.14 | | | | $ 16.53 | | | | $ 14.73 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 4.44 | % | | | 9.34 | % | | | 15.33 | % | | | 16.82 | % | | | 1.91 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $172,643 | | | | $196,566 | | | | $186,570 | | | | $239,659 | | | | $216,896 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 1.27 | % | | | 1.25 | % | | | 1.20 | % | | | 1.20 | % | | | 1.20 | % |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | 1.27 | % | | | 1.25 | % | | | 1.21 | % | | | 1.20 | % | | | 1.20 | % |
| | | | | |
Net investment income(b) | | | .54 | % | | | .53 | % | | | .56 | % | | | .67 | % | | | .60 | % |
| | | | | |
Portfolio turnover rate | | | 183 | % | | | 209 | % | | | 236 | % | | | 292 | % | | | 269 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .02 | % | | | .02 | % | | | .02 | % | | | .00 | % |
See footnote summary on page 44.
| | |
| |
| 40 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class R | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 16.37 | | | | $ 16.76 | | | | $ 16.22 | | | | $ 14.48 | | | | $ 15.37 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | .00 | (c) | | | (.00 | )(c) | | | .00 | (c) | | | .02 | | | | .01 | |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .67 | | | | 1.28 | | | | 2.34 | | | | 2.28 | | | | .21 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .67 | | | | 1.28 | | | | 2.34 | | | | 2.30 | | | | .22 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.03 | ) | | | (.01 | ) | | | – 0 | – | | | (.02 | ) | | | – 0 | – |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (1.28 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.54 | ) | | | (1.11 | ) |
| | | | |
Total dividends and distributions | | | (1.31 | ) | | | (1.67 | ) | | | (1.80 | ) | | | (.56 | ) | | | (1.11 | ) |
| | | | |
Net asset value, end of period | | | $ 15.73 | | | | $ 16.37 | | | | $ 16.76 | | | | $ 16.22 | | | | $ 14.48 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 3.87 | % | | | 8.77 | % | | | 14.71 | % | | | 16.14 | % | | | 1.44 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $23 | | | | $19 | | | | $17 | | | | $16 | | | | $15 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 1.80 | % | | | 1.78 | % | | | 1.76 | % | | | 1.74 | % | | | 1.72 | % |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | 1.86 | % | | | 1.78 | % | | | 1.76 | % | | | 1.74 | % | | | 1.72 | % |
| | | | | |
Net investment income (loss)(b) | | | .01 | % | | | (.02 | ) % | | | .01 | % | | | .12 | % | | | .09 | % |
| | | | | |
Portfolio turnover rate | | | 183 | % | | | 209 | % | | | 236 | % | | | 292 | % | | | 269 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .02 | % | | | .02 | % | | | .02 | % | | | .00 | % |
See footnote summary on page 44.
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 41 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class K | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 16.59 | | | | $ 16.92 | | | | $ 16.33 | | | | $ 14.56 | | | | $ 15.43 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .04 | | | | .03 | | | | .04 | | | | .05 | | | | .04 | |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .68 | | | | 1.30 | | | | 2.35 | | | | 2.29 | | | | .21 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .72 | | | | 1.33 | | | | 2.39 | | | | 2.34 | | | | .25 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.04 | ) | | | – 0 | – | | | – 0 | – | | | (.03 | ) | | | (.01 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (1.28 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.54 | ) | | | (1.11 | ) |
| | | | |
Total dividends and distributions | | | (1.32 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.57 | ) | | | (1.12 | ) |
| | | | |
Net asset value, end of period | | | $ 15.99 | | | | $ 16.59 | | | | $ 16.92 | | | | $ 16.33 | | | | $ 14.56 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 4.16 | % | | | 8.99 | % | | | 14.94 | % | | | 16.38 | % | | | 1.58 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $1,028 | | | | $875 | | | | $2,806 | | | | $2,636 | | | | $3,739 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ Reimbursements(e)† | | | 1.55 | % | | | 1.55 | % | | | 1.54 | % | | | 1.55 | % | | | 1.55 | % |
| | | | | |
Expenses, before waivers/ reimbursements(e)† | | | 1.70 | % | | | 1.66 | % | | | 1.63 | % | | | 1.62 | % | | | 1.60 | % |
| | | | | |
Net investment income(b) | | | .26 | % | | | .18 | % | | | .22 | % | | | .32 | % | | | .27 | % |
| | | | | |
Portfolio turnover rate | | | 183 | % | | | 209 | % | | | 236 | % | | | 292 | % | | | 269 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .02 | % | | | .02 | % | | | .02 | % | | | .00 | % |
See footnote summary on page 44.
| | |
| |
| 42 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class I | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of period | | | $ 16.60 | | | | $ 16.97 | | | | $ 16.38 | | | | $ 14.61 | | | | $ 15.48 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income(a)(b) | | | .09 | | | | .09 | | | | .10 | | | | .11 | | | | .08 | |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .68 | | | | 1.30 | | | | 2.36 | | | | 2.29 | | | | .22 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .77 | | | | 1.39 | | | | 2.46 | | | | 2.40 | | | | .30 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.10 | ) | | | (.10 | ) | | | (.07 | ) | | | (.09 | ) | | | (.06 | ) |
| | | | | |
Distributions from net realized gain on investment and foreign currency transactions | | | (1.28 | ) | | | (1.66 | ) | | | (1.80 | ) | | | (.54 | ) | | | (1.11 | ) |
| | | | |
Total dividends and distributions | | | (1.38 | ) | | | (1.76 | ) | | | (1.87 | ) | | | (.63 | ) | | | (1.17 | ) |
| | | | |
Net asset value, end of period | | | $ 15.99 | | | | $ 16.60 | | | | $ 16.97 | | | | $ 16.38 | | | | $ 14.61 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 4.45 | % | | | 9.38 | % | | | 15.35 | % | | | 16.76 | % | | | 2.00 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $4,244 | | | | $5,401 | | | | $39,104 | | | | $15,121 | | | | $21,461 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/ reimbursements(e)† | | | 1.26 | % | | | 1.23 | % | | | 1.21 | % | | | 1.19 | % | | | 1.18 | % |
| | | | | |
Expenses, before waivers/ Reimbursements(e)† | | | 1.27 | % | | | 1.24 | % | | | 1.22 | % | | | 1.19 | % | | | 1.18 | % |
| | | | | |
Net investment income(b) | | | .56 | % | | | .55 | % | | | .57 | % | | | .72 | % | | | .57 | % |
| | | | | |
Portfolio turnover rate | | | 183 | % | | | 209 | % | | | 236 | % | | | 292 | % | | | 269 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying | |
portfolios | | | .00 | % | | | .02 | % | | | .02 | % | | | .02 | % | | | .00 | % |
See footnote summary on page 44.
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 43 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| (a) | Based on average shares outstanding. |
| (b) | Net of expenses waived/reimbursed by the Adviser. |
| (c) | Amount is less than $0.005. |
| (d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charge or contingent deferred sales charge is not reflected in the calculation of total investment return. Total investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return for a period of less than one year is not annualized. |
| (e) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses but bears proportionate shares of the acquired fund fees and expenses (i.e. operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the year ended June 30, 2017, such waiver amounted to 0.01%. |
| * | Includes the impact of proceeds received, and credited to the Fund resulting from class action settlements, which enhanced the performance of each share class, for the years ended June 30, 2020 and June 30, 2018 by 0.03% and 0.02%, respectively. |
See notes to financial statements.
| | |
| |
| 44 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AB Select US Equity Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Select US Equity Portfolio (the “Fund”) (one of the funds constituting AB Cap Fund, Inc. (the “Company”)), including the portfolio of investments, as of June 30, 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 five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Cap Fund, Inc.) at June 30, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 45 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 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
August 26, 2020
| | |
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| 46 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
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 taxable year ended June 30, 2020. For corporate shareholders, 77.13% of dividends paid qualify for the dividends received deduction. For individual shareholders, the Fund designates 75.15% of dividends paid as qualified dividend income.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2021.
| | |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 47 |
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 Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
| | |
Kurt A. Feuerman(2), Vice President Anthony Nappo(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
Custodian and Accounting Agent 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 Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036 Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 |
| 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 Select Equity Portfolios Investment Team. Messrs. Feuerman and Nappo are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
| | |
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| 48 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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 (2011) | | 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. | | | 78 | | | None |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 49 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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
78 (2011) | | Private Investor since prior to 2015. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of 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 such AB Funds since February 2014. | | | 78 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
| | |
| |
| 50 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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) | | | | | | |
| | | |
Jorge A. Bermudez,# 69 (2020) | | Private investor since prior to 2015. 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. | | | 78 | | | Moody’s Corporation since April 2011 |
| | | | | | | | |
| | | |
Michael J. Downey,# 76 (2011) | | Private Investor since prior to 2015. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2015 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. | | | 78 | | | None |
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 51 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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) | | | | | | |
| | | |
Nancy P. Jacklin,# 72 (2011) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
| | | | | | | | |
| | | |
Jeanette Loeb,# 68 (2020) | | Chief Executive Officer of PetCareRx (ecommerce 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 a Director of the AB Funds since April 2020. | | | 78 | | | Apollo Investment Corp. (business development company) since August 2011 |
| | |
| |
| 52 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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) | | | | | | |
| | | |
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 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included 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. | | | 78 | | | None |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 53 |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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 (2011) | | Private Investor since prior to 2015. 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 the 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. | | | 78 | | | None |
| | | | | | | | |
| | |
| |
| 54 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
MANAGEMENT OF THE FUND (continued)
| | | | | | | | |
NAME,
ADDRESS,* AGE AND
(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 (2011) | | 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 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. | | | 78 | | | None |
| * | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P. Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
| ** | There is no stated term of office for the Fund’s Directors. |
| *** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
| + | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
| # | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
| | |
| |
| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 55 |
MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below:
| | | | |
NAME, ADDRESS* AND AGE | | POSITION(S) HELD WITH FUND | | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS |
Robert M. Keith 60 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Kurt A. Feuerman 64 | | Vice President | | Senior Vice President and Chief Investment Officer – Select US Equity Portfolios of the Adviser**, with which he has been associated since prior to 2015. |
| | | | |
Anthony Nappo 48 | | Vice President | | Senior Vice President, and Co-Chief Investment Officer – Select US Equity Portfolios of the Adviser**, since prior to 2015. |
| | | | |
Emilie D. Wrapp 64 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2015. |
| | | | |
Michael B. Reyes 44 | | Senior Analyst | | Vice President of the Adviser**, with which he has been associated since prior to 2015. |
| | | | |
Joseph J. Mantineo 61 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2015. |
| | | | |
Phyllis J. Clarke 59 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2015. |
| | | | |
Vincent S. Noto 55 | | Chief Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2015. |
| * | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI.
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| 56 | AB SELECT US EQUITY PORTFOLIO | | abfunds.com |
Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
| | |
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| abfunds.com | | AB SELECT US EQUITY PORTFOLIO | 57 |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Cap Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Select US Equity Portfolio (the “Fund”) at a meeting held by video conference on May 5-7, 2020 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the money market fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment
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research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the money market fund advised by the Adviser in which the Fund invests, including, but not limited to,
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benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended February 29, 2020 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser 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 paid by other funds. The directors compared the Fund’s contractual advisory fee rate with a peer group median and noted that it was above the median. The directors also took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients 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 a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees
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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 shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the 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 may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, 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 would be for services 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 advisory fee, the directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The Adviser had agreed to cap the Fund’s expenses, but
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the directors noted that the Fund’s expense ratio was currently below the level of the Adviser’s cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund does not contain breakpoints, and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and 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 Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s asset level (which was well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
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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
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond 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
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
| 1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB SELECT US EQUITY PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
SUE-0151-0620 
JUN 06.30.20
ANNUAL REPORT
AB SELECT US LONG/SHORT PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
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| 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.
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| FROM THE PRESIDENT | |  |
Dear Shareholder,
We are pleased to provide this report for AB Select US Long/Short Portfolio (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
| + | | Transforming uncommon insights into uncommon knowledge with a global research scope |
| + | | Navigating markets with seasoned investment experience and sophisticated solutions |
| + | | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
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| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 1 |
ANNUAL REPORT
August 14, 2020
This report provides management’s discussion of fund performance for AB Select US Long/Short Portfolio for the annual reporting period ended June 30, 2020.
The Fund’s investment objective is long-term growth of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
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| | | 6 Months | | | 12 Months | |
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| AB SELECT US LONG/SHORT PORTFOLIO1 | | | | | | | | |
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| Class A Shares | | | -2.88% | | | | 3.11% | |
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| Class C Shares | | | -3.31% | | | | 2.25% | |
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| Advisor Class Shares2 | | | -2.82% | | | | 3.27% | |
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| Class R Shares2 | | | -3.10% | | | | 2.75% | |
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| Class K Shares2 | | | -2.88% | | | | 3.11% | |
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| Class I Shares2 | | | -2.74% | | | | 3.37% | |
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| S&P 500 Index | | | -3.08% | | | | 7.51% | |
| 1 | Includes the impact of proceeds received and credited to the Fund resulting from class-action settlements, which enhanced the performance of the Fund for the six- and 12-month periods ended June 30, 2020, by 0.02% and 0.03%, respectively. |
| 2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Standard & Poor’s (“S&P”) 500 Index, for the six- and 12-month periods ended June 30, 2020.
During the 12-month period, all share classes underperformed the benchmark, before sales charges. The Fund’s net market exposure ranged from 52% to 65%, ending the period at 65%. The Fund’s below-market exposure led to underperformance, relative to the fully invested benchmark. Security selection within the Fund’s long holdings detracted from absolute returns, while selection within the Fund’s short holdings contributed. Within the Fund’s long holdings, security selection in financials, energy and industrials detracted from absolute returns, while selection in technology, consumer discretionary and communication services contributed. Within the Fund’s short holdings, security selection within real estate, industrials and the Fund’s market hedges contributed to absolute returns, while selection in consumer discretionary, technology and communication services detracted.
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During the six-month period, all share classes except Class C and R outperformed the benchmark, before sales charges. The Fund’s net market exposure ranged from 52% to 65%, ending the period at 65%. The Fund’s below-market exposure led to outperformance, relative to the fully invested benchmark. Security selection within the Fund’s long holdings detracted from absolute returns, while selection within the Fund’s short holdings contributed. Within the Fund’s long holdings, security selection in financials, energy and industrials detracted, while selection in technology, consumer discretionary and communication services contributed. Within the Fund’s short holdings, security selection within real estate and financials contributed to absolute returns, as did the Fund’s market hedges, while selection within communication services, technology and health care detracted.
The Fund utilized derivatives in the form of total return swaps for hedging and investment purposes, and futures for hedging purposes, which added to absolute returns for both periods.
MARKET REVIEW AND INVESTMENT STRATEGY
In the first half of the 12-month period ended June 30, 2020, US markets advanced, as it looked increasingly likely that a phase-one trade deal between the US and China was on the horizon and as monetary policy remained supportive. While investors remained concerned about slow economic and corporate profit growth and elevated equity valuations, there were signs late in the year that growth might be stabilizing in the US and globally.
In the second half of the 12-month period, global equity markets came under extreme pressure as the COVID-19 pandemic spread throughout the world. Global economies all but shut down as countries looked to slow the spread of the virus. Global central banks and governments responded to the pandemic with unprecedented levels of fiscal and monetary stimulus. Equity markets recovered strongly off their lows, as lockdown measures eased, and investors grew optimistic about a recovery in global economic growth. The S&P 500 Index returned -3.08% for the six-month period and 7.51% for the 12-month period.
The Fund’s Senior Investment Management Team (the “Team”) continues to focus on absolute returns, using a flexible approach to participate in market upside while seeking to protect on the downside. The Team uses bottom-up analysis to find companies with growth potential, adjusting expectations based on the short-term market environment.
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INVESTMENT POLICIES
Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of US companies, short positions in such securities, and cash and US cash equivalents.
The Adviser selects investments for the Fund’s long positions through an intensive “bottom-up” approach that places an emphasis on companies that are engaged in business activities with solid long-term growth potential and high barriers to entry, that have strong cash flows and other financial metrics, and that have transparent financial statements and business models. The Adviser also evaluates the quality of company management based on a series of criteria, including: (1) management’s focus on shareholder returns, such as through a demonstrated commitment to dividends and dividend growth, share buybacks or other shareholder-friendly corporate actions; (2) management’s employment of conservative accounting methodologies; (3) management incentives, such as direct equity ownership; and (4) management accessibility. The Adviser seeks to identify companies where events or catalysts may drive the company’s share price higher, such as earnings and/or revenue growth above consensus forecasts, potential market recognition of undervaluation or overstated market-risk discount, or the institution of any of the shareholder-friendly practices discussed in the preceding sentence. In light of this catalyst-focused approach, the Adviser expects to engage in active and frequent trading for the Fund.
The Adviser may reduce or eliminate the Fund’s holdings in a company’s securities for a number of reasons, including if its evaluation of the above factors changes adversely, if the anticipated events or catalysts do not occur or do not affect the price of the securities as expected, or if the anticipated events or catalysts do occur and cause the securities to be, in the Adviser’s view, overvalued or fully valued. At any given time the Fund may emphasize growth stocks over value stocks, or vice versa.
In determining securities to be sold short, the Adviser looks for companies facing near-term difficulties such as high valuations, quality of earnings issues, or weakness in demand due to economic factors or long-term issues such as changing technology or competitive concerns in their industries. The Fund may also sell securities of exchange-traded funds (“ETFs”) short, including to hedge its exposure to specific market sectors or if it believes a specific sector or asset will decline in value. When the Fund sells securities short, it sells a stock that it does not own (but has borrowed) at its current market price in
(continued on next page)
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anticipation that the price of the stock will decline. To complete, or close out, the short sale transaction, the Fund buys the same stock in the market at a later date and returns it to the lender.
The Adviser derives the ratio between long and short positions for the Fund based on its bottom-up analysis supplemented with macro-economic and market analyses. Under normal market conditions, the net long exposure of the Fund (long exposure minus short exposure) will range between 30% and 70%. The Adviser seeks to minimize the variability of Fund returns through industry diversification as well as by managing long and short exposures and/or by holding a material level of cash and/or cash equivalents. For example, the Fund may hold long positions in equity securities with a value equal to 60% of its net assets and have short sale obligations equal to 15% of its net assets, resulting in 45% net long exposure. Assuming a 60% long exposure, 40% of Fund assets will be held in cash or cash equivalents, including cash and cash equivalents held to cover the Fund’s short sale obligations. During periods of excessive market risk, the Adviser may reduce the net long exposure of the Fund. The Fund may at times hold long and short positions that in the aggregate exceed the value of its net assets (i.e., so that the Fund is effectively leveraged).
The Fund’s investments will be focused on securities of companies with large- and medium-market capitalizations, but it may also take long and short positions in securities of small-capitalization companies. The Fund may invest in non-US companies, but currently intends to limit its investments in such companies to no more than 10% of its net assets. The Fund may purchase securities in initial public offerings (“IPOs”) and expects to do so on a regular basis.
The Fund may enter into derivatives transactions, such as options, futures contracts, forwards and swaps, as part of its investment strategies or for hedging or other risk management purposes. These transactions may be used, for example, as a means to take a short position in a security or sector without actually selling securities short.
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DISCLOSURES AND RISKS
Benchmark Disclosure
The S&P 500® Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the 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.
Short Sale Risk: Short sales involve the risk that the Fund will incur a loss by subsequently buying a security at a higher price than the price at which it sold the security. The amount of such loss is theoretically unlimited, as it will be based on the increase in value of the security sold short. In contrast, the risk of loss from a long position is limited to the Fund’s investment in the security, because the price of the security cannot fall below zero. The Fund may not always be able to close out a short position on favorable terms.
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, the value of its shares may be more volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in these companies may have additional risks because these companies may have limited product lines, markets or financial resources.
Active Trading Risk: The Fund expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to greatly exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Fund’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Fund shareholders.
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DISCLOSURES AND RISKS (continued)
IPO Risk: Securities purchased in an IPO may be subject to substantial price volatility due to one or more factors such as unseasoned trading in the securities, the lack of investor knowledge of the issuer, the lack of an operating history of the issuer, and the dependence of the issuer on key personnel, suppliers or a limited number of customers.
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 for the Fund, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. Net asset value (“NAV”) returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class: a 4.25% maximum front-end sales charge for Class A shares and a 1% 1-year contingent deferred sales charge for Class C shares. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
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HISTORICAL PERFORMANCE
GROWTH OF A $10,000 INVESTMENT IN THE FUND (unaudited)
12/12/20121 TO 6/30/2020
This chart illustrates the total value of an assumed $10,000 investment in AB Select US Long/Short Portfolio Class A shares (from 12/12/20121 to 6/30/2020) as compared to the performance of the Fund’s benchmark. The chart reflects the deduction of the maximum 4.25% sales charge from the initial $10,000 investment in the Fund and assumes the reinvestment of dividends and capital gains distributions.
| 1 | Inception date: 12/12/2012. |
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| 8 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
HISTORICAL PERFORMANCE (continued)
AVERAGE RETURNS AS OF JUNE 30, 2020 (unaudited)
| | | | | | | | |
| | |
| | | NAV Returns | | | SEC Returns (reflects applicable
sales charges) | |
| | |
| CLASS A SHARES | | | | | | | | |
| | |
| 1 Year | | | 3.11% | | | | -1.31% | |
| | |
| 5 Years | | | 5.32% | | | | 4.41% | |
| | |
| Since Inception1 | | | 6.54% | | | | 5.93% | |
| | |
| CLASS C SHARES | | | | | | | | |
| | |
| 1 Year | | | 2.25% | | | | 1.27% | |
| | |
| 5 Years | | | 4.51% | | | | 4.51% | |
| | |
| Since Inception1 | | | 5.75% | | | | 5.75% | |
| | |
| ADVISOR CLASS SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 3.27% | | | | 3.27% | |
| | |
| 5 Years | | | 5.57% | | | | 5.57% | |
| | |
| Since Inception1 | | | 6.80% | | | | 6.80% | |
| | |
| CLASS R SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 2.75% | | | | 2.75% | |
| | |
| 5 Years | | | 5.03% | | | | 5.03% | |
| | |
| Since Inception1 | | | 6.27% | | | | 6.27% | |
| | |
| CLASS K SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 3.11% | | | | 3.11% | |
| | |
| 5 Years | | | 5.31% | | | | 5.31% | |
| | |
| Since Inception1 | | | 6.54% | | | | 6.54% | |
| | |
| CLASS I SHARES2 | | | | | | | | |
| | |
| 1 Year | | | 3.37% | | | | 3.37% | |
| | |
| 5 Years | | | 5.62% | | | | 5.62% | |
| | |
| Since Inception1 | | | 6.85% | | | | 6.85% | |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratios as 1.98%, 2.73%, 1.73%, 2.38%, 2.09% and 1.69% for Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratios to 1.95%, 2.70%, 1.70%, 2.20%, 1.96% and 1.65% for Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. These waivers/reimbursements may not be terminated before October 31, 2020. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
| 1 | Inception date: 12/12/2012. |
| 2 | These share classes are offered at NAV to eligible investors and their SEC returns are the same as their NAV returns. Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 9 |
HISTORICAL PERFORMANCE (continued)
SEC AVERAGE RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
| | | | |
| |
| | | SEC Returns (reflects applicable
sales charges) | |
| |
| CLASS A SHARES | | | | |
| |
| 1 Year | | | -1.31% | |
| |
| 5 Years | | | 4.41% | |
| |
| Since Inception1 | | | 5.93% | |
| |
| CLASS C SHARES | | | | |
| |
| 1 Year | | | 1.27% | |
| |
| 5 Years | | | 4.51% | |
| |
| Since Inception1 | | | 5.75% | |
| |
| ADVISOR CLASS SHARES2 | | | | |
| |
| 1 Year | | | 3.27% | |
| |
| 5 Years | | | 5.57% | |
| |
| Since Inception1 | | | 6.80% | |
| |
| CLASS R SHARES2 | | | | |
| |
| 1 Year | | | 2.75% | |
| |
| 5 Years | | | 5.03% | |
| |
| Since Inception1 | | | 6.27% | |
| |
| CLASS K SHARES2 | | | | |
| |
| 1 Year | | | 3.11% | |
| |
| 5 Years | | | 5.31% | |
| |
| Since Inception1 | | | 6.54% | |
| |
| CLASS I SHARES2 | | | | |
| |
| 1 Year | | | 3.37% | |
| |
| 5 Years | | | 5.62% | |
| |
| Since Inception1 | | | 6.85% | |
| 1 | Inception date: 12/12/2012. |
| 2 | Please note that these share classes are for investors purchasing shares through accounts established under certain fee-based programs sponsored and maintained by certain broker-dealers and financial intermediaries, institutional pension plans and/or investment advisory clients of, and certain other persons associated with, the Adviser and its affiliates or the Fund. |
| | |
| |
| 10 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Beginning
Account
Value
January 1,
2020 | | | Ending
Account
Value
June 30,
2020 | | | Expenses
Paid
During
Period* | | | Annualized
Expense
Ratio* | | | Total
Expenses
Paid
During
Period+ | | | Total
Annualized
Expense
Ratio+ | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 971.20 | | | $ | 9.41 | | | | 1.92 | % | | $ | 9.56 | | | | 1.95 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.32 | | | $ | 9.62 | | | | 1.92 | % | | $ | 9.77 | | | | 1.95 | % |
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 11 |
EXPENSE EXAMPLE (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Beginning
Account
Value
January 1,
2020 | | | Ending
Account
Value
June 30,
2020 | | | Expenses
Paid
During
Period* | | | Annualized
Expense
Ratio* | | | Total
Expenses
Paid
During
Period+ | | | Total
Annualized
Expense
Ratio+ | |
| Class C | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 966.90 | | | $ | 13.01 | | | | 2.66 | % | | $ | 13.20 | | | | 2.70 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,011.64 | | | $ | 13.30 | | | | 2.66 | % | | $ | 13.50 | | | | 2.70 | % |
| Advisor Class | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 971.80 | | | $ | 8.14 | | | | 1.66 | % | | $ | 8.33 | | | | 1.70 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,016.61 | | | $ | 8.32 | | | | 1.66 | % | | $ | 8.52 | | | | 1.70 | % |
| Class R | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 969.00 | | | $ | 10.67 | | | | 2.18 | % | | $ | 10.87 | | | | 2.22 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,014.02 | | | $ | 10.92 | | | | 2.18 | % | | $ | 11.12 | | | | 2.22 | % |
| Class K | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 971.20 | | | $ | 9.51 | | | | 1.94 | % | | $ | 9.66 | | | | 1.97 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,015.22 | | | $ | 9.72 | | | | 1.94 | % | | $ | 9.87 | | | | 1.97 | % |
| Class I | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 972.60 | | | $ | 8.04 | | | | 1.64 | % | | $ | 8.24 | | | | 1.68 | % |
Hypothetical** | | $ | 1,000 | | | $ | 1,016.71 | | | $ | 8.22 | | | | 1.64 | % | | $ | 8.42 | | | | 1.68 | % |
| * | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| ** | Assumes 5% annual return before expenses. |
| + | In connection with the Fund’s investments in affiliated/unaffiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Fund’s total expenses are equal to the classes’ annualized expense ratio plus the Fund’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
| |
| 12 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $1,041.9
SECTOR BREAKDOWN1
| | | | | | | | |
| | |
| | | Long | | | Short | |
| | |
| Communication Services | | | 8.8 | % | | | — | % |
| | |
| Consumer Discretionary | | | 6.2 | | | | -0.1 | |
| | |
| Consumer Staples | | | 5.9 | | | | — | |
| | |
| Energy | | | 1.7 | | | | — | |
| | |
| Financials | | | 7.2 | | | | -0.1 | |
| | |
| Health Care | | | 10.6 | | | | — | |
| | |
| Index | | | — | | | | -0.1 | |
| | |
| Industrials | | | 6.9 | | | | — | |
| | |
| Information Technology | | | 17.1 | | | | -0.1 | |
| | |
| Materials | | | 0.7 | | | | — | |
| | |
| Real Estate | | | 0.3 | | | | -0.1 | |
| | |
| Utilities | | | 2.7 | | | | — | |
TEN LARGEST HOLDINGS1
| | | | | | | | | | | | | | |
| | | | |
| Long | | | | | | | | Short | | | |
| Company | | | | | | | | Company | | | |
| | | | |
| Microsoft Corp. | | | 4.8 | % | | | | | | Zoom Video Communications, Inc. – Class A | | | -0.1 | % |
| | | | |
| Apple, Inc. | | | 3.9 | | | | | | | Canada Goose Holdings, Inc. | | | -0.1 | |
| | | | |
| Procter & Gamble Co. (The) | | | 3.5 | | | | | | | Brixmor Property Group, Inc. | | | 0.0 | |
| | | | |
| Amazon.com, Inc. | | | 3.0 | | | | | | | Kimco Realty Corp. | | | 0.0 | |
| | | | |
| Honeywell International, Inc. | | | 2.8 | | | | | | | Tanger Factory Outlet Centers, Inc. | | | 0.0 | |
| | | | |
| Alphabet, Inc. – Class C | | | 2.5 | | | | | | | Regency Centers Corp. | | | 0.0 | |
| | | | |
| Merck & Co., Inc. | | | 2.0 | | | | | | | SL Green Realty Corp. | | | 0.0 | |
| | | | |
| Activision Blizzard, Inc. | | | 1.9 | | | | | | | Credit Acceptance Corp. | | | 0.0 | |
| | | | |
| NextEra Energy, Inc. | | | 1.8 | | | | | | | Avis Budget Group, Inc. | | | 0.0 | |
| | | | |
| Goldman Sachs Group, Inc. (The) | | | 1.6 | | | | | | | Acadia Realty Trust | | | 0.0 | |
| 1 | Holdings are expressed as a percentage of total net assets and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Fund’s prospectus.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS
June 30, 2020
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
COMMON STOCKS – 68.0% | | | | | | | | |
Information Technology – 17.1% | | | | | | | | |
Communications Equipment – 1.0% | | | | | | | | |
Cisco Systems, Inc. | | | 218,559 | | | $ | 10,193,592 | |
| | | | | | | | |
| | |
IT Services – 2.1% | | | | | | | | |
PayPal Holdings, Inc.(a) | | | 35,935 | | | | 6,260,955 | |
Visa, Inc.– Class A | | | 82,416 | | | | 15,920,299 | |
| | | | | | | | |
| | | | | | | 22,181,254 | |
| | | | | | | | |
Semiconductors & Semiconductor Equipment – 3.8% | | | | | | | | |
Intel Corp. | | | 248,579 | | | | 14,872,481 | |
NVIDIA Corp. | | | 21,501 | | | | 8,168,445 | |
QUALCOMM, Inc. | | | 67,329 | | | | 6,141,078 | |
Texas Instruments, Inc. | | | 79,731 | | | | 10,123,445 | |
| | | | | | | | |
| | | | | | | 39,305,449 | |
| | | | | | | | |
Software – 6.3% | | | | | | | | |
Adobe, Inc.(a) | | | 15,680 | | | | 6,825,661 | |
Microsoft Corp. | | | 245,194 | | | | 49,899,431 | |
salesforce.com, Inc.(a) | | | 47,498 | | | | 8,897,800 | |
| | | | | | | | |
| | | | | | | 65,622,892 | |
| | | | | | | | |
Technology Hardware, Storage & Peripherals – 3.9% | | | | | | | | |
Apple, Inc.† | | | 112,251 | | | | 40,949,165 | |
| | | | | | | | |
| | | | | | | 178,252,352 | |
| | | | | | | | |
Health Care – 10.6% | | | | | | | | |
Biotechnology – 1.0% | | | | | | | | |
Vertex Pharmaceuticals, Inc.(a) | | | 36,300 | | | | 10,538,253 | |
| | | | | | | | |
| |
Health Care Equipment & Supplies – 2.6% | | | | | |
Abbott Laboratories | | | 89,504 | | | | 8,183,351 | |
Baxter International, Inc. | | | 78,056 | | | | 6,720,621 | |
Boston Scientific Corp.(a) | | | 178,989 | | | | 6,284,304 | |
Zimmer Biomet Holdings, Inc. | | | 45,794 | | | | 5,465,972 | |
| | | | | | | | |
| | | | | | | 26,654,248 | |
| | | | | | | | |
Health Care Providers & Services – 2.4% | | | | | |
Cigna Corp.(a) | | | 38,748 | | | | 7,271,062 | |
Humana, Inc. | | | 11,191 | | | | 4,339,310 | |
UnitedHealth Group, Inc. | | | 45,364 | | | | 13,380,112 | |
| | | | | | | | |
| | | | | | | 24,990,484 | |
| | | | | | | | |
Pharmaceuticals – 4.6% | | | | | | | | |
Eli Lilly & Co. | | | 64,051 | | | | 10,515,893 | |
Johnson & Johnson | | | 116,590 | | | | 16,396,052 | |
Merck & Co., Inc. | | | 270,703 | | | | 20,933,463 | |
| | | | | | | | |
| | | | | | | 47,845,408 | |
| | | | | | | | |
| | | | | | | 110,028,393 | |
| | | | | | | | |
| | |
| |
| 14 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Communication Services – 8.8% | | | | | | | | |
Diversified Telecommunication Services – 0.9% | | | | | | | | |
Anterix, Inc.(a) | | | 72,753 | | | $ | 3,298,621 | |
Comcast Corp. – Class A | | | 146,661 | | | | 5,716,846 | |
| | | | | | | | |
| | | | | | | 9,015,467 | |
| | | | | | | | |
Entertainment – 3.5% | | | | | | | | |
Activision Blizzard, Inc.† | | | 260,501 | | | | 19,772,026 | |
Netflix, Inc.(a) | | | 10,890 | | | | 4,955,385 | |
Take-Two Interactive Software, Inc.(a) | | | 4,124 | | | | 575,587 | |
Vivendi SA | | | 289,531 | | | | 7,481,391 | |
Walt Disney Co. (The) | | | 28,396 | | | | 3,166,438 | |
| | | | | | | | |
| | | | | | | 35,950,827 | |
| | | | | | | | |
Interactive Media & Services – 3.9% | | | | | | | | |
Alphabet, Inc. – Class C(a)† | | | 18,042 | | | | 25,504,351 | |
Facebook, Inc. – Class A(a) | | | 68,025 | | | | 15,446,437 | |
| | | | | | | | |
| | | | | | | 40,950,788 | |
| | | | | | | | |
Wireless Telecommunication Services – 0.5% | | | | | |
T-Mobile US, Inc.(a) | | | 53,601 | | | | 5,582,544 | |
| | | | | | | | |
| | | | | | | 91,499,626 | |
| | | | | | | | |
Financials – 7.2% | | | | | | | | |
Banks – 3.7% | | | | | | | | |
Bank of America Corp. | | | 325,090 | | | | 7,720,887 | |
Citigroup, Inc. | | | 107,492 | | | | 5,492,841 | |
JPMorgan Chase & Co. | | | 150,662 | | | | 14,171,268 | |
PNC Financial Services Group, Inc. (The) | | | 107,646 | | | | 11,325,436 | |
| | | | | | | | |
| | | | | | | 38,710,432 | |
| | | | | | | | |
Capital Markets – 2.2% | | | | | | | | |
BlackRock, Inc. – Class A | | | 3,137 | | | | 1,706,810 | |
Charles Schwab Corp. (The) | | | 128,833 | | | | 4,346,825 | |
Goldman Sachs Group, Inc. (The) | | | 84,406 | | | | 16,680,314 | |
| | | | | | | | |
| | | | | | | 22,733,949 | |
| | | | | | | | |
Diversified Financial Services – 1.3% | | | | | | | | |
Berkshire Hathaway, Inc. – Class B(a) | | | 76,882 | | | | 13,724,206 | |
| | | | | | | | |
| | | | | | | 75,168,587 | |
| | | | | | | | |
Industrials – 6.9% | | | | | | | | |
Aerospace & Defense – 0.9% | | | | | | | | |
Northrop Grumman Corp. | | | 29,684 | | | | 9,126,049 | |
| | | | | | | | |
| | |
Construction & Engineering – 1.5% | | | | | | | | |
Jacobs Engineering Group, Inc. | | | 178,373 | | | | 15,126,030 | |
| | | | | | | | |
| | |
Industrial Conglomerates – 2.8% | | | | | | | | |
Honeywell International, Inc. | | | 204,419 | | | | 29,556,943 | |
| | | | | | | | |
| | |
Road & Rail – 1.7% | | | | | | | | |
Norfolk Southern Corp. | | | 60,164 | | | | 10,562,994 | |
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Union Pacific Corp. | | | 41,649 | | | $ | 7,041,596 | |
| | | | | | | | |
| | | | | | | 17,604,590 | |
| | | | | | | | |
| | | | | | | 71,413,612 | |
| | | | | | | | |
Consumer Discretionary – 6.1% | | | | | | | | |
Hotels, Restaurants & Leisure – 0.2% | | | | | | | | |
Starbucks Corp. | | | 23,971 | | | | 1,764,026 | |
| | | | | | | | |
| |
Internet & Direct Marketing Retail – 3.7% | | | | | |
Alibaba Group Holding Ltd. (Sponsored ADR)(a) | | | 13,940 | | | | 3,006,858 | |
Amazon.com, Inc.(a) | | | 11,387 | | | | 31,414,683 | |
Booking Holdings, Inc.(a) | | | 2,406 | | | | 3,831,170 | |
| | | | | | | | |
| | | | | | | 38,252,711 | |
| | | | | | | | |
Multiline Retail – 0.2% | | | | | | | | |
Target Corp. | | | 18,708 | | | | 2,243,651 | |
| | | | | | | | |
| | |
Specialty Retail – 2.0% | | | | | | | | |
Home Depot, Inc. (The) | | | 31,166 | | | | 7,807,395 | |
Lowe’s Cos., Inc. | | | 85,611 | | | | 11,567,758 | |
Ulta Beauty, Inc.(a) | | | 9,648 | | | | 1,962,596 | |
| | | | | | | | |
| | | | | | | 21,337,749 | |
| | | | | | | | |
| | | | | | | 63,598,137 | |
| | | | | | | | |
Consumer Staples – 5.9% | | | | | | | | |
Beverages – 0.5% | | | | | | | | |
Coca-Cola Co. (The) | | | 103,852 | | | | 4,640,107 | |
| | | | | | | | |
| | |
Food & Staples Retailing – 1.5% | | | | | | | | |
Albertsons Cos., Inc.(a) | | | 141,103 | | | | 2,225,194 | |
Costco Wholesale Corp. | | | 13,360 | | | | 4,050,886 | |
Kroger Co. (The) | | | 96,911 | | | | 3,280,437 | |
Walmart, Inc. | | | 51,722 | | | | 6,195,261 | |
| | | | | | | | |
| | | | | | | 15,751,778 | |
| | | | | | | | |
Food Products – 0.1% | | | | | | | | |
Kraft Heinz Co. (The) | | | 43,732 | | | | 1,394,614 | |
| | | | | | | | |
| | |
Household Products – 3.5% | | | | | | | | |
Procter & Gamble Co. (The) | | | 307,874 | | | | 36,812,494 | |
| | | | | | | | |
| | |
Personal Products – 0.3% | | | | | | | | |
Estee Lauder Cos., Inc. (The) – Class A | | | 14,885 | | | | 2,808,502 | |
| | | | | | | | |
| | | | | | | 61,407,495 | |
| | | | | | | | |
Utilities – 2.7% | | | | | | | | |
Electric Utilities – 2.7% | | | | | | | | |
NextEra Energy, Inc. | | | 77,267 | | | | 18,557,216 | |
NRG Energy, Inc. | | | 301,195 | | | | 9,806,909 | |
| | | | | | | | |
| | | | | | | 28,364,125 | |
| | | | | | | | |
| | |
| |
| 16 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Energy – 1.7% | | | | | | | | |
Oil, Gas & Consumable Fuels – 1.7% | | | | | | | | |
Chevron Corp. | | | 129,370 | | | $ | 11,543,685 | |
EOG Resources, Inc. | | | 128,747 | | | | 6,522,323 | |
| | | | | | | | |
| | | | | | | 18,066,008 | |
| | | | | | | | |
Materials – 0.7% | | | | | | | | |
Containers & Packaging – 0.7% | | | | | | | | |
Berry Global Group, Inc.(a) | | | 165,541 | | | | 7,336,777 | |
| | | | | | | | |
| | |
Real Estate – 0.3% | | | | | | | | |
Equity Real Estate Investment Trusts (REITs) – 0.3% | | | | | | | | |
Equinix, Inc. | | | 2,599 | | | | 1,825,278 | |
QTS Realty Trust, Inc. – Class A | | | 23,520 | | | | 1,507,397 | |
| | | | | | | | |
| | | | | | | 3,332,675 | |
| | | | | | | | |
| | |
Total Common Stocks
(cost $657,601,779) | | | | | | | 708,467,787 | |
| | | | | | | | |
| | | | | | | | |
PREFERRED STOCKS – 0.1% | | | | | | | | |
Consumer Discretionary – 0.1% | | | | | | | | |
Household Durables – 0.1% | | | | | | | | |
Honest Co., Inc. (The) – Series D
0.00%(a)(b)(c)
(cost $950,194) | | | 20,767 | | | | 596,093 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM INVESTMENTS – 30.9% | | | | | | | | |
Investment Companies – 30.3% | | | | | | | | |
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, 0.13%(d)(e)(f)
(cost $315,670,529) | | | 315,670,529 | | | | 315,670,529 | |
| | | | | | | | |
| | |
| | | Principal
Amount
(000) | | | | |
Short-Term Investments – 0.6% | | | | | | | | |
U.S. Treasury Bill
Zero Coupon, 08/13/2020
(cost $6,998,955) | | $ | 7,000 | | | | 6,998,913 | |
| | | | | | | | |
| | |
Total Short-Term Investments
(cost $322,669,484) | | | | | | | 322,669,442 | |
| | | | | | | | |
| | |
Total Investments Before Securities
Sold Short – 99.0%
(cost $981,221,457) | | | | | | | 1,031,733,322 | |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
SECURITIES SOLD SHORT – (0.4)% | | | | | | | | |
COMMON STOCKS – (0.4)% | | | | | | | | |
Real Estate – (0.1)% | | | | | | | | |
Equity Real Estate Investment Trusts (REITs) – (0.1)% | | | | | | | | |
Acadia Realty Trust | | | (9,043 | ) | | $ | (117,378 | ) |
Agree Realty Corp. | | | (1,675 | ) | | | (110,064 | ) |
Brixmor Property Group, Inc. | | | (12,179 | ) | | | (156,135 | ) |
Chatham Lodging Trust | | | (13,983 | ) | | | (85,576 | ) |
Empire State Realty Trust, Inc. – Class A | | | (14,950 | ) | | | (104,650 | ) |
Kimco Realty Corp. | | | (11,900 | ) | | | (152,796 | ) |
Regency Centers Corp. | | | (3,007 | ) | | | (137,991 | ) |
SL Green Realty Corp. | | | (2,685 | ) | | | (132,344 | ) |
Tanger Factory Outlet Centers, Inc. | | | (19,689 | ) | | | (140,383 | ) |
Washington Prime Group, Inc. | | | (68,266 | ) | | | (57,398 | ) |
| | | | | | | | |
| | | | | | | (1,194,715 | ) |
| | | | | | | | |
Information Technology – (0.1)% | | | | | | | | |
IT Services – 0.0% | | | | | | | | |
Alliance Data Systems Corp. | | | (2,212 | ) | | | (99,806 | ) |
BB&T Corp. | | | (516 | ) | | | (87,524 | ) |
| | | | | | | | |
| | | | | | | (187,330 | ) |
| | | | | | | | |
Software – (0.1)% | | | | | | | | |
Zoom Video Communications, Inc. – Class A(a) | | | (3,308 | ) | | | (838,710 | ) |
| | | | | | | | |
| | |
Technology Hardware, Storage & Peripherals – 0.0% | | | | | | | | |
HP, Inc. | | | (4,296 | ) | | | (74,879 | ) |
| | | | | | | | |
| | | | | | | (1,100,919 | ) |
| | | | | | | | |
Consumer Discretionary – (0.1)% | | | | | | | | |
Automobiles – 0.0% | | | | | | | | |
Ford Motor Co. | | | (11,191 | ) | | | (68,041 | ) |
| | | | | | | | |
| | |
Hotels, Restaurants & Leisure – 0.0% | | | | | | | | |
Marriott International, Inc./MD – Class A | | | (451 | ) | | | (38,664 | ) |
Six Flags Entertainment Corp. | | | (4,146 | ) | | | (79,645 | ) |
| | | | | | | | |
| | | | | | | (118,309 | ) |
| | | | | | | | |
Textiles, Apparel & Luxury Goods – (0.1)% | | | | | | | | |
Canada Goose Holdings, Inc.(a) | | | (15,444 | ) | | | (357,838 | ) |
Oxford Industries, Inc. | | | (1,031 | ) | | | (45,374 | ) |
| | | | | | | | |
| | | | | | | (403,212 | ) |
| | | | | | | | |
| | | | | | | (589,562 | ) |
| | | | | | | | |
Financials – (0.1)% | | | | | | | | |
Banks – 0.0% | | | | | | | | |
HSBC Holdings PLC | | | (13,163 | ) | | | (61,355 | ) |
| | | | | | | | |
| | |
Capital Markets – 0.0% | | | | | | | | |
Invesco Ltd. | | | (8,312 | ) | | | (89,437 | ) |
| | | | | | | | |
| | |
| |
| 18 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| |
Consumer Finance – (0.1)% | | | | | | | | |
American Express Co. | | | (838 | ) | | $ | (79,778 | ) |
Capital One Financial Corp. | | | (1,504 | ) | | | (94,135 | ) |
Credit Acceptance Corp.(a) | | | (301 | ) | | | (126,122 | ) |
Synchrony Financial | | | (4,640 | ) | | | (102,822 | ) |
| | | | | | | | |
| | | | | | | (402,857 | ) |
| | | | | | | | |
| | | | | | | (553,649 | ) |
| | | | | | | | |
Industrials – 0.0% | | | | | | | | |
Aerospace & Defense – 0.0% | | | | | | | | |
TransDigm Group, Inc. | | | (236 | ) | | | (104,324 | ) |
| | | | | | | | |
| | |
Machinery – 0.0% | | | | | | | | |
Colfax Corp.(a) | | | (3,694 | ) | | | (103,063 | ) |
Snap-on, Inc. | | | (473 | ) | | | (65,515 | ) |
| | | | | | | | |
| | | | | | | (168,578 | ) |
| | | | | | | | |
Road & Rail – 0.0% | | | | | | | | |
Avis Budget Group, Inc.(a) | | | (5,241 | ) | | | (119,966 | ) |
| | | | | | | | |
| | | | | | | (392,868 | ) |
| | | | | | | | |
Health Care – 0.0% | | | | | | | | |
Health Care Equipment & Supplies – 0.0% | | | | | |
Intuitive Surgical, Inc.(a) | | | (150 | ) | | | (85,474 | ) |
Stryker Corp. | | | (451 | ) | | | (81,266 | ) |
| | | | | | | | |
| | | | | | | (166,740 | ) |
| | | | | | | | |
Health Care Providers & Services – 0.0% | | | | | |
Laboratory Corp. of America Holdings(a) | | | (580 | ) | | | (96,344 | ) |
| | | | | | | | |
| | |
Pharmaceuticals – 0.0% | | | | | | | | |
Canopy Growth Corp.(a) | | | (5,139 | ) | | | (83,046 | ) |
| | | | | | | | |
| | | | | | | (346,130 | ) |
| | | | | | | | |
| | |
Total Common Stocks
(proceeds $3,739,934) | | | | | | | (4,177,843 | ) |
| | | | | | | | |
| | | | | | | | |
INVESTMENT COMPANIES – 0.0% | | | | | | | | |
Funds and Investment Trusts – 0.0% | | | | | | | | |
iShares MSCI Emerging Markets ETF(d)
(proceeds $(74,573)) | | | (2,105 | ) | | | (84,179 | ) |
| | | | | | | | |
| | |
Total Securities Sold Short
(proceeds $3,814,507) | | | | | | | (4,262,022 | ) |
| | | | | | | | |
| | |
Total Investments, Net of Securities Sold Short – 98.6%
(cost $977,406,950) | | | | | | | 1,027,471,300 | |
Other assets less liabilities – 1.4% | | | | | | | 14,471,047 | |
| | | | | | | | |
| | |
Net Assets – 100.0% | | | | | | $ | 1,041,942,347 | |
| | | | | | | | |
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
FUTURES (see Note D)
| | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Month | | | Current
Notional | | Value and
Unrealized
Appreciation/
(Depreciation) | |
Sold Contracts | |
S&P 500 E-Mini Futures | | | 150 | | | | September 2020 | | | $ 23,176,500 | | $ | (300,696 | ) |
TOTAL RETURN SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
Counterparty &
Referenced
Obligation | | Rate Paid/
Received | | | Payment
Frequency | | | Current
Notional
(000) | | | Maturity
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Pay Total Return on Reference Obligation | |
Morgan Stanley Capital Services LLC | | | | | | | | | | | | | | | | | |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 1,265 | | | | 03/05/2021 | | | $ | 230,450 | |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 310 | | | | 03/05/2021 | | | | 40,656 | |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 25 | | | | 03/05/2021 | | | | 3,369 | |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 24 | | | | 03/05/2021 | | | | 1,997 | |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 45 | | | | 03/05/2021 | | | | 1,091 | |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 1 | | | | 03/05/2021 | | | | (64 | ) |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 23 | | | | 03/05/2021 | | | | (533 | ) |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 49 | | | | 03/05/2021 | | | | (1,437 | ) |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 24 | | | | 03/05/2021 | | | | (1,524 | ) |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 24 | | | | 03/05/2021 | | | | (2,361 | ) |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 22 | | | | 03/05/2021 | | | | (3,595 | ) |
MSABWARR | |
| FedFundEffective
Minus 0.50% |
| | | Monthly | | | | USD | | | | 2,767 | | | | 03/05/2021 | | | | (48,481 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 219,568 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| † | Position, or a portion thereof, has been segregated to collateralize short sales. |
| (a) | Non-income producing security. |
| (b) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (c) | Fair valued by the Adviser. |
| (d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
| (e) | Affiliated investments. |
| (f) | The rate shown represents the 7-day yield as of period end. |
Glossary:
ADR – American Depositary Receipt
ETF – Exchange Traded Fund
FedFundEffective – Federal Funds Effective Rate
MSCI – Morgan Stanley Capital International
See notes to financial statements.
| | |
| |
| 20 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020
| | | | |
| Assets | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $665,550,928) | | $ | 716,062,793 | |
Affiliated issuers (cost $315,670,529) | | | 315,670,529 | |
Cash collateral due from broker | | | 5,700,000 | |
Foreign currencies, at value (cost $347,292) | | | 348,977 | |
Deposit at broker for securities sold short | | | 7,962,012 | |
Receivable for investment securities sold | | | 4,112,750 | |
Receivable for capital stock sold | | | 2,122,132 | |
Unaffiliated dividends receivable | | | 281,134 | |
Unrealized appreciation on total return swaps | | | 277,563 | |
Affiliated dividends receivable | | | 37,271 | |
| | | | |
Total assets | | | 1,052,575,161 | |
| | | | |
| Liabilities | | | | |
Due to custodian | | | 300,000 | |
Payable for securities sold short, at value (proceeds received $3,814,507) | | | 4,262,022 | |
Payable for investment securities purchased | | | 2,471,840 | |
Payable for capital stock redeemed | | | 1,307,630 | |
Advisory fee payable | | | 1,243,430 | |
Cash collateral due to broker | | | 350,000 | |
Payable for variation margin on futures | | | 318,724 | |
Distribution fee payable | | | 70,865 | |
Unrealized depreciation on total return swaps | | | 57,995 | |
Payable for terminated total return swaps | | | 22,091 | |
Administrative fee payable | | | 19,636 | |
Transfer Agent fee payable | | | 9,651 | |
Dividend expense payable | | | 2,802 | |
Accrued expenses and other liabilities | | | 196,128 | |
| | | | |
Total liabilities | | | 10,632,814 | |
| | | | |
Net Assets | | $ | 1,041,942,347 | |
| | | | |
| Composition of Net Assets | | | | |
Capital stock, at par | | $ | 8,236 | |
Additional paid-in capital | | | 1,023,510,296 | |
Distributable earnings | | | 18,423,815 | |
| | | | |
| | $ | 1,041,942,347 | |
| | | | |
Net Asset Value Per Share—30 billion shares of capital stock authorized, $.0001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| |
| A | | $ | 83,866,414 | | | | 6,722,438 | | | $ | 12.48 | * |
| |
| C | | $ | 64,204,035 | | | | 5,495,550 | | | $ | 11.68 | |
| |
| Advisor | | $ | 876,971,641 | | | | 68,818,075 | | | $ | 12.74 | |
| |
| R | | $ | 213,425 | | | | 17,491 | | | $ | 12.20 | |
| |
| K | | $ | 12,484 | | | | 1,000.60 | | | $ | 12.48 | |
| |
| I | | $ | 16,674,348 | | | | 1,305,024 | | | $ | 12.78 | |
| |
| * | The maximum offering price per share for Class A shares was $13.03 which reflects a sales charge of 4.25%. |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 21 |
STATEMENT OF OPERATIONS
Year Ended June 30, 2020
| | | | | | | | |
| Investment Income | | | | | | | | |
Dividends | | | | | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $26,735) | | $ | 12,090,719 | | | | | |
Affiliated issuers | | | 5,579,009 | | | | | |
Interest | | | 84,402 | | | | | |
Securities lending income | | | 2,215 | | | $ | 17,756,345 | |
| | | | | | | | |
| Expenses | | | | | | | | |
Advisory fee (see Note B) | | | 16,356,247 | | | | | |
Distribution fee—Class A | | | 216,715 | | | | | |
Distribution fee—Class C | | | 766,288 | | | | | |
Distribution fee—Class R | | | 1,325 | | | | | |
Distribution fee—Class K | | | 31 | | | | | |
Transfer agency—Class A | | | 67,601 | | | | | |
Transfer agency—Class C | | | 59,626 | | | | | |
Transfer agency—Advisor Class | | | 708,679 | | | | | |
Transfer agency—Class R | | | 225 | | | | | |
Transfer agency—Class K | | | 14 | | | | | |
Transfer agency—Class I | | | 7,837 | | | | | |
Custody and accounting | | | 270,986 | | | | | |
Registration fees | | | 130,171 | | | | | |
Administrative | | | 76,946 | | | | | |
Printing | | | 76,217 | | | | | |
Audit and tax | | | 61,516 | | | | | |
Legal | | | 39,500 | | | | | |
Directors’ fees | | | 27,004 | | | | | |
Miscellaneous | | | 19,180 | | | | | |
| | | | | | | | |
Total operating expenses (see Note B) | | | 18,886,108 | | | | | |
Dividend expense on securities sold short and interest expense | | | 549,171 | | | | | |
Broker fee on securities sold short | | | 16,938 | | | | | |
Total expenses | | | 19,452,217 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | | | (400,057 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 19,052,160 | |
| | | | | | | | |
Net investment loss | | | | | | | (1,295,815 | ) |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 22 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
STATEMENT OF OPERATIONS (continued)
| | | | | | | | |
| Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | |
Investment transactions | | | | | | $ | 27,638,735 | |
Securities sold short | | | | | | | (4,342,318 | ) |
Futures | | | | | | | 893,512 | |
Swaps | | | | | | | 2,181,330 | |
Foreign currency transactions | | | | | | | (27,021 | ) |
Net change in unrealized appreciation/depreciation of: | | | | | | | | |
Investments | | | | | | | 1,794,728 | |
Securities sold short | | | | | | | (1,245,486 | ) |
Futures | | | | | | | (283,845 | ) |
Swaps | | | | | | | 977,406 | |
Foreign currency denominated assets and liabilities | | | | | | | 97 | |
| | | | | | | | |
Net gain on investment and foreign currency transactions | | | | | | | 27,587,138 | |
| | | | | | | | |
Contributions from Affiliates (see Note B) | | | | | | | 10,536 | |
| | | | | | | | |
Net Increase in Net Assets from Operations | | | | | | $ | 26,301,859 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 23 |
STATEMENT OF CHANGES IN NET ASSETS
| | | | | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30,
2019 | |
| Increase (Decrease) in Net Assets from Operations | | | | | | | | |
Net investment income (loss) | | $ | (1,295,815 | ) | | $ | 1,323,019 | |
Net realized gain on investment and foreign currency transactions | | | 26,344,238 | | | | 23,292,815 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 1,242,900 | | | | 34,062,814 | |
Contributions from Affiliates (see Note B) | | | 10,536 | | | | – 0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 26,301,859 | | | | 58,678,648 | |
| Distributions to Shareholders | | | | | | | | |
Class A | | | (3,066,569 | ) | | | (7,299,089 | ) |
Class C | | | (2,903,563 | ) | | | (7,593,841 | ) |
Advisor Class | | | (33,122,534 | ) | | | (62,850,348 | ) |
Class R | | | (10,414 | ) | | | (28,749 | ) |
Class K | | | (443 | ) | | | (1,013 | ) |
Class I | | | (701,589 | ) | | | (1,330,300 | ) |
| Capital Stock Transactions | | | | | | | | |
Net increase (decrease) | | | (41,086,915 | ) | | | 150,179,941 | |
| | | | | | | | |
Total increase (decrease) | | | (54,590,168 | ) | | | 129,755,249 | |
| Net Assets | | | | | | | | |
Beginning of period | | | 1,096,532,515 | | | | 966,777,266 | |
| | | | | | | | |
End of period | | $ | 1,041,942,347 | | | $ | 1,096,532,515 | |
| | | | | | | | |
See notes to financial statements.
| | |
| |
| 24 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020
NOTE A
Significant Accounting Policies
AB Cap Fund, Inc. (the “Company”), which is a Maryland corporation, is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company operates as a series company currently comprised of 15 portfolios. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB Select US Long/Short 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 T, Class 1 and Class 2 shares. Class B, Class T, Class 1 and Class 2 shares have not been issued. Class A shares are sold with a front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A shares redeemed within one year of purchase may be subject to a contingent deferred sales charge of 1%. Class C shares are subject to a contingent deferred sales charge of 1% on redemptions made within the first year after purchase, and 0% after the first year of purchase. Class C shares will automatically convert to Class A shares ten years after the end of the calendar month of purchase. Class R and Class K shares are sold without an initial or contingent deferred sales charge. Advisor Class and Class I shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All ten classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Company’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national
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NOTES TO FINANCIAL STATEMENTS (continued)
securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pric
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NOTES TO FINANCIAL STATEMENTS (continued)
ing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such
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NOTES TO FINANCIAL STATEMENTS (continued)
adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively, the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
| | | | | | | | | | | | | | | | |
Investments in
Securities: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Information Technology | | $ | 178,252,352 | | | $ | – 0 | – | | $ | – 0 | – | | $ | 178,252,352 | |
Health Care | | | 110,028,393 | | | | – 0 | – | | | – 0 | – | | | 110,028,393 | |
Communication Services | | | 84,018,235 | | | | 7,481,391 | | | | – 0 | – | | | 91,499,626 | |
Financials | | | 75,168,587 | | | | – 0 | – | | | – 0 | – | | | 75,168,587 | |
Industrials | | | 71,413,612 | | | | – 0 | – | | | – 0 | – | | | 71,413,612 | |
Consumer Discretionary | | | 63,598,137 | | | | – 0 | – | | | – 0 | – | | | 63,598,137 | |
Consumer Staples | | | 61,407,495 | | | | – 0 | – | | | – 0 | – | | | 61,407,495 | |
Utilities | | | 28,364,125 | | | | – 0 | – | | | – 0 | – | | | 28,364,125 | |
Energy | | | 18,066,008 | | | | – 0 | – | | | – 0 | – | | | 18,066,008 | |
Materials | | | 7,336,777 | | | | – 0 | – | | | – 0 | – | | | 7,336,777 | |
Real Estate | | | 3,332,675 | | | | – 0 | – | | | – 0 | – | | | 3,332,675 | |
Preferred Stocks | | | – 0 | – | | | – 0 | – | | | 596,093 | | | | 596,093 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Investment Companies | | | 315,670,529 | | | | – 0 | – | | | – 0 | – | | | 315,670,529 | |
U.S. Treasury Bills | | | – 0 | – | | | 6,998,913 | | | | – 0 | – | | | 6,998,913 | |
Liabilities: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Real Estate | | | (1,194,715 | ) | | | – 0 | – | | | – 0 | – | | | (1,194,715 | ) |
Information Technology | | | (1,100,919 | ) | | | – 0 | – | | | – 0 | – | | | (1,100,919 | ) |
Consumer Discretionary | | | (589,562 | ) | | | – 0 | – | | | – 0 | – | | | (589,562 | ) |
Financials | | | (492,294 | ) | | | (61,355 | ) | | | – 0 | – | | | (553,649 | ) |
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NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | |
Investments in
Securities: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Industrials | | $ | (392,868 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | (392,868 | ) |
Health Care | | | (346,130 | ) | | | – 0 | – | | | – 0 | – | | | (346,130 | ) |
Investment Companies | | | (84,179 | ) | | | – 0 | – | | | – 0 | – | | | (84,179 | ) |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 1,012,456,258 | | | | 14,418,949 | | | | 596,093 | | | | 1,027,471,300 | |
Other Financial Instruments(a): | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Total Return Swaps | | | – 0 | – | | | 277,563 | | | | – 0 | – | | | 277,563 | |
Liabilities: | | | | | | | | | | | | | | | | |
Futures | | | (300,696 | ) | | | – 0 | – | | | – 0 | – | | | (300,696 | )(b) |
Total Return Swaps | | | – 0 | – | | | (57,995 | ) | | | – 0 | – | | | (57,995 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,012,155,562 | | | $ | 14,638,517 | | | $ | 596,093 | | | $ | 1,027,390,172 | |
| | | | | | | | | | | | | | | | |
| (a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
| (b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to
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NOTES TO FINANCIAL STATEMENTS (continued)
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 as dividend income, realized gain, or return of capital based on information provided by the REIT.
6. Class Allocations
All income earned and expenses incurred by the Fund are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Fund represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of 1.50% of the first $2.5 billion and 1.475% thereafter of the Fund’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding dividend expense, borrowing costs and brokerage expense on securities sold short) on an annual basis (the “Expense Caps”) to 1.90%, 2.65%, 1.65%, 2.15%, 1.90% and 1.65%, of average daily net assets for Class A, Class C, Advisor Class, Class R, Class K and Class I shares, respectively. For the year ended June 30, 2020, such reimbursements/waivers amounted to $1. The Expense Caps may not be terminated by the Adviser before October 31, 2020.
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 June 30, 2020, the reimbursement for such services amounted to $76,946.
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 $191,793 for the year ended June 30, 2020.
AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, serves as the distributor of the Fund’s shares. The Distributor has advised the Fund that it has retained front-end sales charges of $5,144 from the sale of Class A shares and received $0 and $3,542 in contingent deferred sales charges imposed upon redemptions by shareholders of Class A and Class C shares, respectively, for the year ended June 30, 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 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
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NOTES TO FINANCIAL STATEMENTS (continued)
of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended June 30, 2020, such waiver amounted to $400,054.
A summary of the Fund’s transactions in AB mutual funds for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
6/30/19
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
6/30/20
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 374,268 | | | $ | 435,835 | | | $ | 494,432 | | | $ | 315,671 | | | $ | 5,579 | |
Government Money Market Portfolio* | | | – 0 | – | | | 1,443 | | | | 1,443 | | | | – 0 | – | | | – 0 | – ** |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 315,671 | | | $ | 5,579 | |
| | | | | | | | | | | | | | | | | | | | |
| * | Investments of cash collateral for securities lending transactions (see Note E). |
During the year ended June 30, 2020, the Adviser reimbursed the Fund $10,536 for trading losses incurred due to a trade entry error.
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 approximately 65.2% 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
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NOTES TO FINANCIAL STATEMENTS (continued)
event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the “Agreement”) pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Agreement, the Fund pays distribution and servicing fees to the Distributor at an annual rate of up to .30% of the Fund’s average daily net assets attributable to Class A shares, 1% of the Fund’s average daily net assets attributable to Class C shares, .50% of the Fund’s average daily net assets attributable to Class R shares, and .25% of the Fund’s average daily net assets attributable to Class K shares. There are no distribution and servicing fees on the Advisor Class and Class I shares. The fees are accrued daily and paid monthly. Payments under the Agreement in respect of Class A shares are currently limited to an annual rate of .25% of Class A shares’ average daily net assets. The Agreement provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. Since the commencement of the Fund’s operations, the Distributor has incurred expenses in excess of the distribution costs reimbursed by the Fund in the amounts of $1,548,800, $7,385 and $0 for Class C, Class R and Class K shares, respectively. While such costs may be recovered from the Fund in future periods so long as the Agreement is in effect, the rate of the distribution and servicing fees payable under the Agreement may not be increased without a shareholder vote. In accordance with the Agreement, there is no provision for recovery of unreimbursed distribution costs incurred by the Distributor beyond the current fiscal year for Class A shares. The Agreement also provides that the Adviser may use its own resources to finance the distribution of the Fund’s shares.
NOTE D
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended June 30, 2020, were as follows:
| | | | | | | | | | | | | | |
| Purchases | | | Sales | | | Securities
Sold Short | | | Covers on
Securities Sold
Short | |
| $ | 1,287,407,681 | | | $ | 1,313,411,341 | | | $ | 115,074,823 | | | $ | 149,960,453 | |
There were no purchases or sales of U.S. government and government agency obligations for the year ended June 30, 2020.
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NOTES TO FINANCIAL STATEMENTS (continued)
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Gross Unrealized | | | Net
Unrealized
Appreciation
on
Investments | | | Net
Unrealized
Depreciation
on
Securities
Sold Short | | | Net
Unrealized
Appreciation | |
Cost of
Investments | | Appreciation
on
Investments | | | Depreciation
on
Investments | |
$ 1,027,391,937 | | $ | 63,413,839 | | | $ | (58,852,886) | | | $ | 4,560,953 | | | $ | (1,371,280 | )(a) | | $ | 3,189,673 | |
| (a) | Gross unrealized appreciation was $46,720 and gross unrealized depreciation was $(1,418,000), resulting in net unrealized depreciation of $(1,371,280). |
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:
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
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NOTES TO FINANCIAL STATEMENTS (continued)
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.
During the year ended June 30, 2020, the Fund held futures for hedging purposes.
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the 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
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NOTES TO FINANCIAL STATEMENTS (continued)
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.
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 June 30, 2020, the Fund held total return swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty table below for additional details.
| | |
| |
| 36 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the year ended June 30, 2020, the Fund had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and
Liabilities
Location | | Fair Value | | | Statement of
Assets and
Liabilities
Location | | Fair Value | |
Equity contracts | | | | | | | | Receivable/Payable for variation margin on futures | | $ | 300,696 | * |
| | | | |
Equity contracts | | Unrealized appreciation on total return swaps | | $ | 277,563 | | | Unrealized depreciation on total return swaps | | | 57,995 | |
| | | | | | | | | | | | |
Total | | | | $ | 277,563 | | | | | $ | 358,691 | |
| | | | | | | | | | | | |
| * | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
| | | | | | | | | | |
Derivative Type | | Location of Gain
or (Loss) on
Derivatives Within
Statement of
Operations | | Realized Gain
or (Loss) on
Derivatives | | | Change in
Unrealized
Appreciation or
(Depreciation) | |
Equity contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | $ | 893,512 | | | $ | (283,845 | ) |
| | | |
Equity contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 2,181,330 | | | | 977,406 | |
| | | | | | | | | | |
Total | | | | $ | 3,074,842 | | | $ | 693,561 | |
| | | | | | | | | | |
The following table represents the average monthly volume of the Fund’s derivative transactions during the year ended June 30, 2020:
| | | | |
Futures: | | | | |
Average notional amount of sale contracts | | $ | 14,941,924 | (a) |
Total Return Swaps: | | | | |
Average notional amount | | $ | 12,208,586 | |
| (a) | Positions were open for eleven months during the year. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 37 |
NOTES TO FINANCIAL STATEMENTS (continued)
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of June 30, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Assets
Subject
to a MA | | Derivatives
Available
for Offset | | | Cash
Collateral
Received* | | | Security
Collateral
Received* | | | Net Amount
of Derivative
Assets | |
Morgan Stanley Capital Services LLC | | $ 277,563 | | $ | (57,995 | ) | | $ | (219,568 | ) | | $ | – 0 | – | | $ | – 0 | – |
| | | | | | | | | | | | | | | | | | |
Total | | $ 277,563 | | $ | (57,995 | ) | | $ | (219,568 | ) | | $ | – 0 | – | | $ | – 0 | –^ |
| | | | | | | | | | | | | | | | | | |
| | | | | |
Counterparty | | Derivative
Liabilities
Subject
to a MA | | Derivatives
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount
of Derivative
Liabilities | |
Morgan Stanley Capital Services LLC | | $ 57,995 | | $ | (57,995 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | – 0 | – |
| | | | | | | | | | | | | | | | | | |
Total | | $ 57,995 | | $ | (57,995 | ) | | $ | – 0 | – | | $ | – 0 | – | | $ | – 0 | – |
| | | | | | | | | | | | | | | | | | |
| * | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
| ^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
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).
| | |
| |
| 38 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
3. Short Sales
The Fund may sell securities short. A short sale is a transaction in which the Fund sells securities it does not own, but has borrowed, in anticipation of a decline in the market price of the securities. The Fund is obligated to replace the borrowed securities at their market price at the time of settlement. The Fund’s obligation to replace the securities borrowed in connection with a short sale will be fully secured by collateral deposited with the broker. The Fund is liable to the buyer for any dividends/interest payable on securities while those securities are in a short position. These dividends/interest are recorded as an expense of the Fund. Short sales by the Fund involve certain risks and special considerations. Possible losses from short sales differ from losses that could be incurred from a purchase of a security because losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested.
NOTE E
Securities Lending
The Fund may enter into securities lending transactions. Under the Fund’s securities lending program, all loans of securities will be collateralized continually by cash collateral and/or non-cash collateral. Non-cash collateral will include only securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. The Fund cannot sell or repledge any non-cash collateral, such collateral will not be reflected in the portfolio of investments. If a loan is collateralized by cash, the Fund will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Fund in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. If the Fund receives non-cash collateral, the Fund will receive a fee from the borrower generally equal to a negotiated percentage of the market value of the loaned securities. The Fund will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Fund amounts equal to any income or other distributions from the securities. The Fund will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Fund, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
corresponding liability in the statement of assets and liabilities. The collateral will be adjusted the next business day to maintain the required collateral amount. The amounts of securities lending income from the borrowers and Government Money Market Portfolio are reflected in the statement of operations. When the Fund earns net securities lending income from Government Money Market Portfolio, the income is inclusive of a rebate expense paid to the borrower. In connection with the cash collateral investment by the Fund in Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. When the Fund lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities. The lending agent has agreed to indemnify the Fund in the case of default of any securities borrower.
A summary of the Fund’s transactions surrounding securities lending for the year ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
Market
Value of
Securities
on Loan* | | | Cash
Collateral* | | | Market
Value of
Non-Cash
Collateral* | | | Income from
Borrowers | | | Government Money Market
Portfolio | |
| | Income
Earned | | | Advisory Fee
Waived | |
| $ | – 0 – | | | $ | – 0 – | | | $ | – 0 – | | | $ | 2,215 | | | $ | 40 | | | $ | 2 | |
NOTE F
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30, 2019 | | | | | | Year Ended June 30,
2020 | | | Year Ended
June 30,
2019 | | | | |
| | | | | | | | |
| Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 1,644,210 | | | | 2,485,255 | | | | | | | $ | 20,728,257 | | | $ | 30,322,562 | | �� | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 219,672 | | | | 554,404 | | | | | | | | 2,763,475 | | | | 6,436,624 | �� | | | | |
| | | | | |
Shares converted from Class C | | | 802,014 | | | | 8,304 | | | | | | | | 9,982,537 | | | | 105,074 | | | | | |
| | | | | |
Shares redeemed | | | (3,070,446 | ) | | | (3,082,575 | ) | | | | | | | (38,441,640 | ) | | | (38,171,664 | ) | | | | |
| | | | | |
Net decrease | | | (404,550 | ) | | | (34,612 | ) | | | | | | $ | (4,967,371 | ) | | $ | (1,307,404 | ) | | | | |
| | | | | |
| | | | | |
| | |
| |
| 40 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | | | | |
| | | Year Ended
June 30,
2020 | | | Year Ended
June 30, 2019 | | | | | | Year Ended June 30,
2020 | | | Year Ended
June 30,
2019 | | | | |
| | | | | | | | |
| Class C | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 547,669 | | | | 609,353 | | | | | | | $ | 6,458,138 | | | $ | 7,236,895 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 223,160 | | | | 618,550 | | | | | | | | 2,639,988 | | | | 6,816,420 | | | | | |
| | | | | |
Shares converted to Class A | | | (853,156 | ) | | | (8,745 | ) | | | | | | | (9,982,537 | ) | | | (105,074 | ) | | | | |
| | | | | |
Shares redeemed | | | (1,685,921 | ) | | | (1,946,852 | ) | | | | | | | (19,686,329 | ) | | | (22,937,587 | ) | | | | |
| | | | | |
Net decrease | | | (1,768,248 | ) | | | (727,694 | ) | | | | | | $ | (20,570,740 | ) | | $ | (8,989,346 | ) | | | | |
| | | | | |
| | | | | |
| Advisor Class | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 25,738,297 | | | | 30,687,796 | | | | | | | $ | 325,912,491 | | | $ | 387,902,196 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 1,988,604 | | | | 4,061,044 | | | | | | | | 25,533,677 | | | | 48,001,540 | | | | | |
| | | | | |
Shares redeemed | | | (29,511,327 | ) | | | (22,529,783 | ) | | | | | | | (365,040,167 | ) | | | (280,618,003 | ) | | | | |
| | | | | |
Net increase (decrease) | | | (1,784,426 | ) | | | 12,219,057 | | | | | | | $ | (13,593,999 | ) | | $ | 155,285,733 | | | | | |
| | | | | |
| | | | | |
| Class R | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 4,179 | | | | 2,326 | | | | | | | $ | 52,330 | | | $ | 28,754 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 845 | | | | 2,519 | | | | | | | | 10,413 | | | | 28,747 | | | | | |
| | | | | |
Shares redeemed | | | (10,506 | ) | | | (17,748 | ) | | | | | | | (128,342 | ) | | | (219,387 | ) | | | | |
| | | | | |
Net decrease | | | (5,482 | ) | | | (12,903 | ) | | | | | | $ | (65,599 | ) | | $ | (161,886 | ) | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class K | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | – 0 | – | | | – 0 | –(a) | | | | | | $ | – 0 | – | | $ | 5 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 1 | | | | – 0 | –(a) | | | | | | | – 0 | –(b) | | | – 0 | –(b) | | | | |
| | | | | |
Net increase | | | 1 | | | | – 0 | – | | | | | | $ | – 0 | – | | $ | 5 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class I | | | | | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 167,876 | | | | 341,346 | | | | | | | $ | 2,134,053 | | | $ | 4,428,005 | | | | | |
| | | | | |
Shares issued in reinvestment of distributions | | | 54,303 | | | | 111,670 | | | | | | | | 698,880 | | | | 1,323,290 | | | | | |
| | | | | |
Shares redeemed | | | (354,772 | ) | | | (31,593 | ) | | | | | | | (4,722,139 | ) | | | (398,456 | ) | | | | |
| | | | | |
Net increase (decrease) | | | (132,593 | ) | | | 421,423 | | | | | | | $ | (1,889,206 | ) | | $ | 5,352,839 | | | | | |
| | | | | |
| (a) | Amount is less than one share. |
| (b) | Amount is less than $.50. |
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 41 |
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
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.
Short Sale Risk—Short sales involve the risk that the Fund will incur a loss by subsequently buying a security at a higher price than the price at which it sold the security. The amount of such loss is theoretically unlimited, as it will be based on the increase in value of the security sold short. In contrast, the risk of loss from a long position is limited to the Fund’s investment in the security, because the price of the security cannot fall below zero. The Fund may not always be able to close out a short position on favorable terms.
Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in these companies may have additional risks because these companies may have limited product lines, markets or financial resources.
Active Trading Risk—The Fund expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to greatly exceed 100%. A higher rate of portfolio turnover increases
| | |
| |
| 42 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
transaction costs, which may negatively affect the Fund’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Fund shareholders.
IPO Risk—Securities purchased in an IPO may be subject to substantial price volatility due to one or more factors such as unseasoned trading in the securities, the lack of investor knowledge of the issuer, the lack of an operating history of the issuer, and the dependence of the issuer on key personnel, suppliers or a limited number of customers.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
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.
NOTE H
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the year ended June 30, 2020.
NOTE I
Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended June 30, 2020 and June 30, 2019 were as follows:
| | | | | | | | |
| | | 2020 | | | 2019 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 24,331,203 | | | $ | 79,103,340 | |
Net long-term capital gains | | | 15,473,909 | | | | – 0 | – |
| | | | | | | | |
Total taxable distributions paid | | $ | 39,805,112 | | | $ | 79,103,340 | |
| | | | | | | | |
As of June 30, 2020, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 9,518,266 | |
Undistributed capital gains | | | 5,714,645 | |
Unrealized appreciation/(depreciation) | | | 3,190,905 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 18,423,816 | |
| | | | |
| (a) | 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 swaps, and the tax deferral of losses on wash sales. |
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 June 30, 2020, the Fund did not have any capital loss carryforwards.
| | |
| |
| 44 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
During the current fiscal year, permanent differences primarily due to the utilization of earnings and profits distributed to shareholders on redemption of shares and contributions from the Adviser resulted in a net decrease in distributable earnings and a net increase in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 45 |
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | |
Net asset value, beginning of period | | | $ 12.54 | | | | $ 12.86 | | | | $ 12.28 | | | | $ 11.40 | | | | $ 11.77 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.04 | ) | | | (.00 | )(c) | | | (.04 | ) | | | (.09 | ) | | | (.11 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .42 | | | | .69 | | | | 1.26 | | | | .97 | | | | .12 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | .00 | (c) | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .38 | | | | .69 | | | | 1.22 | | | | .88 | | | | .01 | |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.44 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Net asset value, end of period | | | $ 12.48 | | | | $ 12.54 | | | | $ 12.86 | | | | $ 12.28 | | | | $ 11.40 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 3.11 | % | | | 5.93 | % | | | 10.10 | % | | | 7.72 | % | | | .02 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $83,866 | | | | $89,337 | | | | $92,102 | | | | $113,847 | | | | $166,015 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)(f)‡ | | | 1.91 | % | | | 1.91 | % | | | 1.88 | % | | | 2.11 | % | | | 2.29 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)(f)‡ | | | 1.94 | % | | | 1.94 | % | | | 1.94 | % | | | 2.18 | % | | | 2.30 | % |
| | | | | |
Net investment loss(b) | | | (.28 | )% | | | (.00 | )%(g) | | | (.30 | )% | | | (.77 | )% | | | (.98 | )% |
| | | | | |
Portfolio turnover rate (excluding securities sold short) | | | 191 | % | | | 253 | % | | | 291 | % | | | 295 | % | | | 329 | % |
| | | | | |
Portfolio turnover rate (including securities sold short) | | | 207 | % | | | 266 | % | | | 346 | % | | | 528 | % | | | 519 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .04 | % | | | .04 | % | | | .07 | % | | | .08 | % | | | .00 | % |
See footnote summary on page 52.
| | |
| |
| 46 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class C | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
Net asset value, beginning of period | | | $ 11.85 | | | | $ 12.30 | | | | $ 11.86 | | | | $ 11.09 | | | | $ 11.55 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.12 | ) | | | (.09 | ) | | | (.13 | ) | | | (.18 | ) | | | (.19 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .39 | | | | .65 | | | | 1.21 | | | | .95 | | | | .11 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | .00 | (c) | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | .27 | | | | .56 | | | | 1.08 | | | | .77 | | | | (.08 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
Distributions from net realized gain on investment transactions | | | (.44 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Net asset value, end of period | | | $ 11.68 | | | | $ 11.85 | | | | $ 12.30 | | | | $ 11.86 | | | | $ 11.09 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 2.25 | % | | | 5.11 | % | | | 9.34 | % | | | 6.94 | % | | | (.78 | ) % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $64,205 | | | | $86,097 | | | | $98,333 | | | | $111,027 | | | | $159,990 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)(f)‡ | | | 2.66 | % | | | 2.66 | % | | | 2.63 | % | | | 2.86 | % | | | 3.05 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)(f)‡ | | | 2.69 | % | | | 2.69 | % | | | 2.69 | % | | | 2.94 | % | | | 3.06 | % |
| | | | | |
Net investment loss(b) | | | (1.01 | )% | | | (.76 | )% | | | (1.05 | )% | | | (1.53 | )% | | | (1.73 | )% |
| | | | | |
Portfolio turnover rate (excluding securities sold short) | | | 191 | % | | | 253 | % | | | 291 | % | | | 295 | % | | | 329 | % |
| | | | | |
Portfolio turnover rate (including securities sold short) | | | 207 | % | | | 266 | % | | | 346 | % | | | 528 | % | | | 519 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .04 | % | | | .04 | % | | | .07 | % | | | .08 | % | | | .00 | % |
See footnote summary on page 52.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 47 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Advisor Class | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
Net asset value, beginning of period | | | $ 12.78 | | | | $ 13.06 | | | | $ 12.43 | | | | $ 11.51 | | | | $ 11.86 | |
| | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | (.00 | )(c) | | | .03 | | | | (.01 | ) | | | (.06 | ) | | | (.08 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .42 | | | | .70 | | | | 1.28 | | | | .98 | | | | .11 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | .00 | (c) | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .42 | | | | .73 | | | | 1.27 | | | | .92 | | | | .03 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.02 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.44 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Total dividends and distributions | | | (.46 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Net asset value, end of period | | | $ 12.74 | | | | $ 12.78 | | | | $ 13.06 | | | | $ 12.43 | | | | $ 11.51 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 3.27 | % | | | 6.24 | % | | | 10.39 | % | | | 7.99 | % | | | .27 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $876,972 | | | | $902,381 | | | | $762,575 | | | | $692,136 | | | | $816,563 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)(f)‡ | | | 1.66 | % | | | 1.66 | % | | | 1.64 | % | | | 1.86 | % | | | 2.05 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)(f)‡ | | | 1.69 | % | | | 1.69 | % | | | 1.69 | % | | | 1.94 | % | | | 2.06 | % |
| | | | | |
Net investment income (loss)(b) | | | (.03 | )% | | | .24 | % | | | (.04 | )% | | | (.53 | )% | | | (.73 | )% |
| | | | | |
Portfolio turnover rate (excluding securities sold short) | | | 191 | % | | | 253 | % | | | 291 | % | | | 295 | % | | | 329 | % |
| | | | | |
Portfolio turnover rate (including securities sold short) | | | 207 | % | | | 266 | % | | | 346 | % | | | 528 | % | | | 519 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .04 | % | | | .04 | % | | | .07 | % | | | .08 | % | | | .00 | % |
See footnote summary on page 52.
| | |
| |
| 48 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class R | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
Net asset value, beginning of period | | | $ 12.30 | | | | $ 12.67 | | | | $ 12.14 | | | | $ 11.30 | | | | $ 11.70 | |
| | | | |
Income From Investment
Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.06 | ) | | | (.03 | ) | | | (.07 | ) | | | (.13 | ) | | | (.14 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .40 | | | | .67 | | | | 1.24 | | | | .97 | | | | .12 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | .00 | (c) | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase (decrease) in net asset value from operations | | | .34 | | | | .64 | | | | 1.17 | | | | .84 | | | | (.02 | ) |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
Distributions from net realized gain on investment transactions | | | (.44 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Net asset value, end of period | | | $ 12.20 | | | | $ 12.30 | | | | $ 12.67 | | | | $ 12.14 | | | | $ 11.30 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 2.75 | % | | | 5.69 | % | | | 9.80 | % | | | 7.43 | % | | | (.25 | )% |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $213 | | | | $283 | | | | $455 | | | | $391 | | | | $698 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)(f)‡ | | | 2.16 | % | | | 2.16 | % | | | 2.15 | % | | | 2.44 | % | | | 2.54 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)(f)‡ | | | 2.20 | % | | | 2.34 | % | | | 2.38 | % | | | 2.56 | % | | | 2.55 | % |
| | | | | |
Net investment loss(b) | | | (.51 | )% | | | (.28 | )% | | | (.55 | )% | | | (1.09 | )% | | | (1.20 | )% |
| | | | | |
Portfolio turnover rate (excluding securities sold short) | | | 191 | % | | | 253 | % | | | 291 | % | | | 295 | % | | | 329 | % |
| | | | | |
Portfolio turnover rate (including securities sold short) | | | 207 | % | | | 266 | % | | | 346 | % | | | 528 | % | | | 519 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .04 | % | | | .04 | % | | | .07 | % | | | .08 | % | | | .00 | % |
See footnote summary on page 52.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 49 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class K | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
Net asset value, beginning of period | | | $ 12.54 | | | | $ 12.86 | | | | $ 12.28 | | | | $ 11.40 | | | | $ 11.78 | |
| | | | |
Income From Investment
Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment loss(a)(b) | | | (.04 | ) | | | (.00 | )(c) | | | (.04 | ) | | | (.10 | ) | | | (.11 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .42 | | | | .69 | | | | 1.26 | | | | .98 | | | | .11 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | .00 | (c) | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .38 | | | | .69 | | | | 1.22 | | | | .88 | | | | – 0 | – |
| | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.44 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $ 12.48 | | | | $ 12.54 | | | | $ 12.86 | | | | $ 12.28 | | | | $ 11.40 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 3.11 | % | | | 5.93 | % | | | 10.10 | % | | | 7.72 | % | | | .01 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $12 | | | | $13 | | | | $13 | | | | $12 | | | | $31 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)(f)‡ | | | 1.92 | % | | | 1.92 | % | | | 1.90 | % | | | 2.14 | % | | | 2.27 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)(f)‡ | | | 1.96 | % | | | 2.05 | % | | | 2.05 | % | | | 2.23 | % | | | 2.28 | % |
| | | | | |
Net investment loss(b) | | | (.31 | )% | | | (.02 | )% | | | (.32 | )% | | | (.83 | )% | | | (.94 | )% |
| | | | | |
Portfolio turnover rate (excluding securities sold short) | | | 191 | % | | | 253 | % | | | 291 | % | | | 295 | % | | | 329 | % |
| | | | | |
Portfolio turnover rate (including securities sold short) | | | 207 | % | | | 266 | % | | | 346 | % | | | 528 | % | | | 519 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .04 | % | | | .04 | % | | | .07 | % | | | .08 | % | | | .00 | % |
See footnote summary on page 52.
| | |
| |
| 50 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | Class I | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
Net asset value, beginning of period | | | $ 12.81 | | | | $ 13.09 | | | | $ 12.45 | | | | $ 11.52 | | | | $ 11.86 | |
| | | | |
Income From Investment
Operations | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income (loss)(a)(b) | | | .00 | (c) | | | .04 | | | | .00 | (c) | | | (.06 | ) | | | (.08 | ) |
| | | | | |
Net realized and unrealized gain on investment and foreign currency transactions | | | .44 | | | | .69 | | | | 1.28 | | | | .99 | | | | .12 | |
| | | | | |
Contributions from Affiliates | | | .00 | (c) | | | – 0 | – | | | .00 | (c) | | | – 0 | – | | | – 0 | – |
| | | | |
Net increase in net asset value from operations | | | .44 | | | | .73 | | | | 1.28 | | | | .93 | | | | .04 | |
| | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Dividends from net investment income | | | (.03 | ) | | | – 0 | – | | | – 0 | – | | | – 0 | – | | | – 0 | – |
| | | | | |
Distributions from net realized gain on investment transactions | | | (.44 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Total dividends and distributions | | | (.47 | ) | | | (1.01 | ) | | | (.64 | ) | | | – 0 | – | | | (.38 | ) |
| | | | |
Net asset value, end of period | | | $ 12.78 | | | | $ 12.81 | | | | $ 13.09 | | | | $ 12.45 | | | | $ 11.52 | |
| | | | |
| | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total investment return based on net asset value(d)* | | | 3.37 | % | | | 6.22 | % | | | 10.46 | % | | | 8.07 | % | | | .27 | % |
| | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of period (000’s omitted) | | | $16,674 | | | | $18,422 | | | | $13,299 | | | | $11,749 | | | | $12,724 | |
| | | | | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses, net of waivers/reimbursements(e)(f)‡ | | | 1.62 | % | | | 1.61 | % | | | 1.58 | % | | | 1.82 | % | | | 1.97 | % |
| | | | | |
Expenses, before waivers/reimbursements(e)(f)‡ | | | 1.66 | % | | | 1.65 | % | | | 1.64 | % | | | 1.90 | % | | | 1.98 | % |
| | | | | |
Net investment income (loss)(b) | | | .01 | % | | | .31 | % | | | .01 | % | | | (.49 | )% | | | (.67 | )% |
| | | | | |
Portfolio turnover rate (excluding securities sold short) | | | 191 | % | | | 253 | % | | | 291 | % | | | 295 | % | | | 329 | % |
| | | | | |
Portfolio turnover rate (including securities sold short) | | | 207 | % | | | 266 | % | | | 346 | % | | | 528 | % | | | 519 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying | |
portfolios | | | .04 | % | | | .04 | % | | | .07 | % | | | .08 | % | | | .00 | % |
See footnote summary on page 52.
| | |
| |
| abfunds.com | | AB SELECT US LONG/SHORT PORTFOLIO | 51 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| (a) | Based on average shares outstanding. |
| (b) | Net of expenses waived/reimbursed by the Adviser. |
| (c) | Amount is less than $.005. |
| (d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Initial sales charges or contingent deferred sales charges are not reflected in the calculation of total investment return. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized. |
| (e) | The expense ratios presented below exclude non- operating expenses: |
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
| | | | |
Class A | |
Net of waivers/reimbursements | | | 1.86 | % | | | 1.85 | % | | | 1.83 | % | | | 1.94 | % | | | 2.09 | % |
Before waivers/reimbursements | | | 1.89 | % | | | 1.89 | % | | | 1.88 | % | | | 2.01 | % | | | 2.09 | % |
Class C | |
Net of waivers/reimbursements | | | 2.60 | % | | | 2.60 | % | | | 2.58 | % | | | 2.69 | % | | | 2.84 | % |
Before waivers/reimbursements | | | 2.64 | % | | | 2.64 | % | | | 2.64 | % | | | 2.76 | % | | | 2.84 | % |
Advisor Class | |
Net of waivers/reimbursements | | | 1.61 | % | | | 1.61 | % | | | 1.58 | % | | | 1.68 | % | | | 1.84 | % |
Before waivers/reimbursements | | | 1.64 | % | | | 1.64 | % | | | 1.64 | % | | | 1.76 | % | | | 1.84 | % |
Class R | |
Net of waivers/reimbursements | | | 2.11 | % | | | 2.12 | % | | | 2.09 | % | | | 2.28 | % | | | 2.32 | % |
Before waivers/reimbursements | | | 2.15 | % | | | 2.29 | % | | | 2.33 | % | | | 2.40 | % | | | 2.32 | % |
Class K | |
Net of waivers/reimbursements | | | 1.87 | % | | | 1.86 | % | | | 1.84 | % | | | 1.98 | % | | | 2.05 | % |
Before waivers/reimbursements | | | 1.91 | % | | | 2.00 | % | | | 2.00 | % | | | 2.08 | % | | | 2.05 | % |
Class I | |
Net of waivers/reimbursements | | | 1.57 | % | | | 1.55 | % | | | 1.53 | % | | | 1.64 | % | | | 1.77 | % |
Before waivers/reimbursements | | | 1.61 | % | | | 1.59 | % | | | 1.59 | % | | | 1.72 | % | | | 1.77 | % |
| (f) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the years ended June 30, 2020, June 30, 2019, June 30, 2018 and June 30, 2017, such waiver amounted to .04%, .03%, .06% and .07%, respectively. |
| * | Includes the impact of proceeds received and credited to the Fund resulting from class action settlements, which enhanced the Fund’s performance for the year ended June 30, 2020 by .03%. |
See notes to financial statements.
| | |
| |
| 52 | AB SELECT US LONG/SHORT PORTFOLIO | | abfunds.com |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
AB Select US Long/Short Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Select US Long/Short Portfolio (the “Fund”) (one of the funds constituting AB Cap Fund, Inc. (the “Company”)), including the portfolio of investments, as of June 30, 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 five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting AB Cap Fund, Inc.) at June 30, 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB“) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (continued)
disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 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
August 26, 2020
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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 taxable year ended June 30, 2020. For corporate shareholders, 34.46% of dividends paid qualify for the dividends received deduction. For individual shareholders, the fund designates 35.12% of dividends paid as qualified dividend income.
Shareholders should not use the above information to prepare their income tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2021.
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BOARD OF DIRECTORS
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Marshall C. Turner, Jr.(1),
Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
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Kurt A. Feuerman(2), Vice President Anthony Nappo(2), Vice President Emilie D. Wrapp, Secretary Michael B. Reyes, Senior Analyst | | Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
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Custodian and Accounting Agent State Street Bank and Trust Company State Street Corporation CCB/5
1 Iron Street Boston, MA 02210 Principal Underwriter AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105 Legal Counsel Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004 | | Independent Registered Public Accounting Firm Ernst & Young LLP
5 Times Square
New York, NY 10036 Transfer Agent AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
Toll-Free (800) 221-5672 |
| 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 Select Equity Portfolios Investment Team. Messrs. Feuerman and Nappo are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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MANAGEMENT OF THE FUND
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD
BY DIRECTOR |
| INTERESTED DIRECTOR | | | | | | |
| | | |
Robert M. Keith,+ 1345 Avenue of the Americas New York, NY 10105 60 (2012) | | Senior Vice President of 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
| DISINTERESTED DIRECTORS | | | | | | |
| | | |
Marshall C. Turner, Jr.,# Chairman of the Board
78 (2012) | | Private Investor since prior to 2015. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of 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 such AB Funds since February 2014. | | | 78 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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Jorge A. Bermudez,# 69 (2020) | | Private investor since prior to 2015. 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. | | | 78 | | | Moody’s Corporation since April 2011 |
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Michael J. Downey,# 76 (2012) | | Private Investor since prior to 2015. Formerly, Chairman of The Asia Pacific Fund, Inc. (registered investment company) since prior to 2015 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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Nancy P. Jacklin,# 72 (2012) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
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Jeanette 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 a Director of the AB Funds since April 2020. | | | 78 | | | Apollo Investment Corp. (business development company) since August 2011 |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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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 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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Garry L. Moody,# 68 (2012) | | Private Investor since prior to 2015. 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. | | | 78 | | | None |
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MANAGEMENT OF THE FUND (continued)
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NAME, ADDRESS,* AGE AND (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
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Earl D. Weiner,# 81 (2012) | | 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. | | | 78 | | | None |
| * | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
| ** | There is no stated term of office for the Fund’s Directors. |
| *** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
| + | Mr. Keith is an “interested person”, as defined in the 1940 Act, of the Fund due to his position as a Senior Vice President of the Adviser. |
| # | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
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MANAGEMENT OF THE FUND (continued)
Officer Information
Certain information concerning the Fund’s Officers is listed below:
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NAME, ADDRESS* AND AGE | | POSITION(S) HELD WITH FUND | | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS |
Robert M. Keith, Jr.
60 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Kurt A. Feuerman
64 | | Vice President | | Senior Vice President and Chief Investment Officer – Select US Equity Portfolios of the Adviser**, with which he has been associated since prior to 2015. |
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Anthony Nappo
48 | | Vice President | | Senior Vice President, and Co-Chief Investment Officer – Select US Equity Portfolios of the Adviser**, since prior to 2015. |
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Emilie D. Wrapp
64 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2015. |
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Michael B. Reyes
44 | | Senior Analyst | | Vice President of the Adviser**, with which he has been associated since prior to 2015. |
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Joseph J. Mantineo
61 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2015. |
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Phyllis J. Clarke
59 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2015. |
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Vincent S. Noto
55 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since prior to 2015. |
| * | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at (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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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Cap Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Select US Long/Short Portfolio (the “Fund”) at a meeting held by video conference on May 5-7, 2020 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the money market fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business
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judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2018 and 2019 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of 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
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before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the money market fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended February 29, 2020 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser 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 paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and noted that it was above the median. The directors also took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
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The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to those of the Fund, on the other. The directors 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 shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the 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 may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, 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 would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
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The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the 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 expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains a breakpoint that reduces the fee rate on assets above a specified level. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and 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 Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed the 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
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond 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
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
| 1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB SELECT US LONG/SHORT PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
SULS-0151-0620 
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 and Marshall C. Turner, Jr. qualify as audit committee financial experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the independent registered public accounting firm Ernst & Young LLP, for the Fund’s last two fiscal years for professional services rendered for: (i) the audit of the Fund’s annual financial statements included in the Fund’s annual report to stockholders; (ii) assurance and related services that are reasonably related to the performance of the audit of the Fund’s financial statements and are not reported under (i), which include advice and education related to accounting and auditing issues and quarterly press release review (for those Funds which issue press releases), and preferred stock maintenance testing (for those Funds that issue preferred stock); and (iii) tax compliance, tax advice and tax return preparation.
| | | | | | | | | | | | | | | | |
| | | | | | Audit Fees | | | Audit - Related
Fees | | | Tax Fees | |
AB Select US Equity | | | 2019 | | | $ | 34,514 | | | $ | — | | | $ | 22,686 | |
| | | 2020 | | | $ | 34,514 | | | $ | — | | | $ | 21,085 | |
AB Select US Long/Short | | | 2019 | | | $ | 38,286 | | | $ | — | | | $ | 24,442 | |
| | | 2020 | | | $ | 38,286 | | | $ | — | | | $ | 22,695 | |
AB Concentrated Growth | | | 2019 | | | $ | 21,212 | | | $ | — | | | $ | 18,562 | |
| | | 2020 | | | $ | 21,212 | | | $ | — | | | $ | 20,321 | |
AB Concentrated International Growth | | | 2019 | | | $ | 25,735 | | | $ | — | | | $ | 21,698 | |
| | | 2020 | | | $ | 25,735 | | | $ | — | | | $ | 19,769 | |
AB Global Core Equity | | | 2019 | | | $ | 41,926 | | | $ | — | | | $ | 23,909 | |
| | | 2020 | | | $ | 41,926 | | | $ | 1,020 | | | $ | 21,687 | |
AB International Strategic Core | | | 2019 | | | $ | 44,953 | | | $ | — | | | $ | 29,268 | |
| | | 2020 | | | $ | 44,953 | | | $ | — | | | $ | 22,109 | |
(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 Select US Equity | | | 2019 | | | $ | 638,089 | | | $ | 22,686 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (22,686 | ) |
| | | 2020 | | | $ | 1,054,900 | | | $ | 21,085 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (21,085 | ) |
AB Select US Long/Short | | | 2019 | | | $ | 639,845 | | | $ | 24,442 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (24,442 | ) |
| | | 2020 | | | $ | 1,056,510 | | | $ | 22,695 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (22,695 | ) |
AB Concentrated Growth | | | 2019 | | | $ | 633,965 | | | $ | 18,562 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (18,562 | ) |
| | | 2020 | | | $ | 1,054,136 | | | $ | 20,321 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (20,321 | ) |
AB Concentrated International Growth | | | 2019 | | | $ | 637,101 | | | $ | 21,698 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (21,698 | ) |
| | | 2020 | | | $ | 1,053,584 | | | $ | 19,769 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (19,769 | ) |
AB Global Core Equity | | | 2019 | | | $ | 639,312 | | | $ | 23,909 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (23,909 | ) |
| | | 2020 | | | $ | 1,056,522 | | | $ | 22,707 | |
| | | | | | | | | | $ | (1,020 | ) |
| | | | | | | | | | $ | (21,687 | ) |
AB International Strategic Core | | | 2019 | | | $ | 644,671 | | | $ | 29,268 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (29,268 | ) |
| | | 2020 | | | $ | 1,055,924 | | | $ | 22,109 | |
| | | | | | | | | | $ | — | |
| | | | | | | | | | $ | (22,109 | ) |
(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-2(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 13. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
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 Cap Fund, Inc. |
| |
| By: | | /s/ Robert M. Keith |
| | Robert M. Keith |
| | President |
| |
| Date: | | August 28, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| By: | | /s/ Robert M. Keith |
| | Robert M. Keith |
| | President |
| |
| Date: | | August 28, 2020 |
| |
| By: | | /s/ Joseph J. Mantineo |
| | Joseph J. Mantineo |
| | Treasurer and Chief Financial Officer |
| |
| Date: | | August 28, 2020 |
